Banks To Venture Into Real Estate, Capital Markets Under New Directive
Commercial banks in Ethiopia can now acquire equity shares in capital market service providers, excluding credit rating agencies, and can invest in the real estate sector and hold equity in a single insurance company, with prior approval from the central bank. This change, part of a new directive by Central Bank Governor Mamo Mehiretu effective July 19, 2024, aims to reform the financial sector by enhancing risk management and capital market development while ensuring banks focus on core functions.
The directive restricts banks from certain activities, such as engaging in insurance businesses, serving as capital market service providers, and holding equity in credit rating agencies. It also caps banks' aggregate equity investment in non-banking businesses at 15% of their total capital, and real estate investments at 10%, with exceptions requiring central bank approval.
The new rules mandate interest-free banking and require banks to report equity investments to the National Bank of Ethiopia (NBE) within 30 days, develop comprehensive investment policies, and comply with risk management guidelines.
Berhan Bank, despite its growth, remains cautious due to not meeting the central bank’s capital threshold. The directive allows exceptions for investments funded by restricted accounts or made before its effective date.
The launch of Ethiopia's capital market is imminent, driven by the Ethiopian Capital Market Authority (ECMA). Governor Mamo's reforms aim to modernize the financial sector, promote stability, and ensure banks focus on core banking operations, fostering sustainable growth and resilience.
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