The Council of Ministers in its regular meeting on Friday.

Council Endorse Bill allowing foreign banks in Ethiopia

The council of Ministers has endorsed the draft banking business law that allows granting foreign banks with licenses to operate in Ethiopia.

The bill was approved by the Council today together with a revised National Bank of Ethiopia (NBE) establishment draft proclamation.

The decision comes nearly two years after the Prime Minister Abiy Ahmed’s cabinet adopted a policy to open the banking sector to foreign investors.

Ethiopia’s banking industry is dominated by state-owned Commercial Bank of Ethiopia, and the sector has 32 players in total, all of them locally owned.

The Central Bank has been making legislative changes necessary to implement the new policy and its plan to issue up to five banking licenses to foreign investors in the next five years.

This includes amending the Banking Business law which was a subject of the ministerial council discussions on Friday.

In a statement, the PM Office said the draft law was prepared in response to the recent economic and technological development of the global financial industry, in addition to the policy change.

It allows establishing legal framework and control mechanisms to issue banking licenses to foreign investors and administer its process, the PM Office added.

Per this law, foreign investors can invest in the banking business through opening foreign bank subsidiary, branch or investing in shares of existing domestic banks. Representatives of foreign banks will be under the regulatory umbrella of the National Bank.

The council eventually voted unanimously to endorse the draft law and send it to the parliament for ratification.

National Bank of Ethiopia Proclamation

In the same meeting, the council also deliberated on the draft law establishing the National Bank of Ethiopia (NBE).

The proclamation is being amended for the first time in sixteen years, the PM Office said, to address several gaps it has in terms of making the fiscal policy efficient, and making sure the central bank financially self-sufficient, among others.

The effort, NBE says, takes into account the current and future level of development and policy direction as well as the rapid technological advancement, international principles and best practices and experiences of peer Central Banks.

Among others, the proclamation gives the NBE an opportunity to set hierarchy to its monetary policy objectives and to choose appropriate monetary policy instruments to achieve its goals.

It defines the number, composition, tenor and eligibility criteria for NBE Board members; as well as the tenor and employment criteria for the Governor and Vice Governors.

it also defines the Bank’s relationship with the government particularly in terms of the amount of government borrowing and modalities of loan repayment.

It establishes a legal framework for introduction of central bank digital currency, as necessary, per the NBE.

This draft proclamation has also been referred to the parliament for further discussions and ratification.

Editors Note: the article has been updated to include additional information from the national bank of Ethiopia