LICENSING AND SUPERVISION OF BANKING BUSINESS

LIMITATIONS ON INVESTMENT OF BANKS DIRECTIVE NO. SBB/92/2024

Whereas, investment related activities of banks require sound and prudent practices to effectively manage risks;

Whereas, diversification of business activities and setting limits for investments are essential tools for risk management;

Whereas, there is a need to encourage investment in capital market service providers by banks and nurture the capital market in a manner that duly accounts bank’s risk exposure and ring-fencing of the banking business from the capital market operation;

Whereas, there is a need to ensure that banks focus on their core business which is debt financing and interest free banking operation managed at arm’s length;

Now, therefore, in accordance with sub article 1 and 2 of article 22 and article 06(2) of the Banking Business Proclamation No. 592/2008 as amended by Proclamation No.1159/2019, the National Bank of Ethiopia has issued this Directive.

1 Short Title

This Directive may be cited as “Limitation on Investment of Banks Directive No. SBB/92/2024”.

2 Definitions

For the purpose of this Directive:

• Bank refers to a private or state owned entity licensed by the National Bank to undertake banking business.
• Banking Business means the business of receiving or accepting money or its equivalent on deposit and lending out this money in order to earn a profit; transfer funds; the buying and selling of gold and silver bullion and foreign exchange; discounting and negotiation of promissory notes, bills of evidence and other evidence of debt, interest free banking business; and any other activity recognized as customary banking business in article 2(2) of Banking Business Proclamation No. 1066 where “Bank” and
• Capital Market Service Provider shall have the meaning provided under Capital Market Proclamation No. 248/2021.
• Financial Infrastructure refers to a set of institutions or systems that enable effective operation of financial intermediaries including such elements as payment and settlement systems, payment and credit information bureaus, collateral registries and other financial services systems as may be determined by the National Bank.
• Insurance Business refers to an undertaking by an�
• Insurer means a person that issues or agrees to issue an insurance policy or any debt, and
• 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.
• National Bank means the National Bank of 2
• Real Estate Acquisition and Development refers to the business of buying or developing property consisting of houses or other buildings, or leasing land and developing it to sell and generate revenue or profit.
• Restricted Investment Account means an account in which restrictions are placed by the
• Unrestricted Investment Account means an account in your own language, in which no restrictions are placed by the
• Person means natural or juridical person.

3 Scope of the Directive

This Directive shall be applicable to all banks operating in Ethiopia.

4 Limits on Investment and Financing of Banks

4.1 Permitted Investments

A bank may:

• hold equity shares in a single insurance company not exceeding 5% of the subscribed capital of the insurance company;
• acquire up to 100% equity shares in a capital market service provider, excluding credit rating agency, as per Capital Market Proclamation No. 1248/2021 and subject to prior approval of the National Bank;
• hold equity interest in financial infrastructure; or
• hold up to 10% equity shares in a single non-banking business other than insurance.

4.2 Prohibited Activities

Notwithstanding the provision of sub article 4.1 of this article, no bank shall directly:

• engage in insurance business;
• be a capital market service provider as provided under Capital Market Proclamation No. 1248/2021;
• engage in non-banking business or in businesses other than those indicated in sub-article 02(2) of this Directive;
• hold equity share in a credit rating agency.

4.3 Aggregate Limits

A bank’s aggregate equity investment in all non-banking businesses, including insurance companies and capital market service providers, shall not exceed 15% of its total capital.

4.4 Real Estate

No bank shall invest more than 10% of its total capital in real estate acquisition and development, other than for own business premises, without prior approval of the National Bank.

4.5 Interest Free Banking Business

Where a bank engages in interest free banking business, the National Bank Directive on Large Exposures to Counterparty or Group of Connected Counterparties Directive No. SBB/87/2024 shall apply to the National Bank.

1. Specific Requirements

A bank shall report any equity investment, except for investment in financial infrastructure and businesses related to interest free banking services (including but not limited to musharakah contract and sukuk investments), to the National Bank within 30 days from the date of decision to invest.

5 Specific Requirements

A bank shall report any equity investment, except for investment in financial infrastructure and businesses related to interest free banking services (including but not limited to musharak

6 Exception to Limitations

Prudential limits and restrictions of this Directive shall not apply to:

• interest free banking business funded by restricted investment account which shall take place in line with the interest of the holder of the fund in the account and/or un-restricted investment account;
• investments made prior to the effective date of this Directive, provided that such
• investments made prior to the7000 million Birr.