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NATIONAL BANK OF ETHIOPIA

V /GOV /FIS/O 16/2011 September 16, 2011

Attached

herewith

please find the NBE Directives 2011 and NBE Directives 2011 for information

No. SBB/50/20

11 which shall be effective as

of 19[h day of September of the 1 day of October

o. SBB/51 /20 1 1 which shall be effective as

and implementation.

RE. The Governor Chief Economist and V/Governor-Monetary V/Governor-Corporate Services Senior Governor's Advisor All Directorates & Deputy Directors National Bank of Ethiopia

Stability

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0115 514588

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ADDRESS: SUDAN STREET

r.O.BOX 5550 01'2048 FA-,(No. 0115 5145 8S TEL. t\o. +251-1-115 5174 30.A.DDISABAflA TELEGR.i\PHIC ADDRESS: Nil. T ION BAN K TELEX 21020 CODES-USED PETERSON 3'd & 4th ED BENTLEY'S 2nd PHRASE II..B,C. 6U1 EDITION
Website. www.http://www.nbe.gov.et

E-mail:

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ethionet.et

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NATIONAL

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BANK OF ETHIOPIA

TELEGRAPHIC NATION

ADRESS

PLEASE ADDRESS ANY REPLY TO P.O. BOX 5550

BANK

TELLEX 21020 CODES USED PETERSON 3 BENTLEY'S 2 A. B. C. 6

& 4

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ED.

nd

PH RASE

EDITION

Licensing and Supervision of Banking Business Minimum Capital Requirement for Banks Directives No. sBB/50/2011

WHEREAS, it has become necessary to raise the minimum capital required to establish a new bank so that the newly established bank can compete successfully with existing banks;

WHEREAS, it is known that as banks expand their business they must maintain a level of capital commensurate operational results; with the volume of their business to withstand adverse

NOW, THEREFORE,

in accordance with Articles 18(1) and 59(2) of Proclamation No.

592/2008, the National Bank of Ethiopia has issued these directives.

2. Definitions
For the purpose of these directives, unless the context provides otherwise:

2.1

"existing banks" refers to banks licensed by the National Bank of Ethiopia before the effective date of these directives;

2.2

"a bank under formation" means a banking share company under formation which fulfills all of the following as of the effective date of these directives: a) b) its capital has been fully subscribed, collected in cash from its founding shareholders a minimum capital of

Birr75 million (Birr seventy five million) and deposited in an existing bank in the name and to the account of the bank under formation, c) held its founding shareholders general meeting which elected board of

directors and approved articles and memorandum of associations, and d) submitted final application for banking business to the National Bank of Ethiopia.

These directives

shall be applicable

to existing banks and applicants

for new

banking business including those under formation.

4. Minimum Paid-up Capital 4.1 The minimum paid up capital required to obtain a banking business license shall be Birr 500 million (birr five hundred million), which shall be fully paid in cash and deposited in a bank in the name and to the account of the bank under establishment. 4.2 Existing banks whose paid up capital is below Birr 500 million (birr five

hundred million) shall raise their paid-up capital to the said amount by June 30, 2016. Such banks are required to submit action plan for capital increase to the National Bank
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4.3

Banks under formation are required to comply with sub article 1 of this article within five years after commencement of banking operation.

4.4

Notwithstanding

the provisions of sub-article 2 of this article, all licensed

banks shall at a minimum maintain capital to risk weighted assets ratio of 8% at all times.

If a licensed bank fails to comply with the minimum paid up

capital requirements

specified under article 4 of these directives, the National Bank of Ethiopia may: 5.1 Prohibit such bank from accepting new deposits, underwriting new loans and conducting corrected; 5.2 5.3 5.4 Require such bank to merge with another bank; Close such bank; or Take any other measures it considers fit. international banking business until the deficiency in capital is

6. Repeal Minimum paid up capital to be maintained by banks Directives Number

SBB/24/99 is hereby repealed and replaced by these Directives.

7. Effective Date These Directives shall enter into force as of 19th day of September 2011.

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LICENSING AND SUPERVISION OF BANKING BUSINESS Directives to Authorize the Business of Interest Free Banking

WHEREAS there has been increasingly strong public demand for interest free banking products in Ethiopia; WHEREAS supply of such products by banks has to be carried out in a safe and sound manner; WHEREAS there has been lack of regulatory banking business; framework for interest free

NOW, THEREFORE, in accordance with Article 22(2) of Banking Business Proclamation Number 592/2008, the National Bank of Ethiopia hereby issues these directives.

These directives may be cited as "Directives Interest Free Banking No. SBBI 5112011"

to Authorize

the Business of

2.1 2.2

"bank" means a company licensed by the National Bank to undertake banking business or a bank owned by the Government; "interest free banking business" refers to banking business in which mobilizing or advancing funds is undertaken in a manner consistent with

Islamic finance principles and mode of operation that avoids receiving or paying interest; 2.3 "interest free banking window" refers to a unit within a conventional bank exclusively offering interest free banking services; and 2.4 "National Bank" means the National Bank of Ethiopia.

Provisions of these directives shall apply to all banks in Ethiopia engaged in interest free banking business.

4.1 A bank shall obtain a written authorization from the National Bank to carry on interest free banking business. 4.2 A bank which wishes to obtain an authorization to carry on interest free banking business shall submit a duly completed application in the prescribed format together with documents specified below: a) a report on resource mobilization and use; b) planned balance sheet structure for interest free window and the whole bank; c) maximum share of planned interest free business in total consolidated balance sheet of the bank; d) risk management framework for all interest free banking products; e) a statement on availability of adequate capacity and facilities to run interest free banking business; f) accounting aspects, such as accounting policies to be followed and profit and loss sharing mechanisms; g) evidence of financial strength as reflected in capital adequacy, asset quality, earnings capability, future earnings prospects, and current liquidity position and forecast for the next 12 months; h) track records of adherence to prudential regulations, credit discipline, quality of customer services; i) a statement on the convenience as well as the needs of the population of the area to be served by interest free banking services; j) methods of segregating the funds of interest free banking businesses from all other business; and k) such other information as required by the National Bank while processing the application. 4.3 The National Bank shall evaluate the application submitted by a bank in view of risk management, Banking Business Proclamation, applicable

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it as well as other rules and regulations; and upon its

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satisfaction, may authorize the applicant to open an interest free banking window.

5.1

5.2

Banks shall not alter maximum share of interest free banking business in their consolidated balance sheet without prior approval of the National Bank. Failure to comply with sub-article 1 of this article may result in the closure of interest free banking window.

6.1 6.2

keep separate books of accounts in respect of interest free banking operations and ensure proper maintenance of records for all transactions for segregation of funds. report their interest free banking business activities every month to the National Bank.

7.1

7.2

In conducting interest free banking business, banks shall comply mutatis mutandis with all regulatory and supervisory requirements except National Bank's directives on interest rate. Equity participation in a project or a company shall be in strict compliance with" limitation on Investment of Banks Directives No. 8BB/12/96".

These Directives shall enter into force as of the 1st day of October 2011.