Interest Free Banking DOWNLOAD (PDF)
Directives Number SBB/51/2011
WHEREAS there has been increasingly strong public demand for interest free banking products in Ethiopia;
WHEREAS supply of such products by banks has to be carried out in a safe and sound manner;
WHEREAS there has been lack of regulatory framework for interest free banking business;
NOW, THEREFORE, in accordance with Article 22(2) of Banking Business Proclamation Number 592/2008, the National Bank of Ethiopia hereby issues these directives.
1. Short Title
These directives may be cited as “Directives to Authorize the Business of Interest Free Banking No. SBB/ 51/2011”
For the purpose of these directives, unless the context provides otherwise:
2.1“bank” means a company licensed by the National Bank to undertake banking business or a bank owned by the Government;
2.2“interest free banking business” refers to banking business in which mobilizing or advancing funds is undertaken in a manner consistent with Islamic finance principles and mode of operation that avoids receiving or paying interest;
2.3“interest free banking window” refers to a unit within a conventional bank exclusively offering interest free banking services; and
2.4“National Bank” means the National Bank of Ethiopia.
Provisions of these directives shall apply to all banks in Ethiopia engaged in interest free banking business.
4.1 A bank shall obtain a written authorization from the National Bank to carry on interest free banking business.
4.2 A bank which wishes to obtain an authorization to carry on interest free banking business shall submit a duly completed application in the prescribed format together with documents specified below:
a)a report on resource mobilization and use;
b)planned balance sheet structure for interest free window and the whole bank;
c)maximum share of planned interest free business in total consolidated balance sheet of the bank;
d)risk management framework for all interest free banking products;
e)a statement on availability of adequate capacity and facilities to run interest free banking business;
f) accounting aspects, such as accounting policies to be followed and profit and loss sharing mechanisms;
g)evidence of financial strength as reflected in capital adequacy, asset quality, earnings capability, future earnings prospects, and current liquidity position and forecast for the next 12 months;
h) track records of adherence to prudential regulations, credit discipline, quality of customer services ;
i) a statement on the convenience as well as the needs of the population of the area to be served by interest free banking services;
j) methods of segregating the funds of interest free banking businesses from all other business ; and
k) such other information as required by the National Bank while processing the application.
4.3The National Bank shall evaluate the application submitted by a bank in view of risk management, Banking Business Proclamation, applicable directives issued by it as well as other rules and regulations; and upon its satisfaction, may authorize the applicant to open an interest free banking window.
5.1Banks shall not alter maximum share of interest free banking business in their consolidated balance sheet without prior approval of the National Bank.
5.2Failure to comply with sub-article 1 of this article may result in the closure of interest free banking window.
6. Maintenance of Accounts and Financial Statements
Banks engaged in interest free banking business shall:
6.1keep separate books of accounts in respect of interest free banking operations and ensure proper maintenance of records for all transactions for segregation of funds.
6.2report their interest free banking business activities every month to the National Bank.
7. Compliance with Regulatory and Supervisory Requirement
7.1In conducting interest free banking business, banks shall comply mutatis mutandis with all regulatory and supervisory requirements except National Bank’s directives on interest rate.
7.2 Equity participation in a project or a company shall be in strict compliance with “ limitation on Investment of Banks Directives No. SBB/12/96’’.
These Directives shall enter into force as of the 1st day of October 2011.
ASSET CLASSIFICATION AND PROVISIONING FOR DEVELOPMENT FINANCE INSTITUTIONS Directives No. SBB/ 48/2010
Directives No. SBB/ 48/2010 DOWNLOAD (PDF)
ASSET CLASSIFICATION AND PROVISIONING FOR DEVELOPMENT FINANCE INSTITUTIONS
1. Issuing Authority
These Directives are issued by the National Bank of Ethiopia pursuant to the authority vested in it by articles 21 and 22 of Banking Business Proclamation No. 592/2008.
2. Short Title
These Directives may be cited as “Asset Classification and Provisioning for
Development Finance Institutions Directives No. SBB/ 48/2010”.
The purpose of these Directives is to provide guidelines to development finance institutions to assure that:
3.1loans are regularly reviewed and prudently classified in a manner that appropriately reflect credit risk;
3.2loans which are not performing in accordance with contractual repayment terms are timely recognized and reported as past due ;
3.3accrued but uncollected interest on loans is properly accounted for; and
3.4timely and adequate provisions are made to the “Provisions for Loan Losses Account” in order to ensure that disclosed capital and earnings performance are accurately stated. Continue reading →
Directive No. SBB/40/2006 AMENDMENT OF BRANCH OPENING
1. Issuing Authority
These Directives are issued by the National Bank of Ethiopia pursuant to the authority vested in it by Article 41 of the Monetary and Banking Proclamation No. 83/1994 and Article 5(4) of the Licensing and Supervision of Banking Business Proclamation No. 84/1994.
For the purpose of this directive the term:
2.1 “The Bank” shall mean National Bank of Ethiopia;
2.2 “Branch” shall mean any place of business at which deposits are received or cheques are paid out or money is lent and other banking business as defined in article 2(2) of Proclamation number 84/1994 is solicited.
A bank shall obtain prior authorization from the Bank to open a branch office.
A bank planning to open a branch shall submit a duly completed application attached to these directives together with a covering letter to the Bank and shall pay the fee indicated under article 6 of these directives.
A bank authorized to open a branch shall open the said branch and commence operation within 6(six) months from the date of the grant of authorization.
A bank authorized to open a branch shall notify the Bank the date it plans to commence operation in the new branch 15 (fifteen) days before the planned date of commencement of operation.
Before commencing operation a bank authorized to open a branch shall fulfill the following:
Ensure that the bank’s relevant policy and procedure manuals, and NBE directives are distributed to appropriate staff members of the branch to be opened;
Ensure that the branch is adequately guarded;
Display in a visible area of the branch working hours, copy of the bank’s license and branch authorization;
Ensure that the banking hall and staff operating area are suitable for the type of business to be undertaken in the premises housing the branch including but not limited to:
Proper ventilation and circulation of fresh air;
Suitable and clean sanitary service;
Sufficient and suitable lighting;
Cashiers’ Till, access to which is restricted to authorized persons.
Ensure that the branch has appropriate strong room or safe/vault;
Place fire extinguishers in appropriate area;
Have insurance policy at least for the following:
Fire and other perils, Burglary and theft, Fidelity, Cash and valuable in premises and transit,
Ensure that outer doors of the building housing the branch are of heavy duty metal;
Ensure that all windows and glass walls of the building housing the branch are
reinforced with metal grills;
Obligation of the Bank
The Bank shall give a written response within five working days from the date of receipt of the application.
5. Scope of Application
5.1 Requirements set under sub-article 3.5 herein above shall be applicable on new branches as well as branches opened before the effective date of these Directives.
5.2 Branches opened before the effective date of these Directives shall fulfill
requirements under sub-article 3.5 herein above latest by June 30, 2007.
A bank applying to open a branch shall pay an investigation fee of Birr 500 (Birr five hundred) for each branch.
No bank shall relocate its branch without prior notification and approval by the Bank.
Directives No. SBB/22/1996 are hereby repealed and replaced by these directives.
9. Effective Date
These Directives shall enter into force as of the 8th day of May 2006.
Directive No. SBB/41/2007 Transfer Duties and Responsibilities Related to Establishment and Operation of Export Credit Guarantee Scheme from the National Bank of Ethiopia
Whereas, national exporters need to compete on an equal footing with other exporters in increasingly competitive foreign markets and satisfy foreign buyers’ requirements;
Whereas, it is necessary that exporters with bona-fide export orders should not lose the export opportunity due to inability to get bank credit;
Whereas, operation of enhanced export credit guarantee schemes has been found to be supportive of the export sector by availing the necessary financial resources from banks for pre and post-shipment of exports;
Whereas, export credit guarantee schemes have proved to be necessary vehicles to facilitate exporters’ access to bank credit;
Whereas, the Government of Federal Democratic Republic of Ethiopia has decided to transfer duties and responsibilities related to establishment and operation of export credit guarantee scheme from National Bank of Ethiopia to Development Bank of Ethiopia;
Now, therefore, in accordance with Articles 6 and 61 of the Monetary and Banking Proclamation No. 83/1994, the National Bank of Ethiopia hereby issues these directives.
For the purpose of these directives, unless the context provides otherwise:
“The Bank” shall mean National Bank of Ethiopia;
“Guarantor” shall mean Development Bank of Ethiopia;
“Financing Banks” are licensed commercial banks (excluding Development Bank of Ethiopia) in Ethiopia;
“Bankable Export Project” shall mean a project appraised by financing banks in line with their applicable credit policy and procedures and found within acceptable risk level by the Guarantor;
“Export” is non-coffee export;
“Export Credit Guarantee” shall mean a guarantee provided by the Guarantor to safeguard export financing banks against losses resulting from the export transactions they finance;
“Exporter” is a person engaged in non-coffee exports;
“Existing Exporters” shall mean exporters who have been engaged in export business for at least 12 months prior to the date of application for export loan under export credit guarantee scheme who can produce evidence of receipt of export proceeds over those months;
“New Exporters” shall mean exporters who have been engaged in export business for less than 12 months at the time of applying for export loan under export credit guarantee scheme;
“Fund” is a special fund created by the Guarantor for financing guarantee
settlements under Export Credit Guarantee Scheme;
“Outstanding Active Export Credit Guarantees” shall mean guarantees issued by the Bank to financing banks, which on the effective date of these directives (i) have not expired or (ii) original due dates have expired but extended by the Bank and not yet due;
“Outstanding Inactive Export Credit Guarantees” shall mean export credit guarantees issued by the Bank before the effective date of these directives which have been (i)
claimed by financing banks, or (ii) claimed by financing banks and disputed, or (iii) settled by the Bank and under litigation or transferred to Legal Services Department of the Bank for litigation;
1.13 “Perishable Export Commodities” shall mean export commodities subject to significant deterioration in quality or spoilage or decay, such as fruits, vegetables, molasses, unpreserved meat, flowers, live animals and other commodities as determined by the Bank;
1.14 “Pre-Shipment Export Credit Guarantee” is a guarantee provided by the
Guarantor up to a maximum of 365 days to financing banks to cover pre-shipment export loan extended to exporters;
1.15 “Post-Shipment Export Credit Guarantee” is a guarantee provided by the
Guarantor up to a maximum of 180 days to financing banks to cover post-shipment export loan extended to exporters.
Exporters shall satisfy all of the following in order to be considered eligible for export credit guarantee:
The export project to be financed under the export credit guarantee scheme shall be bankable;
Exporters shall not carry “loss” category loans, as defined in the Bank’s Directives on Provisioning, owed to any bank in Ethiopia;
Exporters shall present a bona-fide order from a foreign buyer;
Exporters shall produce evidence of a valid investment certificate and/or trade license;
New exporters shall:
produce property or other collateral equivalent to at least 40% for producer exporters and 50% for other exporters of the amount of the loan requested;
produce evidence that all proceeds from non-perishable goods to be exported shall be paid through irrevocable letter of credit; however, no letter of credit shall be required for perishable export commodities;
Existing exporters shall produce from local banks documentary evidence about receipt of export proceeds in the 12 months preceding the date of application for export loan under export credit guarantee scheme;
Exporters shall submit all documents required by financing banks to conduct their normal credit risk analysis.
Financing banks may approve pre-shipment or post-shipment credit to exporters upon fulfillment of the above eligibility criteria.
Issuance of Guarantee
Upon written request of a financing bank, the Guarantor shall issue export credit guarantee to cover 80% of the outstanding loan balance and interest thereof extended to an exporter by the financing bank, provided the request is acceptable to the Guarantor.
The Guarantee Amount
The Guarantor may issue export credit guarantee to:
4.1 Existing exporters, who fulfill eligibility criteria set under article 2.1 herein above, up to 100% of export proceeds actually received through financing banks from non-coffee exports in the 12 months preceding the date of application for export loan under export credit guarantee scheme;
New producer exporters, who fulfill eligibility criteria set under article 2.1 above, up to two point five (2.5) times the estimated value of the pledged collateral
Other new exporters, who fulfill eligibility criteria set under articles 2.1 above, up to two (2) times the value of the pledged collateral;
Obligations of Financing Banks
Financing banks shall:
critically evaluate credit worthiness of the exporter who applies for a loan and shall
ensure that the export project to be financed is bankable;
finance only bankable export projects;
Collect credit information from all banks in Ethiopia to ensure that an exporter
applying for export loan does not carry “loss” category loans owed to any bank;
exercise all reasonable and usual care regarding operations of export financing and act with utmost good faith;
Channel to the exporter’s loan account, in settlement of the loan, all export proceeds
collected from an exporter after the disbursement of the loan covered by the export credit guarantee.
promptly notify the Guarantor within 15 days of the occurrence of any event or development likely to cause a loss or default;
collect on behalf of the Guarantor interest due to it on loans covered by export credit guarantee; and
act as the agent of the Guarantor to recover the due amount from the defaulting exporter and report to the Guarantor actions taken on such borrowers promptly.
Where the exporter defaults, the financing bank, subject to prior written agreement of the Guarantor, may:
extend the due date of pre or post shipment export credit covered by export credit guarantee for a maximum of 180 days if it determines that the financial position of the borrower is sound and the loan repayment problem is temporary; or provide additional loan that may not exceed 50 percent of the existing outstanding loan covered by export credit guarantee and extend the due date of both the new and the existing loans for a maximum of 180 days if it determines that the borrower will be rehabilitated and settle the loans out of the cash flow to be generated.
Financing banks shall submit to the Guarantor:
Relevant credit risk analysis report and all other documents necessary to ensure the export project to be financed is bankable; and Monthly export credit performance report in accordance with the table attached with these Directives or any other format developed by the Guarantor. Such report shall be filed within twenty days after the end of the reporting month.
Financing banks may, during the life of the export credit guarantee, repeatedly disburse loan to a borrower for export purposes equivalent to the amount of the partial or full loan settlement referred to under sub-article 5.1.5, so long as the outstanding balance of the loan does not exceed the export credit guarantee issued to cover it.
Obligation of the Exporter
7.1 Provide accurate information, accompanied with all supporting documents, to financing banks on their business, export activities and bank loan repayment status;
7.2 Exercise due care so as to ensure that the advances are used for the purposes they are earmarked for;
7.3 Repay the entire amount of the outstanding loan and interest thereof to the financing bank on or before due date of the loan;
7.4 In case of difficulties experienced in manufacture or shipment of goods or realization of export proceeds from foreign buyers, they should discuss the problem and the proposed course of action with their financing banks.
8.1 The Guarantor shall cover 80 percent of the risk, which may result from default of repayment;
8.2 The financing bank shall bear the remaining portion (20 percent) of default risk.
The Guarantee Fund and Fee
9.1 The Guarantor shall create a Guarantee Fund Account for funding the Export Credit Guarantee Scheme;
9.2 Financing banks shall pay, out of the interest rate stated under article 10.1 hereunder, 2 (two) percent of the outstanding loan balance covered by export credit guarantee per annum to the Guarantor calculated in line with interest income accrual or collection policy and procedure of the respective financing bank. They shall pay such interest to the Guarantor on quarterly basis;
9.3 Interest income collected in line with article 9.2 above shall be transferred to Guarantee Fund Account.
9.4 The Guarantor may invest the money in the guarantee fund account in risk free and liquid assets such as Treasury bills and transfer the income from such investments to its Income Statement.
9.5 Guarantee fund created by the Bank in line with provisions of article 9 of the Bank’s Directives No. SBB/38/2006 shall be used to settle claims against export credit guarantee filed with the Bank before the effective date of these directives;
9.6 The closure of the Guarantee fund account with the Bank shall be decided by the Bank .
Rate of Interest
10.1 Financing banks shall charge their respective prevailing lowest lending interest
rate on pre- or post-shipment loans covered by the export credit guarantee scheme;
10.2 Non-compliance with the stipulation of the credit guarantee scheme might result in charging the penal rate used by the financing bank. In the case of proven mis-use of funds, the financing bank may demand the immediate repayment of the loan.
11.1 The Export Credit Guarantee of the Guarantor serves as part of the collateral when exporters apply for financing;
11.2 When applying for post-shipment credit, the exporter shall hand over to the financing bank all the necessary shipping and other documents relating to the goods shipped for export. Also, the exporter shall authorize the financing bank to collect or receive payment from the foreign buyer, on the basis of which the post-shipment credit is sanctioned to the exporter. Goods in possession of the financing bank are considered as additional collateral providing the necessary security for the financing bank;
11.3 In case a borrower defaults, the Guarantor and financing bank shall share the cash collateral, or any proceeds from liquidation of any property pledged as collateral, or any proceeds from liquidation of collateral secured through court ruling, in proportion to the risk they took in lending to the defaulting borrower, that is, the Guarantor shall be entitled to collect 80%, leaving the balance (20%) to the financing bank.
12.1 Without prejudice to article 5.2 above, repayment period for pre-shipment credit shall not exceed 365 days. Pre-shipment advances shall be repaid by handing over the shipping documents to the financing bank within 10 days after the goods have been shipped for export. The date of shipment is the date of the stamp on the bill of lading or other shipping documents. The repayment of loan may be by way of adjusting from post-shipment credit obtained against the documents or by payment in an accepted manner;
12.2 Exporters, adjusting the pre-shipment credit, shall have the possibility of extending the credit into the post-shipment period. Exporters willing to use this facility shall have to apply well in advance to their financing bank for a post- shipment credit to avoid possible delays, after the goods have been shipped. Any non-compliance with the above stipulation may result in rejection of the exporter’s post-shipment credit application and immediate repayment obligation of the pre-shipment credit;
12.3 Without prejudice to article 5.2 above, repayment period of the post-shipment credit shall not exceed 180 days. Post-shipment advances will be adjusted by the financing bank out of payments received from the foreign importer to enable it to automatically settle the outstanding debt of its exporter-borrower, after payment from the foreign buyer has been collected.
Settlement of Guaranteed Portion to Financing Bank
13.1 In case an export credit goes on default, the Guarantor shall pay the guaranteed portion of the loan amount lent to the exporter within seven days after the complete set of necessary documents have been presented to it. The Guarantor, however, shall not pay any interest on the export credit during the seven days following submission of complete set of documents by financing banks;
13.2 When repayment of the full or partial amount of defaulted loan is effected by the defaulting exporter to the financing bank after the settlement of the guaranteed portion, the financing bank shall transfer the money to the Guarantor within 7 days;
Expiry of Guarantee
14.1 Export Credit Guarantee shall be issued for a specific period of time that shall not exceed i) 365 days to cover pre-shipment export credit and ii) 180 days to cover post shipment export credit. However, the Guarantor, upon request of financing banks, may extend expiry date of the guarantee for a maximum of 180 days from its expiry date. At the last day of the guarantee period, unless extended in writing by the Guarantor, the Guarantee shall be null and void;
14.2 Under normal circumstances, the last day of the Guarantee shall be that
indicated on the “Export Credit Guarantee Letter” as ending date of the Guarantee.
Default and Non-compliance
15.1 Where an exporter defaults and cannot qualify for loan rescheduling or
restructuring stipulated under article 5.2 above, he/she shall be suspended from all types of bank credit from the entire banking system until he/she fully settles the outstanding loan including interest and charges;
15.2 To facilitate the suspension, the Guarantor shall circulate the names of all defaulters under the export credit guarantee scheme to all banks. Moreover, the Guarantor shall publish the names of such defaulters in widely circulating newspapers;
15.3 Upon receipt of defaulters list stipulated under sub-article 15.2 above, all banks shall deny provision of new bank credit service(s) and shall not renew all existing overdraft or other credit facilities to any one exporter in the list until the Guarantor notifies them that the exporter has fully settled his/her overdue export loans;
15.4 If a financing bank does not comply with the provisions of these directives, the Guarantor maintains the power to reduce guarantee coverage and, in extreme cases, to suspend new coverage for a period of four years.
The Bank may undertake an inspection of any bank, including the Guarantor, to verify its compliance with the provisions of these Directives.
Article 17 Administration of Outstanding Active Export Credit Guarantees
17.1 The Guarantor shall administer outstanding active export credit guarantees issued before the effective date of these directives in line with the terms and
conditions of the guarantees set at the time of their issuance.
17.2 The Bank shall transfer all files and documents in its possession related to outstanding active export credit guarantees to the Guarantor.
Administration of outstanding Inactive Export Credit Guarantees
The Bank shall administer outstanding inactive export credit guarantees that are outstanding as of the effective date of these Directives until their full settlement or resolution.
Article 19 Repeal
The Establishment and Operation of Export Credit Guarantee Scheme Directives
Number SBB/38/2006 is hereby repealed and replaced by these Directives.
These directives shall come into force as of the 1st day of February 2007.
Whereas, the National Bank of Ethiopia is vested with powers, duties and responsibilities of monetary management and regulation and supervision of banks; Whereas, statutory reserve requirement, which obliges banks to hold a proportion of their deposit balance with the National Bank of Ethiopia, is one of the important monetary policy instruments and prudential regulation tools;
Whereas, liquidity in the banking system remained relatively high;
Whereas, commercial banks have strong incentive to enhance profitability through credit extension;
Whereas, it has been found necessary to check monetary growth so as to avoid risk of high inflation and ensure a stable macroeconomic environment for a healthy economic growth;
Now, therefore, the National Bank of Ethiopia has issued these directives pursuant to the authorities vested in it by Article 41 of Monetary and Banking Proclamation No. 83/1994 and article 16 of Licensing and Supervision of Banking Business Proclamation No. 84/1994.
1. Short Title
These Directives may be cited as ” Reserve Requirement – 4th Replacement “
Directives No. SBB/45/2008.
2. Opening Accounts with the National Bank of Ethiopia
Banks operating in Ethiopia shall open two separate Birr accounts with the National Bank of Ethiopia to be used as follows:
2.1. Reserve Account
A reserve account shall exclusively be used to maintain the reserve balance stated under article 2 of these directives;
No bank shall withdraw any money from its reserve account without prior approval of the Supervision Department of the National Bank of Ethiopia.
2.2 Payments and Settlement Account
A payments and settlement account shall be used to carry out all day-to-day transactions of banks through the National Bank of Ethiopia.
Any bank operating in Ethiopia shall at all times maintain in its Reserve Account stated under article 2.1 of these directives 15% (fifteen percent) of all Birr and foreign currency deposit liabilities held in the form of demand (current) deposits, saving deposits and time deposits.
4. Computation of Reserve
4.1 Cash items in process of collection, if included under deposits, shall be deducted therefrom in computing the balance of total deposits for reserve purposes;
4.2 Cash items in process of collection through the National Bank of Ethiopia shall not be acceptable as reserve until credited to the reserve account;
4.3 The reserve required shall be computed on the net deposit balance, i.e. excluding cash items in process of collection, shown at the end of each reporting week.
5. Reserve Deficiencies
5.1 Deficiencies in reserve balance are subject to a penalty;
5.2 The penalty shall be assessed at a rate twice the current average rate of interest on loans and advances charged by banks computed on the amount of the deficiency in reserve and multiplied by the number of days over which the reserve account remained deficient;
5.3 The National Bank of Ethiopia may waive the penalty stated herein above on grounds it considers acceptable.
For the purpose of determining strict compliance with the reserve requirement stated under article 2 of these Directives, properly checked and signed reports, showing balances as of each Wednesday, shall be submitted to the Supervision Department of the National Bank of Ethiopia. The reports shall be submitted not later than Tuesday of the following week and shall show the balance of each type of deposit under article 2 herein above, reserve balance with National Bank of Ethiopia and the excess/shortfall in reserves.
Directives No. SBB/42/2007 is hereby repealed and replaced by these Directives.
8. Effective Date
These Directives shall enter into force as of the 7th day of April 2008.
1. Issuing Authority
This directives are issued by the National Bank of Ethiopia pursuant to the authority vested in it by Article 41 of the Monetary and Banking Proclamation No. 83/1994 and by Article 16 of the Licensing and Supervision of Banking Business Proclamation No. 84/1994.
2.1 For the purpose of liquidity requirement “liquid assets”, in addition to what has been provided for under 16(2) of Proclamation No. 84/1994, include deposits held in Organization for Economic Cooperation and Development (OECD) member countries currencies and payable by banks of OECD countries and in such other currencies as may be approved by the National Bank of Ethiopia as well as securities issued by OECD countries denominated in currencies of such countries with tenures as indicated under article 16 (2)(b) of Licensing and Supervision of Banking Business Proclamation No. 84/1994.
2.2 “Current liabilities” shall mean the sum of demand (current) deposits, savings deposits and time deposits and similar liabilities with less than one-month maturity period.
3. Total Requirement
Any licensed bank shall maintain liquid assets of not less than 25% (twenty five percent) of its total current liabilities.
4. Specific Requirements
For the purpose of meeting the liquidity requirement, each bank shall maintain:
4.1 at least twenty percent (20%) of the current liabilities in the form of primary reserve assets; an
4.2 five percent (5%) of the current liabilities in the form of secondary reserve assets.
Banks shall submit to the Banking Supervision Department of the National
Bank of Ethiopia properly certified weekly liquidity positions showing the end-of-week
balances of each Wednesday not later than Tuesday of the following week.
Directives No. SBB/15/96 are hereby repealed and replaced by this Directives.
7. Effective Date
This Directives shall enter into force as of the 7th day of April 2008.
LICENSING AND SUPERVISION OF BANKING BUSINESS -Ethiopian National Bank Directives « Ethiopian Legal Breif
WHEREAS, sound know your customer policies and procedures constitute an essential part of internal control and risk management aspects of banks;
WHEREAS, there is a need to strengthen internal control and risk management systems of banks to prevent them from exposure to undue reputational, operational, legal and concentration risks that may result from abuse of money launderers and terrorist financiers;
WHEREAS, conducting customer due diligence is a key part of customer identification, internal control and risk management of banks;
WHEREAS, there is a need to ensure that banks have sound policies, procedures and controls in place that enable them to identify their new and existing customers ;
Now, therefore, in accordance with article 53 of Banking Business Proclamation Number. 592/2008 and articles 3(2) and 3(3) of Prevention and Suppression of Money Laundering and Financing of Terrorism Proclamation number 657/2009, `the National Bank of Ethiopia hereby issues these directives.
1. Short Title
These directives may be cited as “Customer Due Diligence of Banks Directives No. SBB/46/ 2010”.
For the purpose of these directives, unless the context provides otherwise:
1)“beneficial owner” refers to the natural person(s) who ultimately owns or controls a bank customer, in case the customer is legal person or arrangement, and/or the person on whose behalf a transaction is being conducted;
2)“correspondent banking” is the provision of banking services by one bank (the correspondent bank) to another bank (the respondent bank);
3)“cross-border transfer” means any wire transfer where the originator and beneficiary persons are located in different jurisdictions at the time of initiating the transfer. This term also refers to any chain of wire transfers that has at least one cross-border element;
4)“domestic transfer” means any wire transfer where the originator and beneficiary persons are located in the same jurisdiction at the time of initiating the transfer. This term, therefore, refers to any chain of wire transfers that takes place entirely within the borders of a single jurisdiction, even though the system used to effect the wire transfer may be located in another;
5)“high risk categories” means customers, businesses or transactions that need to be subjected to more regular reviews, particularly against the know-your-customer information held by the bank and the activity in the account. Such categories shall include, but not be limited to:
(a)complex, unusual or large transactions,
(b)relationships or transactions with countries known to have material deficiencies in anti money laundering and terrorist financing strategies,
(c)politically exposed persons,
(d)non-resident customers such as those staying in the country for less than one year or those in short visit or travel,
(e)legal persons or arrangements such as trusts that are personal asset holding vehicles, and
(f)Companies that have shares in bearer form;
6)“Legal person” refers to a body corporate, foundation, partnership, non-profit organization or association, or any similar body that can establish customer relationship with a bank or other financial institution, or otherwise own property;
7)“Money laundering” shall have the meaning ascribed under article 2(10) of the Proclamation to provide for Prevention and Suppression of Money Laundering and Financing of Terrorism number 657/2009;
8)“Originator” is bank account holder, or where there is no account, the person that places an order with the bank or other financial institution to perform the wire transfer;
9)“Payable-through accounts” refers to correspondent accounts that are used directly by third parties to transact business on their own behalf;
10)“person” means any natural or juridical person;
11)“politically exposed persons” are individuals in a foreign country who are or have been entrusted with senior government functions, such as heads of state or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials;
12)“Shell bank” means a bank that has no physical presence in the country in which it is incorporated and licensed, and which is unaffiliated with a regulated financial services group that is subject to effective consolidated supervision.
13) “senior management” means a team of executives at the highest level who have the day-to-day responsibilities of managing a bank as defined by each bank;
14)“terrorist financing” means an offence defined under article 5(1)(d) of Anti-Terrorism Proclamation number 652/2009;
15)“wire transfer” refers to any transaction carried out on behalf of an originator person through a bank or other financial institution by electronic means with a view to making an amount of money available to a beneficiary person at another bank or financial institution. The originator and the beneficiary may be the same person.
3. Customer Acceptance Policy, Procedure, and Compliance Arrangement
a.Banks shall establish and maintain internal procedures, policies and controls to prevent money laundering and terrorist financing, and communicate these to their employees and the National Bank of Ethiopia; at a minimum these procedures, policies and controls shall cover:
a)explicit criteria for identification and acceptance of customers,
b)appropriate risk management systems to determine whether a potential customer, an existing customer or beneficial owner is a politically exposed person or high risk categories of customers,
c)record retention techniques, methods and period ;
d)unusual and suspicious transactions detection, techniques, methods and the reporting obligation;
e)measures to be taken to prevent the misuse of technological developments in money laundering or terrorist financing schemes; and
f)specific risks associated with non-face to face business relationships or transactions.
b. Banks shall develop appropriate compliance management arrangements which at a minimum include:
i. designation of a compliance officer at the management level; and
ii. ensure application of all laws related to anti-money laundering and combating terrorist financing; these directives; and internal policies, procedures and controls when establishing customer relationships and conducting ongoing due diligence.
c. Banks shall maintain an adequately resourced and independent internal audit function to test compliance with laws; directives of the National Bank of Ethiopia; and internal policies, procedures and controls.
4. Customer Identification and Due Diligence
1)banks may not keep anonymous accounts or accounts in fictitious names;
2)Banks shall not enter into, or continue, correspondent banking relationships with shell banks.
3)Banks shall undertake customer due diligence measures when:
i. establishing business relations with a customer;
ii. carrying out occasional cash transaction with a customer, which at a minimum exceeds Birr 200,000, USD 10,000 or equivalent in other foreign currencies; this shall include situations where the transaction is carried out in a single operation or in several operations that appear to be linked or structured;
iii. there is a suspicion of money laundering or terrorist financing, regardless of any exemptions or thresholds that are referred to under these directives; and
iv. they have doubts about the veracity or adequacy of previously obtained customer identification data.
4)Banks shall identify the customer, whether regular or occasional, natural or legal person or legal arrangement, and verify that customer’s identity using as much as possible reliable, independent source documents, data or information.
5)Identification requirements for natural persons shall include, at a minimum:
a)given or legal name and all other names used;
c)telephone number, fax number and e-mail address, if available;
d)date and place of birth, if possible;
f)occupation, public position held and/or name of employer;
g)type of account; and
h)signed statement certifying accuracy of the information provided.
6) For customers that are legal persons or legal arrangements, banks shall:
a) take reasonable measures to understand the ownership and control structure of the customer and determine who the natural persons that ultimately own or control the legal person or arrangement are; this shall include those natural persons who exercise ultimate effective control over the legal person or arrangement;
b)verify that any person purporting to act on behalf of the customer is so authorized, and identify and verify the identity of that person;
c)verify the legal status of the legal person or legal arrangement at a minimum by obtaining proof of incorporation or similar evidence of establishment or existence and information concerning the legal person’s or legal arrangement’s :
iii.some form of official identification number such as tax identification number (if available),
iv.address which includes country, city/town/kebele in which the head office is located and if available, house number, mailing address, telephone number and fax number,
v.names of directors, if applicable, and the chief executive officer,
vi.provisions regulating the power to bind the legal person or arrangement;
vii.the resolution of the board of directors (if applicable) or any other authorized body or person to open an account; and
viii. identification of those who have authority to operate the accounts.
7)In carrying out transactions with any person, a bank shall identify the ultimate beneficial owner and take reasonable measures to verify the identity of the beneficial owner using relevant information or data obtained from a reliable source such that the bank is satisfied that it knows who the beneficial owner is; particularly, for all customers, the bank shall determine whether the customer is acting on behalf of another person, and shall then take reasonable steps to obtain sufficient identification data to verify the identity of that other person.
8)Establishment of a bank’s new business relationship with a politically exposed person shall be approved by a senior management member of the bank.
9)Where a customer has been accepted and the customer or beneficial owner is subsequently found to be, or subsequently becomes a politically exposed person, continuation of business relationship with such person shall be approved by a senior management member of the bank.
10)Banks shall take reasonable measures to establish the source of wealth and the source of funds of customers and beneficial owners identified as politically exposed persons.
11)Banks shall obtain information on the purpose and intended nature of the business relationship.
12)Banks shall perform enhanced due diligence on high risk categories of customers, business relationships or transactions.
13)Banks shall give special attention to business relationships and transactions with persons, including legal persons and other financial institutions, from or in countries which do not or insufficiently apply anti-money laundering and combating terrorist financing laws.
5. Account Monitoring
1)Banks shall conduct ongoing due diligence measure on existing customers and business relationships, including scrutiny of transactions undertaken throughout the course of that relationship, to ensure that:
a)the transactions being conducted are consistent with the bank’s knowledge of the customers, their business and risk profile, and where necessary, the source of funds; and
b)documents, data or information collected under the due diligence process is kept up-to-date and relevant by undertaking reviews of existing records, particularly for higher risk categories of customers or business relationships.
2)Where banks are in a business relationship with a politically exposed person, they shall conduct enhanced ongoing monitoring.
3)Banks shall pay special attention to all complex, unusually large transactions, or unusual patterns of transactions, that have no apparent or visible economic or lawful purpose such as significant transactions relative to a relationship, transactions that exceed certain limits, very high account turnover inconsistent with the size of the balance, or transactions which fall out of the regular pattern of the account’s activity.
4)Banks shall examine as far as possible the background and purpose of transactions specified under sub article 5.3 herein above and set forth their findings in writing.
6. Cross Border Correspondent Banking
1)With respect to cross-border correspondent banking and other similar relationships, banks, in addition to performing normal customer due diligence measures, shall:
a)gather sufficient information about a respondent institution to understand fully the nature of the respondent’s business and to determine from publicly available information the reputation of the institution and the quality of supervision, including whether it has been subject to a money laundering or terrorist financing investigation or regulatory action;
b)assess the respondent institution’s anti-money laundering and combating terrorist financing controls, and ascertain that they are adequate and effective;
c)obtain approval from a senior management member of the bank before establishing new correspondent relationships; and
d)document the respective anti-money laundering and combating terrorist financing responsibilities of each institution;
2) Where a correspondent relationship involves the maintenance of “payable-through accounts”, banks shall be satisfied that:
a)their respondent financial institution has performed all the normal customer due diligence obligations set out in these directives on those of its customers that have direct access to the accounts of the correspondent financial institution; and
b)the respondent financial institution is able to provide relevant customer identification data upon request to the correspondent bank.
3)Where a correspondent bank fails to comply with national anti-money laundering and combating terrorist financing laws, banks shall not open an account, commence business relations or perform transaction or shall terminate the business relationship with such correspondent financial institutions, and shall consider making a suspicious transaction report in relation to correspondent financial institutions.
4)Banks shall satisfy themselves that respondent financial institutions in foreign countries do not allow business relationship with shell banks.
7. Wire Transfers
1) For all wire transfers, of Birr 10,000 or USD 1000 or more, ordering banks shall be required to obtain and maintain the originator’s:
b)account number or a unique reference number, if no account number exists,
c) complete address, and
d) date and place of birth (if possible).
2)For cross-border wire transfers of USD 1,000 or more or for domestic transfers of Birr 10,000 or more, the ordering financial institution or bank shall be required to include full originator information in the message or payment form accompanying the wire transfer.
3)Where several individual cross-border wire transfers of USD 1 000 or more from a single originator are bundled in a batch file for transmission to beneficiaries in Ethiopia, the ordering foreign financial institution only needs to include the originator’s account number or unique identifier on each individual cross-border wire transfer, provided that the batch file (in which the individual transfers are batched) contains full originator information that is fully traceable.
4)Banks shall adopt effective risk-based procedures for identifying and handling wire transfers that are not accompanied by complete originator information.
1)Identification of a customer does not need to be verified where the customer is itself a regulated bank or other financial institution that is subject to anti-money laundering and combating terrorist financing laws and regulations;
2)Credit and debit card transactions are exempted from standard customer due diligence, provided that they are not used as a payment tools to effect a money transfer.
9. Record Keeping
1)Banks shall maintain all necessary records on transactions, both domestic and international, as stipulated in Ethiopian National Archives and Library Proclamation No. 179/1999.
2)Transaction records to be maintained by banks shall be sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal activity.
3)Banks shall ensure that all customer and transaction records and information are available on a timely basis to the National Bank of Ethiopia and other competent law enforcement authorities.
A bank shall report to Financial Intelligence Center of Federal Democratic Republic of Ethiopia
1)when it suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity;
2)where there are reasonable grounds to suspect that funds are linked or related to, or to be used for terrorism, terrorist acts or by terrorist organizations or those who finance terrorism;
3)all cash deposits or withdrawals exceeding Birr 200,000 and/or USD 10,000 or its equivalent in other foreign currency; and
4)all suspicious transactions, including attempted transactions regardless of the amount of the transaction.
11. Training programs
1) Banks shall establish ongoing employee training programs which at a minimum incorporate:
a)responsibilities under the bank’s arrangements for money laundering and terrorist financing prevention;
b)policies, procedures controls and practices for obtaining identification evidence; applying “know your customer” standard; account monitoring; enhanced due diligence; record keeping; and reporting knowledge or suspicion of money laundering and terrorist financing;
c)audit function to ensure the bank’s compliance with anti-money laundering and combating terrorist financing laws, directives, and internal policies and procedures;
d)domestic laws and bank standards related to money laundering and terrorist financing;
e)relevant typologies of money laundering and terrorist financing; and
f)potential risks, including reputational, operational, legal and concentration risks of becoming involved in laundering the proceeds of crime or terrorist financing.
2)A bank shall provide to the National Bank of Ethiopia the dates and descriptions of all anti-money laundering and combating terrorist financing staff training events, at the beginning of each financial year of the bank.
12. Effective Date
This Directive shall enter into force as of the 4th day of March 2010
Directive No. SBB/19/96
Directive No. SBB/13/1996
NAMING OF OFFICERS
1. Issuing Authority
These directives are issued by the National Bank of Ethiopia pursuant to the
authority vested in it by Article 41 of the Monetary and Banking Proclamation
No. 83/1994 and by article 36 of the Licensing and Supervision of Banking
Business Proclamation No. 84/1994.
Unless a General Manager, Chief Executive or Principal Officer of a bank is
member of the Board of Directors of the bank, it is prohibited to designate him as a Managing director.
3. Effective date
These Directives shall enter into force as of 8th day of April 1996