Source: Ethiopian reporter Amharic News. Translation: Apex Business Consultancy
The National Bank of Ethiopia’s Banking Proclamation, which was submitted to the Council of Ministers last Friday, June 7, 2016, contains new provisions. Although there are many new articles included in the amendment of this decree, the provisions that allow the merger of banks and foreign banks to enter the Ethiopian market are the main ones to be mentioned..
Among the major provisions included in the proposed bill, one that outlines the manner in which banks can be merged. The provision, which begins by stating that a bank shall not voluntarily enter into a merger without obtaining the written approval of the National Bank, also explains in detail the reasons/need for a merger law.
It stated that the National Bank may authorize a statutory merger to rescue a troubled bank or create a more viable and strong bank, and may approve the purchase of a domestic bank by a foreign bank or another domestic bank under special circumstances to ensure the stability of the financial system.
It also states that bank mergers and acquisitions carried out by the decision of the National Bank shall be based on the soundness of the bank, the stability of the financial system, financial services and the rights and needs of consumers, financial provision, competition and efficiency in the banking system, as well as the limit of shareholding and the relevant guidelines of the National Bank.
In the draft that describes the way of merger and acquisition of banks, it says, “Any merger or acquisition proposal shall be decided by a special general assembly of banks.” He pointed out that the implementation and details of this provision will be determined by the National Bank’s guidelines. He also mentioned that relevant government bodies have the responsibility to cooperate with the National Bank and relevant banks for any merger or acquisition to be successful.
It is also included in the draft decree that the minimum conditions and requirements for merger and acquisition transactions are determined by a directive issued by the National Bank. In addition, the transfer of a significant share of ownership, any share transfer or purchase that brings a significant ownership right in the bank must be approved by the National Bank before being registered in the stock register.
He also mentioned that the National Bank has the authority to reject any proposal to make a significant change of ownership or to prevent the exercise of voting rights on these investments.
It states that substantial transfer of ownership based on false information will not be valid, and minimum conditions and requirements for transfer of substantial ownership will be determined by the guidelines issued by the National Bank.
Regarding the transfer of assets and liabilities, it is mentioned that banks cannot transfer assets and liabilities to another bank, and they cannot enter into any agreement to sell or dispose of the business without the written permission of the National Bank, except in the normal course of business.
“The transfer of assets and liabilities will not be allowed if it is believed that the national bank will harm the soundness of the private banks involved in the transfer, the safety of financial services, the interests of consumers and the stability of the financial system,” the draft decree said.
The explanation of the importance of the bill indicates that it is useful to change the current strong view that the banks in the industry should join the merger. In addition, the bill states that it has taken into consideration the merger and integration with foreign banks. As it has been said that local banks should merge to become a strong competitor, especially in relation to the entry of foreign banks, one of the reasons why the National Bank has prepared a new draft to amend the Banking Act to include the article regarding merger is because it is not believed that some banks will be competitive unless they are merged, even if it is mandatory. are there.
According to a financial expert who commented on the same issue, the current law indicates that the National Bank should have a paid-up capital of five billion birr to establish a bank. Considering the current purchasing power of money and the expected competition in the future, there is an assumption that it can increase the amount of capital to establish a bank, since many banks will find it difficult to meet the capital of more than five billion birr.
Another new provision that the National Bank has included in the banking reform decree is the provision regarding the eligibility of foreign banks. It states that foreign banks wishing to enter Ethiopia must have a good reputation and financial capacity, and they can enter by opening a partially or fully owned foreign bank branch or representative office. It also allows them to buy shares in local banks.
He mentions that in addition to foreign banks and Ethiopian companies located abroad, foreigners can hold shares in a bank located in Ethiopia.
The shareholding of strategic investors in an existing or new domestic bank shall be up to thirty percent of the bank’s total registered shares. The draft indicates that non-strategic foreign investors and foreign legal entities can hold only five percent and ten percent of shares in a bank in Ethiopia respectively.
However, he pointed out that foreign nationals and companies owned by Ethiopians living abroad can hold up to 40 percent of the bank’s total shares.
In spite of such investment restrictions, the National Bank of Ethiopia may follow special procedures to ensure the strategic benefit of the economy or to solve the problem of a bank in crisis and maintain financial stability. The draft decree states that, apart from the prerequisites, the capacity and strength of the foreign banks entering, as well as their reputation and financial capacity, may be seen, and there may be a possibility that they can partially or fully buy local banks.
The draft decree indicates that foreign nationals and Ethiopian organizations established abroad as well as banks wholly owned by foreigners can invest in Ethiopia in foreign currency.
Subject to this provision, companies that are partially owned by foreigners and owned by Ethiopians living abroad can generally invest the amount of shares in foreign currency using foreign direct investment.
However, a provision has been included in the draft decree stating that foreign nationals and foreign Ethiopian organizations can reinvest their profits in Ethiopian Birr at the end of each fiscal year.
The draft indicates that the profit share of foreign nationals through bank investment and the salary of foreign workers and the income from stock sales or bank fees are determined by the National Bank’s guidelines and other relevant laws.
It also allows foreign Ethiopian companies that are wholly or partially owned by foreign nationals to repatriate any income that was originally paid in foreign currency.
It states that a foreign bank agent or branch of a foreign bank entering Ethiopia may have property for the purpose of banking, and the ownership of other properties, including seized properties, shall be determined according to the relevant laws of the country.
