In less than three decade’s time, the National Bank of Ethiopia (NBE) has introduced the fourth minimum paid-up capital for the establishment of banks. Four banks have already met a new paid up capital requirement of five billion birr. Banks that are under formation are also asked to finalize their process in the coming six months to get a license.
When the banking business was opened for the private players under the proclamation for ‘providing the licensing and supervision of banking business’ that was issued on January 31, 1994 and that was followed by the directive that came in to force on May 15, 1994, there were no set minimum paid up capital.
While after the formation of Awash Bank, which started operation early 1995, NBE started imposing specific amounts of minimum capital for the establishment of banks. On its first directive, the requirement was 10 million birr minimum paid up capital and the amount was implemented until June 1999 with 7.5 fold increase. Besides Awash five more private banks, Dashen, Abyssinia, Wegagen, Hibret and Nib banks entered the banking business up until 1999.
Since 1999, the banking business has got more than ten banks, despite the revised directive making the startup capital to 75 million birr which was to be fully paid. The late entrants in the form of Debub Global and Enat banks that opened doors in 2012 and 2013 respectively experienced rise in the paid up capital threshold since as of Septem
ber 2011 NBE raised the minimum paid up capital by almost 6.7 folds to half a billion birr to be fulfilled by June 2016.
However, since then the market did not witness any new banks until recently. The aspiration of forming new banks resurfaced when the political reform was introduced bringing with it massive changes in the economy in general and in the banking industry in particular, for example like opening the sector for interest free banking and to the diaspora.
Early this week after a decade of the third revision of minimum capital and within 27 years for the fourth time, NBE has set five billion birr with tenfold increment from the preceding minimum amount.
Meanwhile, currently over 18 are under formation or on last stage to commence the business.
So far two interest free banks, Zamzam and Hijra and Goh Betoch banks have secured their license from NBE to start their business, while Ahadu and Amhara are on the process to get the green light.
Similarly, dozen other new coming banks in different forms are mobilizing shares. While experts predict that some of the under the process of share subscription may halt their activity or come with cooperation similar to other under formation banks. They reminded that before the third amendment in 2011, several organizers where under process to commence share mobilization to form banks but when the capital increased to 500 million birr most of them suspended their activity.
The revised NBE directive, that is, the ‘minimum capital requirement for banks directive no. SBB/78/2021’that entered into force as of April 12, stated that existing banks shall raise their paid up capital to five billion birr in five years’ time until June 30, 2026. It ordered banks to come up with an action plan for capital increase within 30 days.
While the under formation banks are required to comply with the new requirement within seven years after commencement of banking operation.
It added that banks in the process of share subscription, which succeeds to collect 500 million birr from founding shareholders, are asked to hold subscribers meeting and submit final application to the national bank within a maximum of six months after the effective date of the directive and will be permitted to get banking business license within a minimum of 500 million birr paid up capital. “However, such bank shall be required to comply with the five billion birr capital within seven years after they started operation.”
So far as per the NBE first quarter bulletin that reviewed the economy until September 30, 2020; Awash, Dashen, and Nib banks have already surpass the minimum paid up capital requirement set by NBE this week.
The NBE information indicated that as of September 30, Awash Bank’s paid up capital was 8.38 billion birr that was then followed by Dashen and Nib with 5.8 billion birr and 5.23 billion birr respectively.
The newly formed bank Amhara, which is yet to get a license from NBE, has a paid up capital of 6 billion birr placing it in second place after Awash on the paid up capital amount. Meanwhile, majority of the established banks including Awash and Dashen have already approved the capital increment earlier before the latest directive.