The National Bank of Ethiopia (NBE) has indicated that while the banking sector is reopening to international competitors, domestic banks will maintain a dominant position.
On Tuesday, December 17, 2024, Parliament made a significant decision to limit government financing from the NBE and to allow foreign firms back into the banking sector.
“After extensive discussions, processes, and debates, we have reached this point. With the amendment of the two proclamations, it marks a significant milestone for us,” stated NBE Governor Mamo Esmelealem Mihretu.
He mentioned to Capital that the NBE founding proclamation is a vital piece of legislation that will tackle several past issues, as it will clarify NBE’s mission and strategy.
“The new proclamation aligns the central bank with other similar institutions in terms of governance, structure, vision, cooperation, and capital,” Mamo added.
He described this development as a historic step for Ethiopia’s financial industry, granting enhanced authority to effectively regulate the sector.
According to Mamo, the banking business proclamation has provided the regulatory body with additional jurisdiction and resolution authority, while also opening the financial sector to foreign companies.
“It has outlined the process for addressing crises at individual banks,” he noted.
While the proclamation mentions the establishment of new banks, the governor indicated that a forthcoming directive will impose further licensing criteria.
“We believe that through cooperation, the new proclamation will strengthen domestic banks,” he stated.
He also informed Capital that the banking business declaration, which will be supported by various rules and directives, aims to address merger and acquisition issues.
“It is true that unless foreign banks introduce new business practices and products, the Ethiopian financial industry will remain dominated by domestic institutions,” Mamo asserted.
He emphasized that the main focus for both proclamations in the near future will be the implementation of supporting laws.
According to the new NBE establishment proclamation, individuals who use cryptocurrency or other digital currencies for payments without NBE approval could face up to three years in prison.
Furthermore, the proclamation includes penalties for violators, with a maximum sentence of three years for those who fail to comply with the new laws.
Desalegn Wedajo, chair of the parliament’s Plan, Budget, and Finance Standing Committee, explained that a new subarticle was introduced to penalize individuals who misapply laws related to the forex market.
A new transitional clause requiring the government to repay any loans received from the central bank was added to the proclamation.
The NBE is authorized to provide temporary overdraft facilities to the central government, which shall not exceed fifteen percent of the average annual domestic revenue of the general government from the previous three fiscal years.
Although this provision is not new, it was revoked in the 591 proclamation issued 17 years ago.
