National Bank of Ethiopia Permits Banks to Invest in and Establish Subsidiary Capital Market Service Providers

The National Bank of Ethiopia (NBE) has issued a new directive, effective immediately, that significantly changes the investment landscape for banks in the country. Directive No. SBB/92/2024, which replaces the previous Directive No. SBB/65/2017, outlines new regulations regarding bank investments to enhance the capital market ecosystem.

Bank Investments in Subsidiaries: Banks are now permitted to invest in and establish subsidiary capital market service providers, including investment banks, to boost the capital market ecosystem.
Investment Limits:
- Insurance Companies: Banks can hold up to 5% equity in a single insurance company.
- Capital Market Service Providers: Banks can acquire up to 100% equity in these providers, excluding credit rating agencies, with prior approval from the NBE.
- Non-Banking Businesses: Banks can hold up to 10% equity in a single non-banking business, other than insurance.
- Aggregate Investments: A bank’s total equity investment in all non-bank businesses, including insurance and capital market service providers, is capped at 15% of its total capital.
- Prohibited Activities: Banks are prohibited from directly engaging in insurance business, acting as capital market service providers, or holding equity in credit rating agencies.
- Real Estate Investments: Banks cannot invest more than 10% of their total capital in real estate, aside from their own business premises, without prior approval from the NBE.
Interest-Free Banking Activities: The directive stipulates that the regulations on large exposures to counterparties also apply to interest-free banking activities.
Reporting Requirements: Banks are required to report any equity investments, excluding those in financial infrastructure and interest-free banking services, to the NBE within 30 working days.
Waivers: The NBE retains the discretion to waive the 15% investment limit in non-bank businesses if deemed necessary.

This new directive aims to provide a more robust framework for bank investments, fostering the development of Ethiopia’s financial market infrastructure and ensuring greater regulatory oversight.