The NBE approves investment licensing for commercial banks as the ESX launch approaches.

Central Bank Governor Mamo Mihretu has authorized commercial banks to invest in capital market service providers, allowing them to fully own investment banking ventures. This decision coincides with the announcement that the Ethiopian Securities Exchange (ESX) is nearing operational status.

A directive from the National Bank of Ethiopia (NBE) issued on July 19, 2024, permits commercial banks to acquire up to 100 percent of equity shares in capital market service providers, excluding credit rating agencies. However, the directive restricts bank equity ownership in non-banking businesses (excluding investment banking) to 10 percent, and to five percent in insurance companies.

The total equity investments by a commercial bank in non-bank businesses, including capital market service providers and insurance firms, are capped at 15 percent of the bank’s own capital. Additionally, the Governor has imposed a limit on banks’ real estate acquisitions, other than for their own operational needs, at 10 percent of capital.

This NBE directive follows a recent directive from the Ethiopian Capital Markets Authority (ECMA), which facilitates the use of the Ethiopian Securities Exchange for the trading of shares and bonds. The Authority’s directive, titled ‘Directive on Licensing, Operation, and Supervision of Securities Exchanges, Derivatives Exchanges, and the Over-the-Counter Market,’ establishes the necessary requirements and regulatory framework for the ESX's operation.

According to the directive, "This directive unifies the previously fragmented securities trading in Ethiopia into a single, licensed, and regulated market, thereby enhancing the sector's contribution to stakeholders and the national economy. It also grants an exchange license to pave the way for the Ethiopian Securities Exchange S.C. to commence operations."

Earlier this year, ESX concluded its share offering, successfully raising over 1.5 billion birr from 48 investors, including 16 of the country's commercial banks and 12 insurers. Additionally, three foreign investors—the Trade and Development Bank (TDB), FSD Africa, and the Nigeria Exchange Group (NGX)—have acquired stakes in the forthcoming capital market.

source: the reporter ethiopia