Curtains close on minimum capital requirements

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(Photo: Anteneh Aklilu)

The deadline for under formation banks to come up to apply for the license with half a billion birr capital has come to an end starting from Tuesday October 12, whereas there were handful promoters forming new financial firms. National Bank of Ethiopia (NBE) reaffirms again that there will not be extensions regarding the deadline.
It was recalled that National Bank of Ethiopia (NBE) revised a decade old ‘minimum capital requirement for banks’ under directive SBB/78/2021.
On the new directive NBE, financial industry supervisory body, stated that existing banks shall raise their paid up capital to five billion birr, which is tenfold increment from the preceding minimum amount, in five years’ time until June 30, 2026, and it ordered banks to come up with an action plan for capital increase within 30 days, which means until May 12 of 2021. While the under formation banks are required to comply with the new requirement within seven years after commencement of banking operation.
So far about 7 operational banks and one on the final stage to open its door have already reached the five billion birr paid up capital.
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 September 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.
Experts on the sector said that banks shall easily meet the requirement in the given period of time since the value of the birr has sharply declined.
The directive has given a room for newly established financial firms to come up with the oldest 500 million birr paid capital in a half year time.
The directive that is the fourth amended on capital requirement stated 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.”
Now the deadline has reached and will end a day after tomorrow with only one bank meeting the criteria filing its request to NBE.
However there are about five more new banks which received or are waiting for their operational license from NBE.
A promoter of one of the under formation banks told Capital that meanwhile a bank that he and his partners were on the process to form tried to collect some amount of capital but were unable to reach on the minimum amount of half billion birr. “If we may have more extension on the deadline the amount shall be filled,” he said.
In different occasion, Yinager Dessie, Governor of NBE, strongly stated that the regulatory body would not give additional period against the directive and he called organizers of new banks to run behind the timeframe.
“When we see the NBE strong stand we decided to halt our activity to sale share,” one of the new banks promoter told Capital, “we will call those who buy the share to pass decision. The decision would be to return their money or invest the resource on other sector.”
On Friday October 8, Frezer Ayalew, Director of Bank Supervision NBE, responded to Capital’s question through text message by saying, “As to my knowledge, I have no information about the decision to extend the deadline.”

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