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LICENSING AND SUPERVISION OF BANKING BUSINESS -Ethiopian National Bank Directives

LICENSING AND SUPERVISION OF  BANKING BUSINESS -Ethiopian National Bank Directives

Directive No. SBB/3/95 CONTRIBUTION IN KIND

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 5(b)(5) of the Licensing and Supervision of Banking Business Proclamation No. 84/1994.

2. Contribution in Kind

2.1. Items like built in vault, buildings, essential vehicles and others that are

acceptable to the Bank may be considered as capital contributions.

2.2. Contributions in kind should be valued by professional valuers acceptable to the National Bank of Ethiopia.

2.3. Capital contributions in kind shall not be considered for the purposes of

fulfilling minimum required capital and shall not exceed 25% of paid up capital in excess of minimum required capital.

These Directives shall enter in to force as of 21st day of August 1995.


Directive No. SBB/4/95  LEGAL RESERVE

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 13(4) of the Licensing and Supervision of Banking

Business Proclamation No. 84/1994.

2. Requirement

2.1 Every bank shall transfer annually 25% of its annual net profit to its

Legal Reserve Account until such account equals its capital.

2.2 When the legal reserve account equals the capital of the bank, the

amount to be transferred to the legal reserve account shall be 10% (ten percent) of the annual net profit.

These Directives shall enter into force as of 21st day of August 1995.

Directive No. SBB/9/95 COMPUTATION OF RISK WEIGHTED ASSET

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.

2. Definition

2.1 For the purpose of these Directives, the capital of a bank consists of issued

and fully paid in shares, legal reserves and other reserves to be approved by

the National Bank of Ethiopia and

2.2 The minimum capital requirement shall be applied to a bank on a

consolidated basis, including subsidiaries and affiliates engaged in banking

and financial activities.

3. Manner of computation

Risk weighted assets and percentage weight attached to each asset shall be

calculated in the manner as shown in the tables attached herewith which shall be a part hereof.

These Directives shall inter into force as of 21st day of August 1995.

Directive No. SBB/10/95 LIMITATION ON ACCOMMODATION

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 17(1) of the Licensing and Supervision of Banking

Business Proclamation No. 84/1994.

2. Definition

For the purposes of this Directive, ‘person’ physical (natural) person.

3. Limitation on Accommodation

No bank shall, directly or indirectly, except with the prior written approval of the Bank, grant or permit to be outstanding unsecured loans, advances or credit facilities of an aggregated amount in excess of birr 30,000.=(Thirty Thousand Birr).

3.1 to its directors, or any of them, whether severally or jointly with any other person.

3.2 To any person of whom or of which it or any one or more of its directors is

a guarantor.

These directives shall enter into force as of 1st day of September 1995.


Directive No. SBB/12/1996 LIMITATION ON INVESTMENT OF BANKS 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.

1. No bank shall engage in insurance business but may hold up to 20% in an

insurance company and up to a total of 10% of the banks equity capital in such business.

2. Banks are prohibited from engaging directly in non-banking businesses such as agriculture, industry, and commerce.

3. A bank may hold shares in a non-banking business only up to 20% of the

company’s share capital and total holdings in such business shall not

exceed10% of the bank’s net worth.

4. A bank’s equity participation in another bank shall be subject to prior

authorization by National Bank of Ethiopia.

5. No bank shall commit more than 20% of its net worth in real estate acquisition and development other than for own business premises with out prior approval of the National Bank of Ethiopia.

6. A bank may not invest more than 10 %(ten percent) of its net worth in other securities.

7. The aggregate sum of all investments at any one time (excluding investment in government securities) may not exceed 50% of the bank’s net worth, with out

prior approval by the National Bank of Ethiopia.

8. Dealing in securities shall be done by banks only through a limited liability

subsidiary company wherein the holding of the bank shall not exceed 10% (ten percent) of its equity capital.

These Directives shall enter into force as of 8th day of April 1996.

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.

2. Designation

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


Directive No. SBB/19/96 Approval of Appointment of an Independent Auditor 1. Issuing Authority

This directive is 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.

2. Definition

1.1 For the purpose of this Directive “associate” shall mean “any company

where the independent auditor or his partner(s) has a business interest”.

1.2 The term “bank shall mean a company licensed under Licensing and

Supervision of Banking Business Proclamation 84/1994 to undertake banking business.

3. Application for Approval

1.3 After appointing an independent auditor in line with Article 370 of the

Commercial Code of Ethiopia, every licensed bank shall annually apply to the

National Bank of Ethiopia for approval of the appointed independent auditor.

1.4 In the application for approval, the bank should confirm that such an auditor

has been properly assessed prior to the appointment and is, in the bank’s view,

able to comply with the provisions of Article 18 of the Licensing and Supervision of

Banking Business Proclamation No. 84/1994. For this purpose the bank must

seek a declaration from the auditor which will be submitted together with the

application to the effect that:

a) The auditor is qualified in terms of Article 18 of the Licensing and

Supervision of Banking business Proclamation No. 84/1994.

b) The auditor, his partners or associates do not operate an account or have

not been granted any type of facilities in the bank except in the normal course of business and at arm’s length.

Directive No. SBB/7/95 is hereby repealed and replaced by this Directive. This Directive shall enter into force as of 20th day of November 1996.

Directive No. SBB/21/96 Manner of Reporting Financial Information

2. Issuing Authority

This directive is 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 19 of the Licensing and supervision of Banking Business Proclamation No. 84/1994.

3. Reports

Reports shall be submitted to the Supervision Department of the National Bank of

Ethiopia within twenty days after the end of the period for which the data are reported

except the Reserve and Liquidity requirement reports which shall be submitted in accordance with

Directives No. SBB/14/96 & SBB/15/96, respectively, in the form and manner as shown in the

tables attached herewith which shall be part hereof.

This Directive shall enter into force as of 20th day of November 1996.

Directive No. SBB/24/99 Minimum Paid up Capital to be maintained by Banks

WHEREAS, it has been necessary to raise the minimum capital required to

establish a new bank so that the newly established bank can compete successfully with

existing banks;

WHEREAS, it is known that as banks expand their business they must maintain

a level of capital commensurate with the volume of their business to withstand adverse operational results;

NOW, THEREFORE, in accordance with Article 13(1) and 36 of Proclamation

No. 84/1994, the National Bank of Ethiopia has issued these directives.

1. Minimum paid-up Capital

1.1 The minimum paid up capital that shall be required to obtain a banking

business license shall be Seventy Five Million Birr, which shall be fully paid

in cash and deposited in a bank in the name and to the account of the bank

under formation.

1.2 Existing banks whose paid up capital is below Seventy Five Million Birr

shall raise their paid up capital to the said amount by end of June 2002. In

the mean time, they will continue to maintain minimum total capital levels

not less than 8% of risk weighted assets.

2. Sanctions for failure top comply with the new capital requirement

2.1 If a bank fails to comply with the capital requirements specified under

subarticle

1.2 above, the National Bank of Ethiopia may

a. prohibit such bank from engaging in any additional business until the

deficiency in capital is corrected;

b. require such bank to merge with another bank;

c. close such bank; or

d. take away other measures it considers fit.

3. Effective Date

These Directives shall enter into force as of the first day of June 1999.

Directive No. SBB/26/2001

Establishment of Special Account for Effecting Payments for

Coffee Purchases from the Coffee Auction Center

Whereas, issuing cheques without sufficient cover to coffee sellers has

become a concerning development; Cognizant, that the practice of issuing

such cheques has far-reaching negative consequences on the supply of Ethiopian coffee to the international market;

Cognizant, that such malpractice erodes public confidence in the overall cheque payment system of banks;

Now, therefore, the National Bank of Ethiopia has issued these directives

pursuant to the authority vested in it under Article 61 of the Monetary and Banking

Proclamation No. 83/1994.

1. Definition

“Coffee Auction Center” shall mean the Coffee Auction Center operated by Coffee

and Tea Authority.

2. Opening of a Special Coffee Auction Account

2.1 Upon a written request by a coffee exporter, commercial banks shall open

special coffee auction account in the name of the coffee exporter;

2.2 Balances in the special coffee auction account opened in accordance with 2.1 above shall be used solely for effecting payments to coffee sellers for coffee purchases won at the coffee auctions conducted by the Coffee Auction Center.

3. Operation of the special coffee auction account

3.1 Upon request of the holder of the Special Coffee Auction Account,

branches of commercial banks shall issue, on behalf of the concerned

bank, original Letter of Undertaking addressed to the Coffee Auction Center, Coffee

and Tea Authority, with a copy to the account holder. The contents of the Letter

of Undertaking and the signatories shall be as specified inn the attachment to these directives which shall be a part thereof;

3.2 The Letter of Undertaking which a bank issues to the Coffee auction Center

in accordance with 3.1 above shall constitute a commitment on the part of the

concerned bank to pay the coffee seller named in the payment authorization the

full amount upon receipt of a payment authorization letter from the Coffee

Auction Center and corresponding cheque from the holder of the Special Coffee Auction Account;

3.3 No cheques shall be drawn on the Special Coffee Auction Account in favor of

the holder of the account or in favor of a third party other than the coffee

seller(s) specified in the payment authorization issued by the Coffee Auction

Center;

3.4 In the event that the holder of the Special Coffee Auction Account fails to win at

the coffee auction or otherwise disqualified from participation in the coffee auction(s) or

the amount payable by the account holder is less than the amount blocked in his/her/their special account, the concerned bank may release the original or the excess amount to the account holder provided that the bank receives a written blocked account release authorization letter from the Coffee Auction Center;

3.5 Commercial banks may charge their customers fees for the special service

they render in connection with the opening and operation of the Special

Coffee Auction Account.

4. Scope of Application

The provisions of these directives are applicable only to the purchase of, and

payment

for, coffee at the coffee auctions conducted by the Coffee Auction Center.

5. Effective Date

These directives shall come into force as of 1 March 2001.

COFFEE AUCTION CENTER

(Addis Ababa/Dire Dawa, as Applicable)

_________________________________

PAYMENT AUTHORIZATION

Date _________________

To: The Branch Manager

______________ Branch

______________ Bank

Dear Sir/Madam:

Re: Your Ref. No. ________________ dated _____________

We hereby authorize you to honour and pay the under listed cheque(s) from

Mr./Mrs./M/S __________ (name of the buyer) Special Coffee Auction Account to the under listed coffee seller(s).

No.

Name of Seller

Cheque No.

Amount to be

paid

Remaining

balance

Total XXXXXXXX

(Total amount in words ______________________________)

Sincerely yours,

Signature ___________ ___ Name & Title ________________ Date ______________

Signature ___________ ___ Name & Title ________________ Date ______________

COFFEE AUCTION CENTER

(Addis Ababa/Dire Dawa, as Applicable)

_________________________________

BLOCKED ACCOUNT REALEASE AUTHORIZATION

Date _________________

To: The Branch Manager

______________ Branch

______________ Bank

Dear Sir/Madam:

Re: Your Ref. No. ________________ dated _____________

You are hereby authorized to release any unutilized balance blocked in the Special

Coffee Auction Account of Mr./Mrs./M/S _____________ maintained with your

Branch.

Sincerely yours,

Signature ___________ ___ Name & Title ________________ Date ______________

Signature ___________ ___ Name & Title ________________ Date ______________

COFFEE AUCTION

LETTER OF UNDERTAKING

To: Coffee Auction Center

Coffee and Tea Authority

(Addis Ababa/Dire Dawa, as applicable)

_________________

Dear sirs:

The _______________ (name of the bank), _____________ Branch confirms that it has

blocked

Birr ____________ (Amount in words) _________________ in the Special Coffee Auction

Account of Mr./Mrs./M/S _______________ as per Article 2 of the National Bank of Ethiopia’s Directive No. SBB/26/2001 to enable him/her/them/participate in coffee auction. The _________ (name of bank) undertakes to pay coffee seller(s) up to the limit of this blocked amount from the account of the holder mentioned above upon presentation of letter of payment authorization from Coffee Auction Center and corresponding duly signed cheque(s) drawn against the aforementioned account. This undertaking will be valid only if signed by two authorized signatories of the Bank and bears the Bank’s stamp. The Bank is not liable for amounts exceeding this undertaking.

Truly yours,

Signature ___________ ___ Name & Title ________________ Date ______________

Signature ___________ ___ Name & Title ________________ Date ______________


Directive No. SBB/29/2002 Amendment of Single Borrower Loan Limit 1. Issuing Authority

This Directive is 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 Articles 36 of the Licensing and Supervision of Banking Business Proclamation No. 84/1994.

2. Definition

2.1 “Affiliated Financial Institution” means a Company:

2.1.1 In which a bank, directly, owns or controls 10% or more of the voting

shares or controls in any manner the election of a majority of its directors or other persons exercising similar function;

2.1.2 Which owns or controls in any manner, directly or indirectly, 10% or more of the voting shares of a bank or controls in any manner the election of a majority of the directors, or persons exercising similar function of a bank;

2.1.3 In which 50% or more of the voting shares is held, or control is held directly or indirectly, through stock ownership or in any other manner, by the shareholders of a bank who own or control 50% or more of the voting shares of a bank; or

2.1.4 In which a majority of its directors, or other persons exercising similar functions, are directors of a bank. The term “company” as used in this definition means a bank or insurance company and “indirect ownership or control” refers to ownership or control exercised through ownership or control of entities that are shareholders in the same financial institution or through similar arrangements.

2.2 “Cash collateral” means credit balances on accounts in the books of the lending bank over which the customers have given the lending bank a formal letter of cession and which the bank at its discretion has transferred from the customer’s account(s) to a specific or general cash collateral account(s) or blocked.

2.3 “Cash-substitutes” shall mean:

2.3.1 A security issued by the Federal Government of Ethiopia;

2.3.2 An unconditional obligation or guaranty issued in writing by the Federal Government of Ethiopia or a non-affiliated domestic financial institution, where the beneficiary bank maintains a current written and wee-documented evaluation evidencing that the non-affiliated financial institution is financially sound and capable of honoring the guaranty on demand with respect to repayment of the both principal and interest, or a specific amount, and the lending bank has not been advised of any determination by the guarantor to deny payment under the terms of the obligation or guarantee; and

2.3.3 An unconditional obligation or guaranty issued in writing by a foreign bank with an A or above rating by Standards and Poor’s Corporation and/or by Moody’s Investor Services in their latest rating.

2.4 “Loan” or “Advances” means any financial assets of a bank arising from a direct or indirect advance (i.e. unplanned overdrafts, participation in loan syndication, the purchase of loans from another lender, etc.) or commitment to advance funds by a bank to a person that are conditioned on the obligation of the person to repay the funds, either on a specified date or dates or on demand, usually with interest. The term includes a contractual obligation of a bank to advance funds to or on behalf of a person, claim evidenced by a lease financing transactions in which the bank is the lessor, overdraft facility to be funded by the bank on behalf of a person, revocable or irrevocable documentary letters of credit, standby letters of credit, and guarantees or sureties issued on behalf of a borrower.

The term “person” as used in this definition and elsewhere referred in this Directive, includes individuals, groups of individuals, partnerships, common enterprises, share companies, joint ventures, private limited companies, public enterprises, corporate entities or other similar business groups and companies.

2.5 “ Majority-owned Subsidiaries” means a subsidiary controlled by a business entity holding over 50% of its capital.

2.6 “Total capital” shall mean the paid up capital, legal reserve and any other unencumbered reserve acceptable to the National Bank of Ethiopia held by a bank.

3. Combination of Loans

For the purpose of this Directive, a loan or extension of credit to one or more borrowers in each of the companion categories listed below shall be combined and shall be subject to the credit limit to one borrower:

i) A corporation, a share company, a public enterprise or any business entity

and its majority-owned subsidiaries;

ii) One or more private limited companies and

A) individuals who fully own such companies and/or spouses or relations in

the first degree of consanguinity or affinity of such individuals,

B) individuals who are majority-owners of such companies and/or spouses

or relation in the first degree of consanguinity or affinity of such

individuals, and

C) businesses which have a majority ownership in such companies;

iii) A partnership or joint venture and its individual general partners or

venturers;

iv) A partnership or joint venture and its limited liability partners or venturers;

v) A common enterprise and the participants therein who borrow for that enterprise.

4. Single Borrower loan limit

The aggregate loan or extension of credit by a bank to any one borrower, whether a natural person or business organization, shall at no time exceed 25% of the total capital of the bank

5. Exclusion

For the purpose of this Directive, the following types of loans or extensions of

credit

shall not be subject to the credit limit prescribed under article 4 hereinabove:

i) Loans fully secured by cash collateral; and

ii) Loans fully secured by cash substitutes.

6. Reporting Requirement

Reports showing month-end exposures to every single borrower that exceed 10% of total capital of a bank shall be submitted to the Supervision Department of the National Bank of Ethiopia with in twenty days after the end of the period for which the data are reported. The report shall be submitted in accordance with the table attached herewith which shall be a part thereof.

7. Repeal

Directive No. SBB/16/1996 is hereby repealed and replaced by this directive

8. Effective Date

This Directive shall enter into force as of 13th day of May 2002

Monthly Return on Loans to Related Parties

List of All Related Borrowers

(in millions of Birr)

Name of Bank: _______________________

Reporting month _____________________

Approved Loan Limit Collateral

Borrower

Type of Loan/facility2 Amount Percent of

Capital

Type3 Estimated/Face

Value

Outstanding

Balance

Status

(classification)4

1) Include all facilities extended to the borrower, be it on or off balance-sheet (i.e. overdrafts, term loans,

mercandize loans, L/C facilities, guarantees, etc.) and whether

secured or clean.

2) In case the collateral is financial guarantee bond, indicate whether it is issued by affiliated or non affiliated

finacial institution as defined in this directive.

3) Classified in line with provisions of article 6 of NBE Directive No. SBB/28/2002.

Prepared b: _____________________ Approved by: __________________

(name and signature) (name and signature)

Telephone: _____________________ Telephone: __________________


Directive No. SBB/30/2002 Amendment of Limitation on Loans to Related Parties 1. Issuing AuthorityThis Directive is issued by the National Bank of Ethiopia pursuant to the authorityvested in it by Article 41 of the Monetary and Banking Proclamation No. 83/1994 and by Articles 36 of the Licensing and Supervision of Banking Business Proclamation No. 84/1994.

2. Definition

2.1 “Affiliated Financial Institutions” shall mean a company:

2.1.1 In which a bank, directly, owns or controls 10% or more of the voting

shares or controls in any manner the election of a majority of its

directors or other persons exercising similar function;

2.1.2 Which owns or controls in any manner, directly or indirectly, 10% or

more of the voting shares of a bank or controls in any manner the

election of a majority of the directors, or persons exercising similar

function of a bank;

2.1.3 In which 50% or more of the voting shares is held, or control is held

directly or indirectly, through stock ownership or in any other manner,

by the shareholders of a bank who own or control 50% or more of the

voting shares of a bank; or

2.1.4 In which a majority of its directors, or other persons exercising similar

functions, are directors of a bank.

The term “company” as used in this definition means a bank or insurance

company and “indirect ownership or control” refers to ownership or control

exercised through ownership or control of entities that are shareholders in the same

financial institution or through similar arrangements.

2.2 “Cash collateral” means credit balances on accounts in the books of the

lending bank over which the customers have given the lending bank a formal

letter of cession and which the bank at its discretion has transferred from the

customer’s account(s) to a specific or general cash collateral account(s) or

blocked.

2.3 “Cash-substitutes” shall mean:

2.3.1 A security issued by the Federal Government of Ethiopia;

2.3.2 An unconditional obligation or guaranty issued in writing by the

Federal Government of Ethiopia or a non-affiliated domestic financial

institution, where the beneficiary bank maintains a current written and

wee-documented evaluation evidencing that the non-affiliated

financial institution is financially sound and capable of honoring the

guaranty on demand with respect to repayment of the both principal

and interest, or a specific amount, and the lending bank has not been

advised of any determination by the guarantor to deny payment under

the terms of the obligation or guarantee; and

2.3.3 An unconditional obligation or guaranty issued in writing by a foreign

bank with an A or above rating by Standards and Poor’s Corporation and/or by Moody’s Investor Services in their latest rating.

2.4 “Loan” or “Advances” means any financial assets of a bank arising from a direct or indirect advance (i.e. unplanned overdrafts, participation in loan syndication, the purchase of loans from another lender, etc.) or commitment to advance funds by a bank to a person that are conditioned on the obligation of the person to repay the funds, either on a specified date or dates or on demand, usually with interest. The term includes a contractual obligation of a bank to advance funds to or on behalf of a person, claim evidenced by a lease financing transactions in which the bank is the lessor, overdraft facility to be funded by the bank on behalf of a person, revocable or irrevocable documentary letters of credit, standby letters of credit, and guarantees or sureties issued on behalf of a borrower.

The term “person” as used in this definition and elsewhere referred in this Directive, includes individuals, groups of individuals, partnerships, common enterprises, share companies, joint ventures, private limited companies, public enterprises, corporate entities or other similar business groups and companies.

2.5 “ Majority-owned Subsidiaries” means a subsidiary controlled by a

business entity holding over 50% of its capital.

2.6 “Related Party” to a bank shall mean,

On the one hand, A share holder, a director or a principal officer of that bank and/or the spouse or relation in the first degree of consanguinity or affinity of such share holder, director or principal officer; and On the other, A partnership, a common enterprise, a private limited company, a share company, a joint venture, a corporation, or any other business in which the share holder, director or principal officer of the bank and/or the spouse or relation in the first degree of consanguinity or affinity of such share holder, director or principal officer has a business interest as shareholder, director, owner or partner.

2.7 “Total capital” shall mean the paid up capital, legal reserve and any other

unencumbered reserve acceptable to the National Bank of Ethiopia held by a

bank.

3. Threshold for Treatment of Shareholders as Related Party

As regards shareholders, only those shareholders of a bank with holdings of 5% or more of a bank’s subscribed capital shall be treated as related party and shall be subject to the provisions of this Directive.

4. Limitations

4.1 Banks shall not extend loans to related parties on preferential terms with

respect to conditions, interest rates and repayment periods other than the

terms and conditions normally applied to other borrowers.

4.2 The aggregate sum of loans extended or permitted to be outstanding directly

or indirectly to one related party at any one time shall not exceed 15% of the

total capital of the bank.

4.3 The aggregate sum of loans extended or permitted to be outstanding directly or indirectly to all related parties at any one time shall not exceed 35% of the total capital of the bank.

5. Exclusion

For the purpose of this Directive, the following types of loans or extensions of

credit shall not be subject to the credit limit prescribed under article 4 hereinabove:

iii) Loans fully secured by cash collateral; and

iv) Loans fully secured by cash substitutes.

6 Responsibility of Identifying Related Parties Identification of related parties shall be responsibility of each individual bank.

7. Reporting Requirement

Reports showing month-end exposures to each related party shall be submitted to the Supervision Department of the National Bank of Ethiopia with in twenty days after

the end of the period for which the data are reported. The report shall be

submitted in

accordance with the table attached herewith which shall be a part thereof.

8. Repeal

Directive No. SBB/17/96 is hereby repealed and replaced by this directive

9. Effective Date

This Directive shall enter into force as of 13th day of May 2002

30 Monthly Return on Loans to Related Parties

List of All Related Borrowers

(in millions of Birr)

Name of Bank: _______________________

Reporting month ____________________

Approved Loan Limit Collateral

Borrower

Type of

Loan/facility2 Amount Percent of

Capital

Type3 Estimated/Face

Value

Outstanding

Balance

Status

(classification)4

1) Defined in line with Article 2.6 of NBE Directive No. Sbb/30/2002.

2) Include all facilities extended to the borrower, be it on or off balance-sheet (i.e. overdrafts, term loans,

mercandize loans, L/C facilities, guarantees, etc.) and

whether secured or clean.

3) In case the collateral is financial guarantee bond, indicate whether it is issued by affiliated or non affiliated

finacial institution as defined in this directive.

4) Classified in line with provisions of article 6 of NBE Directive No. SBB/28/2002.

Prepared b: _____________________ Approved by: __________________

(name and signature) (name and signature)

Telephone: _____________________

Telephone: ____________________

Directive No. SBB/31/2002 Amendment of


Directive for the Proper Operation of Current Account and Cheque Whereas, the proper use of current accounts and the function of cheque as an instrument of payment is crucial in a modern society;Whereas, cheque as a negotiable instrument is recognized and given legal protection under Ethiopian law;Whereas, the National Bank of Ethiopia is entrusted with the responsibility of

creating and maintaining an efficient and sound financial system;

Now, therefore, the National Bank of Ethiopia has issued these Directives

pursuant to the authority vested in it under Article 61 of the Monetary and Banking Proclamation No. 83/1994.

1. Definitions

In these Directives, unless the context otherwise requires,

1.1 “Cheque” shall have the meaning ascribed to it under the Ethiopian

Commercial Code.

1.2 “Current Account” shall mean an active account on which cheques are

drawn and to which deposits are made and credits paid.

1.3 “Banks” shall mean all banks licensed and operating under proclamation

No. 84/1994.

1.4 “Delinquent List” shall mean the register held by the National Bank of

Ethiopia, indicating the names of current account holders whose cheques

have been dishonored repeatedly and whose accounts are closed by banks.

1.5 “Dishonored Cheque” shall mean a cheque drawn without sufficient cover and is rejected by banks for this reason.

1.6 “Drawer” shall mean a person who signs a cheque giving an order to a

bank to pay the amount mentioned therein.

1.7 “Persons” shall include physical and juridical persons.

2. Bank’ Action on Dishonoring Cheques

2.1 Banks shall maintain a register where all cheques dishonored for the first

time shall be registered. Banks shall notify drawers of the dishonored

cheques of such registration;

2.2 The register shall include the name and address of the bank and its branch, the name and address of drawer, the date on which the cheque was

dishonored, the amount of the dishonored cheque and the action taken by

the bank;

2.3 Banks shall regularly check the register under 2.1 above and upon

dishonoring a cheque drawn by a current account holder whose name

appears on the register, they shall levy a fine of 5% of the amount

appearing on the dishonored cheque;

2.4 Upon dishonoring a cheque drawn by an account holder fined under 2.3

above, banks shall close the current account of such person at all their

branches.

3. Opening of Current Accounts

Banks shall, upon opening of current accounts,

3.1 verify that the name of the person requesting to open a current account

does not appear in the dishonored cheques register or in the list of persons

whose current accounts have been closed that is circulated by the National

Bank of Ethiopia;

3.2 check the memorandum and articles of association of juridical persons to

verify that the name of the members do not appear in the delinquent list;

3.3 inform their customers about the use and purpose of current account and

cheque and the consequences of misusing it; and

3.4 include in the current account deposit agreement a clause about the measures that shall be taken when there is misuse of cheque.

4. Reporting

Banks shall send a report to the National Bank of Ethiopia, Supervision

Department, regarding customers whose current accounts are closed on the

following three working days from the date of such closing. the report shall

include the name and address of the drawer, the name of the branch where the account was held and the date on which the account was closed.

5. Delinquent List

5.1 The National Bank of Ethiopia shall keep a delinquent list of the names of

reported misusers of current accounts;

5.2 The National Bank of Ethiopia shall send information to Banks about

persons whose names appear on the delinquent list;

5.3 Banks shall deny service of current account to customers whose names

appear on the delinquent list and shall close all already existing current

accounts under such names.

6. Conditions for Deletion of Names of Misusers of Current Accounts from the Delinquent List

6.1 The NBE may delete the name of a current account misuser from the

Delinquent List stated under article 5 of this directive if such person

fulfills all of the following conditions;

6.1.1 Is suspended from use of current account for a minimum of 18

months from the date of closure of the account or produces a

guarantee valid for 18 consecutive months from a domestic bank

explicitly stating that the bank shall cover and effect full payment

against any one cheque drawn by such person at any one time;

6.1.2 Presents satisfactory evidence to the NBE with respect to full

settlement of all dishonored cheques and penalty charges related to

the earlier closure of current account, and

6.1.3 Files with the NBE a written application, with a copy to the Federal Police Commission, indicating his/her intention and commitment to operate current account honestly and carefully in the future.

6.2 The NBE may authorize all banks to provide current account service to the person whose name has been deleted from the delinquent list.

6.3 Banks shall maintain a separate register, wherein they book names of

persons deleted from NBE’s delinquent list.

6.4 Upon dishonoring at any one time a cheque drawn by a person who has

been provided with current account service in line with the authorization

obtained from the NBE under article 6.2 and recorded in register book

established in accordance with article 6.3 of this directive, banks shall i)

levy a fine of 10% of the amount appearing on the dishonored cheque, and

ii) automatically close current accounts of such person in all their branches

and report to the NBE within the following three working days.

6.5 The NBE shall reenter the name of a person whose current account has

been closed in line with article 6.4 of this directive into its delinquent list

and shall inform all banks about the closure of current account of such

person for the second time. Banks shall apply all requirements set out

under articles 3 and 5.3 of this Directive with respect to such person:

6.6 Persons whose names are re-entered in the delinquent list for the second

time and subsequently shall be eligible to use current account service if

they fulfill the conditions specified in sub-article 6.1 of this directive.

7. Repeal

Directive No. SBB/25/200 is hereby repealed and replaced by this directive.

8. Effective Date

These Directives shall enter into force as of the 17th day of June 2002.

Directive No.  SBB/35/2004

Amendment of Penalty for Non-compliance with the Directives of the National Bank of Ethiopia Directive No. SBB/20/96

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 20(3) (d) of the Licensing and Supervision of Banking Business Proclamation No. 84/1994.

2. Penalty

Any bank that fails to comply with the requirements of any of the Directives of the National Bank of Ethiopia, excluding Directive No. SBB/14/96, shall be subject to a penalty of Birr10,000 (ten Thousand Birr) for each violation.

The National Bank of Ethiopia may, in addition to the penalty indicated under 2.1 above, take any other measures it considers necessary.

3. Waiver

The National Bank of Ethiopia may waive the penalty on grounds that it considers to be reasonable.

4. Repeal

Directive No. SBB/20/96 is hereby repealed and replaced by these directives.

These Directives shall enter into force as of 1st day of March 2004.


Directive No.  SBB/36/2004 Credit Information SharingWhereas adequate and timely information that enables a satisfactory assessment of the creditworthiness of borrowers applying for a bank loan is crucial for making prudent lending decisions;Whereas prudent lending decisions made on the basis of adequate information on the creditworthiness of borrowers are one of the principal factors in ensuring thefinancial soundness of banks;

Whereas there is still serious difficulty in Ethiopia of getting adequate and timely information on prospective borrowers that facilitates the making of such prudent lending decisions;

Whereas one of the means for alleviating this difficulty of getting adequate and timely information on prospective borrowers is the establishment of a Credit

Information Center where relevant information on borrowers is pooled and made available to lending banks;

Whereas hitherto no such Center has been established;

Now, therefore, in line with the powers vested in it by article 36 of the Licensing and

Supervision of Banking Business Proclamation No. 84/1994, the National Bank of Ethiopia has issued these directives to establish such a Credit Information Center.

Definitions

For the purpose of these directives:

“Banks” shall mean  business entities licensed and supervised by the National Bank of  Ethiopia in accordance with the Licensing and Supervision of Banking   Business Proclamation No. 84/1994;

“Central Database” shall mean the Credit Information Database maintained by    the Credit Information Center of the National Bank of Ethiopia;

“Credit Information” shall mean all information about a borrower specified in the Data Input Requirement attached to these directives;

“Credit Information Center” shall mean the Center located in the   Supervision

Department of the National Bank of Ethiopia;

“Defaulter” shall mean a borrower whose outstanding loans have been classified as

“substandard” and/or “doubtful” and/or “loss” in accordance with Directive No. SBB/32/2002 of the National Bank of Ethiopia;

“Loans or Advances” shall mean any financial assets of a bank arising from a   direct or indirect advance (i.e. unplanned overdrafts, participation in loan syndication, the purchase of loans from another lender, etc.) or commitment to advance funds by a bank to a person that are conditioned on the obligation of the person to repay the funds, either on a specified date or dates or on demand, usually with interest which are approved and outstanding as of the reporting date;

“Online System” shall mean a system whereby provision of input data, updating and correction of input data and other related activities are carried out electronically through computer networks;

“User Group” shall mean banks and the National Bank of Ethiopia.

Modus Operandi of the Credit Information Sharing System

Banks shall provide, alter and update credit information on each and every one of their borrowers using online system; Upon written request by banks, the Supervision Department of the National Bank of Ethiopia shall provide to the requesting bank, in writing, all credit information available in the Central Database on a prospective borrower within three working days from the date of receipt of the request; Access to the Central Database shall be restricted to the user group.

Role and Responsibility of the National Bank of Ethiopia

The role of the National Bank of Ethiopia shall be restricted to administering the Credit Information Sharing system, providing in writing credit information   on borrowers available at Credit Information Center to banks, ensuring that access to online system to update or alter credit information is given only to authorized persons and ensuring that the system is operating smoothly and reliably;

The National Bank of Ethiopia shall not be responsible for any damages, claims or liabilities that may arise as a result of inaccurate, misleading or incomplete credit information on borrowers supplied to the Credit Information Center by individual banks and shared, through the National Bank of Ethiopia, with other banks.

Obligations of Each Bank

Each bank shall provide, electronically, the initial credit and other related information to the Credit Information Center on each and every one of its borrower  in such detail as specified in the Data Input Requirement attached to these directives, which shall be part of these directives; Banks are encouraged to update, electronically, their credit information on each and every one of existing borrowers provided to the Credit Information Center on an on-going basis but each bank shall update such information at least once a month. In the case of the latter, the updating, showing positions as of the close of each month, shall be made within 30 (thirty) days from the close of each month;

Each bank shall designate at least two officers who shall be responsible for providing and updating input data and for making written enquiries to the National Bank of Ethiopia on prospective borrowers. Each bank shall communicate to the Supervision Department of the National Bank of Ethiopia in writing the full names and telephone numbers of such officers. If such officers are replaced, each bank shall promptly communicate the full names and telephone numbers of the replacements to the Supervision Department Banks are encouraged to obtain credit information from the Credit Information Center on prospective borrowers irrespective of the size of the loan.  However, from the effective date of these directives, no bank shall extend new, or renew, reschedule or refinance existing, loans or advances equivalent to, or above, Birr 200,000  (two hundred thousand) without first obtaining credit information on borrowers from the Credit Information Center; From the effective date of these directives no bank shall extend new loans or advances to a defaulter in any form whatsoever;

The provisions of sub-article 4.5 herein above shall have no effect on sub-article

2.1(b) of the National Bank of Ethiopia Directive No. SBB/34/2004 on Establishment and Operation of Export Credit Guarantee Scheme;

Each bank shall be fully responsible for providing accurate, complete and    timely credit information to the Credit Information Center. In cases where errors have been

made, such errors shall be corrected promptly by the concerned bank;

Each bank shall be fully responsible for any damages, claims or liabilities that  may arise as a result of providing  inaccurate, misleading or incomplete credit information to the Credit Information Center or failure to provide, inadvertently or otherwise,information to the Center that should have been provided in line with these directives; Each bank shall use the credit information on borrowers obtained from the   Central Database of the Credit Information Center only and only for making a lending decision. Such information shall be treated with utmost confidentiality and shall not be disclosed to any third party or used for any other purpose; Each bank shall be fully responsible for any damages, claims or liabilities that may arise as a result of disclosure of credit information on borrowers obtained from the Credit Information Center to third parties or use of that information for purposes other than for making a lending decision.

Penalty for Failure to Comply with the Requirements of these Directives

A bank that violates any of the provisions of these directives shall be penalized   in

line with article 2 of National Bank of Ethiopia Directives number SBB/35/2004;

In addition to the financial penalty specified under Directives number SBB/35/2004, the National Bank of Ethiopia may require the removal of concerned officers of a bank in breach of the requirements of these directives depending on the frequency and seriousness of the violations.

Effective Date

These directives shall come into force as of June 15, 2004.

Credit Information Center

Data Input Requirement

Bank’s Profile

Name

Capital and Reserves as at reporting date

Borrower’s Profile

Identification and Address

Full Name (if individual, including grand father’s name)

All previous names (if any)

If individual, Name of the spouse

If company, its form (Public Enterprise, PLC, Share Company, Sole Proprietorship)

If company, Establishment date

ID of Borrower (Tax ID)

If company, Trade Registration No.

Address (Current):

Region

City

Woreda

House No.

P.O.Box

Telephone

Two most recent previous addresses:

Region

City

Woreda

House No.

P.O.Box

Telephone

Relation with the lending bank (Related/non related party, as defined by NBE

Directive No. SBB/30/2002)

If Company, list of first 20 largest shareholders/owners

(a)

(b)

(c)

.

.

.

Name of Affiliated/related/subsidiary companies

(a)

(b)

(c)

..

..

..

Sector

Agriculture

Manufacturing

Mining and quarrying

Building and Construction

Trade and Services

domestic trade

International trade

Hotel and tourism

Transport and communications

other services (specify)

Other businesses (specify)

Personal loan

If the borrower is a company/an enterprise, its board directors and CEO

Name of members of board of directors

(a)

(b)

(c)

.

.

.

Name of CEO/General manager

Existing Loans and Advances

Type of Loans and Facilities:  Term loan/overdraft/L/C facility/merchandize loan

Date on which loan/facility/was approved

Due/expiry date

Amount Approved

Repayment schedule, if term loan (monthly, quarterly, semi-annually…)

Outstanding balance as at reporting date

Loan status (Pass, Special mention, Sub-standard, Doubtful, or Loss as defined by

NBE Directive No. SBB/32/2002) or settled as at reporting date

Collateral

Type

Collateral identification

(a)

(b)

(c)

..

..

Estimated value

Degree of security (first degree, second degree,…)

If Company, date of Most Recent Audited Financial Statements

Loan Workout, Involuntary Loan Collection and Legal Measures Taken on the loans

Number of times loan/facility has been restructured/renewed

Legal measures taken (foreclosure, litigation,…)


Directive No.  SBB/39/2006 Amendment for New Bank Licensing and Approval of Directors and CEOIssuing AuthorityThese 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.

Definitions

In these Directives:

“The Bank “shall mean National Bank of Ethiopia.

“Business continuity plan” shall mean the process by which banks ensure the resumption of operations, including services to customers, interrupted as a consequence of adverse events such as natural disasters, technological failures, human error, or terrorism.

“Financial Institution” shall mean insurance companies, banks, microfinance

institutions and such other institutions as determined by the Bank.

“Related Party of a bank” shall mean, on the one hand, a shareholder, a director or a principal officer of that bank and/or the spouse or relation in the first degree of consanguinity or affinity of such shareholder, director or principal officer; and on the other, a partnership, a private limited company, a share company, a joint venture, or any other business in which the shareholder, director or principal officer of the bank and/or the spouse or relation in the first degree of consanguinity or affinity of such shareholder, director or principal officer has a business interest as shareholder, director, principal officer, owner or partner. For the purpose of these Directives, a person holding five percent or more of paid up capital of a bank, a partnership, a private limited company, a share company, a joint venture, or any other business shall be considered as a related party.

Information Required From Applicants For License

In addition to information required under article 5 of Proclamation Number 84/1994, applicants for new banking business license shall submit to the Bank the following:

Evidence for paid up capital which includes certificate of deposit in a blocked subscription account maintained with a commercial bank for this purpose and evidence for valuation of contribution in kind;

Names, addresses and occupation (including dates and addresses of employment covering the latest ten years) of the founders;

A feasibility study of the future operations and development of the business for a minimum period of three years from the date of the commencement of operation, including:

Proposed organizational chart of the bank, and brief description of the functions of the main organizational units;

A schedule of all preliminary expenses including costs of organization, share-selling and brokerage and commission;

Projections of balance sheet, cash flow statement and profit and loss accounts, with the following breakdowns where applicable:

deposit mobilization and interest payable stating   separately the proposed major sources and types of deposits;

loans and advances to be made and interest receivable, stating intended lending by sector;

investments to be made and earnings thereof; operating expenses including rents, salaries, employee benefits, directors’ remuneration;

liquid and  reserve assets; capital structure; provision for bad and doubtful debts;

fixed assets, including business premises; other income, including commissions, fees/charges;

and net operating profit/loss.

Interest rate sensitivity analysis of the projections submitted or other similar analyses of the extent to which the forecasts will change when interest rates vary (the assumptions underlying the projections and the sensitivity analysis should be stated);

Statistical and other data which may have been collected in respect of the area in which the applicant intends to operate including population of the area, business located in the area, etc. and existing banking facilities;

Disclosure of the identity of shareholders who have acquired five or more percent of the capital stock, indicating their names, nationality, number and value of shares held;

Authenticated ownership certificate and/or lease agreement for items listed under Section 11.1 of Banking Business License Application Form attached with these Directives;

Descriptions of actual purchases made or proposed purchases of goods and services, or lease of real estate by the bank from related parties; Curriculum vitae of the proposed chief executive officer and directors including their age, marital status, education, employment history for the past ten years, their experience in business and financial affairs, their involvement in civic, social and charitable activities including any leadership position held; Completed “Propriety” questionnaire attached with these directives as annex I for directors and nominated chief executive officer; Duly completed application form and enclosures thereto as prescribed by the Bank;

Selection Criteria and Appointment of Chief Executive Officer

Board of directors of a bank shall appoint a chief executive officer who demonstrates his/her competence and ability to understand the technical requirements of banking business, inherent risks and management processes required to conduct banking operations effectively, with due regard to the interests of all stakeholders.

In determining competence, and capability of the chief executive officer, the board of directors shall take into account all relevant considerations, at a minimum including, but not limited to:

whether the person has a sound knowledge of the business and responsibilities he will be called upon to shoulder;

whether the person has demonstrated, through his qualifications and experience, the capacity to successfully undertake the responsibilities of the position, including the establishment of effective internal control and risk management regime;

whether the person has ever been: fined, suspended, removed, or his/her professional license revoked by a professional, trade or regulatory body because of incompetence, fraud, negligence, or violation of laws, rules, regulations and professional code of conduct; or fined, demoted, dismissed or requested to resign from any position or office for incompetence or mismanagement by his/her employer;

and whether the person has ever been diagnosed as being mentally ill or unstable.

Chief executive officer of a bank shall hold a minimum of first degree or equivalent from a recognized higher institution of learning.

Chief executive officer shall have a minimum of 10 years experience in banking, of which, at a minimum, five years shall be in senior managerial position.

Board of directors of a bank shall appoint a person with high honesty, integrity, reputation and diligence as chief executive officer for the bank.

In determining a person’s honesty, integrity, reputation and diligence, the board of directors shall consider all appropriate factors (but not limited to) indicated in Annex I of these directives.

Chief executive officer of a bank shall be at least 30 years old.

Chief executive officer of a bank shall preferably be married or responsible to a family.

Appointment of chief executive officer for a bank (be it for new or existing bank) by board of directors shall be subject to approval by the Bank.

To obtain approval, the bank shall file with the Bank written request along with relevant documents showing that the board has taken into account all relevant considerations set in these directives.

The Bank shall give written response for the request to approve a chief executive officer submitted under Article 4.10 herein above within one month from the date of receipt of such request.

Appointment of Board of Directors and Selection Criteria

Selection Criteria

Education

At least seventy five percent of a bank’s board members shall hold a minimum of first degree or equivalent from recognized higher learning institution; and the remaining board members should, at a minimum complete general secondary school.

Employment

Members of Board of Directors shall have adequate managerial experience, preferably in banking business, and/or should take adequate training in banking business management after holding a seat on the board.

Propriety

A board member shall be a person with honesty, integrity, diligence and reputation to the satisfaction of the Bank.

In determining propriety, the Bank shall take into account all the information (but not limited to) given in Annex I of these directives.

Prohibition

A board member of a bank shall not, at the same time, serve as a board member of any other financial institution;

Chairperson of board of directors of a bank shall not be chief executive officer of the same bank.

Rotation

A director shall not serve on a board of a bank for more than six consecutive years; however, he/she may be re-elected after a lapse of six years.

Notwithstanding provisions of article 5.1.5(i) herein above, if the shareholders of a bank wish to maintain continuity in the board and re-elect some of the existing board members, they may re-elect such board members for only one more term. The number of board members so re-elected shall, however, be limited to a maximum of one-third (1/3) of the outgoing board members.

Financial Soundness

A director shall not sit on the board of a bank if he /she or a business entity in which he/she served or is serving as director or chief executive officer: has filed for bankruptcy, been adjudged bankrupt, had assets sequestrated, or been involved in court proceedings relating to any default on credit (bank or otherwise) repayments or tax payment; carries non-performing loans as defined in the Bank’s relevant directives from any bank;

Age

A member of the board of a bank shall be at least 30 years old.

Appointment

5.3.1 Appointment of members of board of directors for a bank      (be it for a new or existing bank) shall be subject to approval by the Bank.

5.3.2 Banks shall submit to the Bank written request for such approval along with completed PROPRIETY TEST QUESTIONNAIRE (which is annexed with these directives) and other relevant documents necessary to process the approval.

5.3.3  The Bank shall give written response for the request to approve appointment of board members submitted under article 5.3.2 herein above within one month from the date of receipt of such request.

6. Fees

6.1 A company applying to undertake banking business shall pay investigation fee of Birr750 (Birr seven hundred and fifty only) that is to be paid at the time of lodging an application.

6.2. A company licensed to undertake banking business shall pay license fee of Birr5,550 (Birr five thousand five hundred fifty only).

6.3.  A bank shall renew its banking business license every year between   July 1 and September 30 and pay annual license renewal fee of Birr5,550 (Birr five thousand five hundred fifty only).

7. Application Submission

All application documents for banking business license duly completed shall be submitted to the Banking Supervision Department, National Bank of Ethiopia, Addis Ababa.

Financial Year

For the purpose of reporting to the Bank, financial year for all banks operating in Ethiopia shall be from July 1 of the current year to June 30 of the following year.

Commencement of Operation

A licensed bank shall fulfill the following before it commences operation:

9.1 Put in place comprehensive risk management policies and operating manuals including, but not limited to:

9.1.1   Credit,

9.1.2   Recruitment and manpower development,

9.1.3   Investment,

9.1.4   Domestic and foreign banking,

9.1.5   Liquidity management,

9.1.6   Audit and inspection,

9.1.7   Management information systems,

9.1.8   Planning and budgeting,

9.1.9   Accounting; and

9.1.10 Business continuity Plan

9.2 Hire, train and place adequate and appropriate staff;

9.3 Ensure that the banking hall and staff operating area are suitable for the type of business to be undertaken in the premises housing the bank including but not limited to:

Proper ventilation and circulation of fresh air,

9.3.2   Suitable and clean sanitary service,

9.3.3  Sufficient and suitable lighting,

9.3.4   Display of working hours and copy of the bank’s license in a visible area of the bank; Cashier’s till which is restricted to authorized persons;

9.4      Have a strong room with a minimum carrying capacity of 224 cubic meters.

9.5  Cash loading and unloading area shall be suitable and protected from public view and access.

Place fire extinguishers at appropriate places,

Have insurance policy for the following at a minimum:

9.7.1   Fire and other perils,

9.7.2   Burglary and theft,

9.7.3  Fidelity,

9.7.4  Cash and valuables in premises and in transit,

Outer doors of the building housing the bank shall be of heavy duty metal;

All windows and glass walls of the building housing the bank shall be reinforced with metal grills;

10. Transition Period for Existing Banks

The provisions of these directives shall apply on banks operating in Ethiopia prior to the effective date of these directives starting from 1st of July 2007.

11. Repeal

Directives No. SBB/1/1994 are hereby repealed and replaced by these Directives.

12 Effective Date

These Directives shall enter into force as of 1st day of May 2006.

Strictly Confidential

ANNEX I

NATIONAL BANK OF ETHIOPIA PROPRIETY TEST QUESTIONAIRE

(To be completed by elected board member and nominated chief executive officer of a bank)

Please give yes or no answers for the following questions; if your answer is “yes”

please give further explanation on separate paper.

Position:     Board member/Chief Executive Officer  (underline the applicable

position)

Full Name

………………………………………………………………………………………………..

Name of Bank: …………………………………………..

Have you been convicted of any criminal offence, particularly an offence relating to dishonesty, fraud, financial crime or other criminal acts or been involved in any acts of misfeasance or serious misconduct.

Have you been the subject of any proceedings of a disciplinary or criminal nature, or have you been notified of any impending    proceedings or of any investigation, which might lead to such proceedings.

Has any business in which you have equity capital participation of five percent and above or in which you served as a director or as chief executive officer been fined, suspended or disciplined in other way or investigated or criticized by a government regulator or professional body.

Have you been associated, in ownership or management capacity, with a company, partnership or other business association that has been refused registration, authorization, membership or a license to conduct trade, business or profession, or has had that registration, authorization, membership or license

revoked, withdrawn or terminated.

Have you, as a result of the removal of the license, registration or other authority mentioned under “d” above been refused the right to carry on trade, business or profession requiring a license, registration or other authorization.

Have you been a director, chief executive officer, or otherwise involved in the management of a business that has gone into receivership, insolvency, or liquidation.

Have you been dismissed, asked to resign or resigned from employment or from a position because of questions or doubts about your honesty and integrity.

Have you ever been disqualified, under any law or regulation, from acting as a director or serving in a managerial capacity.

I certify that the information given above is complete and accurate to the best of my knowledge.

Signature________________________________________

Date ____________________________________________


Directive No.  SBB/40/2006 AMENDMENT OF BRANCH OPENING1. 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.

2. Definition

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.

3. Requirement

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.

6. Fee

A bank applying to open a branch shall pay an investigation fee of Birr 500 (Birr five hundred) for each branch.

7. Prohibition

No bank shall relocate its branch without prior notification and approval by the Bank.

8. Repeal

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 Directives to Transfer Duties and  Responsibilities Related to Establishment and Operation of Export Credit Guarantee Scheme from the National Bank of Ethiopia to Development Bank of EthiopiaWhereas, national exporters need to compete on an equal footing with otherexporters 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.

Article 1

Definitions

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.

Article 2

Eligibility Criteria

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.

Article 3

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.

Article 4

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;

Article 5

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.

Article 6

Revolving Credit

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.

Article 7

Obligation of the Exporter

Exporter shall:

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.

Article 8

Risk Coverage

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.

Article 9

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 .

Article 10

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.

Article 11

Collateral

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.

Article 12

Repayment

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.

Article 13

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;

Article 14

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.

Article 15

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.

Article 16

Inspection

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.

Article 18

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.

Article 20

Effective Date

These directives shall come into force as of the 1st day of February 2007.

Directive No.  SBB/44/2008

LIQUIDITY REQUIREMENT

(3rd replacement)

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. Definitions

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.

5. Reports

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.

6. Repeal

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.

Directive No.  SBB/45/2008 RESERVE REQUIREMENT (4th Replacement)

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.

3. Requirement

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.

6. Reports

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.

7. Repeal

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.

Directives No. SBB/46/2010  Customer Due Diligence of Banks

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”.

2. Definitions

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;

b)permanent address;

c)telephone number, fax number and e-mail address, if available;

d)date and place of birth, if possible;

e)nationality;

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 :

i.name,

ii.legal form,

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:

a)full name,

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.

8. Exemptions

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.

10. Reporting

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.

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