Banking (Amendment) Proclamation No. 1159-2019

FEDERAL NEGARIT GAZETTE

OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

25th Year No. 88 ADDIS ABABA September 9th, 2019

Proclamation No 1159 /2019 Banking (Amendment) Proclamation

PROCLAMATION NO. 1159/2019

A PROCLAMATION TO PROVIDE FOR THE AMENDMENT OF BANKING BUSINESS PROCLAMATION

WHEREAS, it is found necessary to stipulated on the Banking Business Proclamation No. 592/2008 allow Foreign Nationals of Ethiopian Origin to invest in the Banking Sector by lifting legal restriction in place;

WHEREAS, it is essential to include new provisions in the Banking Business Proclamation No. 592/2008 that contribute to safety, soundness and effectiveness of banks as well as consumer protection, and to clarify those unclear provisions therein;

NOW, THEREFORE, in accordance with Article 55(1) of the Constitution of the Federal Democratic Republic of Ethiopia, it is hereby proclaimed as follows.

  1. Short Title

This Proclamation may be cited as the “Banking (Amendment) Proclamation No. 1159/2019”.

  1. Amendment

The Banking Proclamation No. 592/2008 is hereby amended as follows:

1/ Article 2 (2) (f) of the Proclamation is deleted and the following new paragraphs (f),(g) and (h) are added to sub-article (2) of Article 2 of the Proclamation:

  1. f) Digital financial service;

g ) Agent banking.

  1. g) Any other activity recognized as customary banking business, which a bank engaged in the activities described from paragraph (a) to (g) of this sub-article may be authorized to undertake by the National Bank.

2/ Article 2 of (5), (9) and (13) the Proclamation are deleted and replaced by the following new sub-articles (5),(9) and (13):

“5/ “Company” means a Share Company as defined under the Commercial Code of Ethiopia, in which the capital is:

“a)Fully Owned by Ethiopian Nationals or Foreign Nationals of Ethiopian Origin or Jointly Owned by Ethiopian Nationals and Foreign Nationals of Ethiopian Origin; or

“b) Organizations fully Owned by Ethiopian Nationals or Foreign Nationals of Ethiopian Origin or Jointly owned by Ethiopian Nationals and Foreign Nationals of Ethiopian Origin and registered under the Laws of and having its Head Office in Ethiopia;

9/“Financial Institution” means an insurance company, a bank, a micro-finance institution, a capital goods finance company, a reinsurer, a micro insurance provider, a postal saving, a money transfer institution, a digital financial service provider or such other similar institution as determined by the National Bank;

13/“Loan” or “Advance” means any financial assets of a bank arising from a commitment to advance funds by a bank to a person that is conditioned on the obligation of the person to repay the funds, either on a specified date or dates or on demand, usually with interest, or from indirect advances such as unplanned overdrafts, participation in loan syndication and the purchase of loans from another lender; and includes a Contractual Obligation of a bank to advance funds to or on behalf of a person’s claim evidenced by a lease financing transaction in line with Provisions of Relevant Law in which the Bank is the lessor, and an overdraft facility to be funded by a Bank on behalf of a person;

3/A new sub-articles 20, 21, 22, 23, 24, 25 and 26 are added following to article 2(19) of the Proclamation:

“20/Guarantee” means a written promise made by a Bank to a person to meet an obligation if another person fails to meet his obligation;”

“21/ “Digital Financial Service” means financial service including payments, remittances and insurance accessed and delivered through digital channels;”

“22/ “Foreign Nationals of Ethiopian Origin” means a Foreign National of Ethiopian Origin as defined under Proclamation No. 270/2002 Providing Foreign Nationals of Ethiopian Origin with Certain Rights to be Exercised in their Country Origin;”

“23/ “Illiquid” means the financial condition of a bank where such bank becomes unable to meet its immediate obligations;”

“24/ “Indirectly Owning Share of a Company” means owning share of a company holding Direct Ownership in a Bank;”

“25/ “Normal Course of Business” means transaction in full compliance with the bank’s policies and procedures and without any preferential treatment in line with market terms and conditions;

26/ Any expression in the Masculine gender includes the Feminine;

4/ Article 3 (1) of the Proclamation is deleted and replaced by the following new sub-article (1):

“1/ No person shall transact banking business or provide digital financial services in Ethiopia without obtaining a banking business license or digital financial services license or authorization from the National Bank.”

5/Article 3 (3) (g) of the Proclamation is deleted and replaced by the following new paragraph (g):

“g) Register its amended Memorandum and Articles of Association; or”

6/ A new sub-article (4) is added following to (3) of Article 3 (3) of the Proclamation and the existing sub-articles (4) and (5) are renumbered as sub-articles (5) and (6) :

“4/ Notwithstanding paragraph (a) of sub-article

(3) of this Article, the National Bank may issue a Directive on short time saving mobilization campaigns for a short period and/or cash collection services at customer’s premises.”

7/Article 9 of the Proclamation is deleted and replaced by the following new Article 9:

“9/ Banking activity by Foreign National of Ethiopian Origin

“1) Notwithstanding the provisions of 15(1) of the Proclamation (as renumbered), a Foreign National of Ethiopian Origin or an Organization owned fully by Foreign Nationals of Ethiopian Origin or jointly by Foreign Nationals of Ethiopian Origin and Ethiopian Nationals shall be allowed to acquire the share of an Ethiopian Bank or open a Bank in Ethiopia.”

“2) If a Foreign National of Ethiopian Origin holds a share directly in a Bank or indirectly by holding a share in another organization that holds a share in a bank, in accordance with the provisions of sub-article (1) of this Article, a Foreign National of Ethiopian Origin or the Organization in which he is a Shareholder, shall pay the values of the Shares in the Bank only in acceptable Foreign Currencies.”

“3) Notwithstanding the Provisions of sub-article (2) of this Article, all types of payments due to a Foreign National of Ethiopian Origin resulting from:

a)Dividends earned from a share in a bank;

b)Transfer of shares in a bank;

  1. c) Sales or liquidation of a Bank or;
  2. d) Any other matters related to shareholding in a Bank shall be paid to him in Local Currency (Birr) and he shall not be allowed to repatriate any asset or interest obtained in this manner.”

“4) The National Bank may issue a Directive related to additional conditions for investment in a Bank by Foreign Nationals of Ethiopian Origin.”

8/ Article 11 (6) of the Proclamation is deleted.

9/Article 14 (1) of the Proclamation is deleted and replaced by the following new sub-article (1):

“1/ Without prejudice of Article 15(2) of this Proclamation, a Director shall be a person with honesty, integrity, diligence and good reputation in accordance with the qualification requirements to be determined by a National Bank Directive.

10/ Article 14(4) (c) of the Proclamation is deleted and replaced by the following new paragraph (c):

“c/ The Duties and Responsibilities of Boards of Directors and manner of good corporate governance of Banks; ’’

11/ The following new sub-article (1) is added under article 15 of the Proclamation and the existing sub-articles (1),(2),(3) &(4) are renumbered as sub articles (2), (3), (4)& (5):

“1/ Foreign Nationals or Organizations fully or partially owned by Foreign Nationals may not be allowed to open Banks or Branch Offices or subsidiaries of Foreign Banks in Ethiopia or acquire the shares of Ethiopian

Banks.”

12/ Article 15(4) of the Proclamation (as renumbered) is deleted and replaced by the following new sub-article (4):

4/ A Director of a financial institution may not, at the same time, serve as a Director of a bank. Moreover, a business entity or a company in which such director or chief executive officer has ten percent or more equity interest may not serve as a director of a bank.

13/ Article 17 (2) (b) of the Proclamation is deleted and replaced by the following new paragraph (b):

“b) Any action, in line with a Directive to be issued by the National Bank, detrimental to the stability or soundness of the financial sector, the economy or the general public interest carried out by a Director, a Chief Executive Officer or a Senior Executive Officer of a Bank.”

14/ Article 22 (1) and (2) of the Proclamation are deleted and replaced by the following new sub-articles (1) and (2):

“1/ The conditions and limitations on investments of banks, and a loan, advance or other credit facility, guarantee or any other commitment or contracts given by a bank, directly or indirectly to a person shall be determined by Directive to be issued by the National Bank.”

“2/ The National Bank may issue Directive to regulate banking businesses related to interest-free deposit mobilization and fund utilization.”

15/ A new sub-article (3) is added following Article
22(2) of the Proclamation:

“3/ No bank shall grant loans against the security of its own shares.”

16/ Article 23 (1) of the Proclamation is deleted and the existing sub-articles (2) & (3) are renumbered as sub-articles (1) and (2).

17/Article 24 (3) of the Proclamation is deleted and the existing sub-articles (4) & (5) are renumbered as sub-articles (3) & (4):”

18/Article 28(2) (a) of the Proclamation is deleted and replaced by the following new paragraph

(a):

“a/ Exhibit at every place of its business, including its branches and sub-branches, in a conspicuous place throughout the year, a copy of the last audited balance sheet and profit and loss account in respect of all of its operations;”

19/ The following new sub-article (4) is added (3) of Article 28 of the Proclamation and the existing sub-articles (4),& (5) are renumbered as sub-articles (5) and(6):

“4/ Notwithstanding, sub-article (3) of this Article, Board of Directors of a Government owned Bank shall conduct a similar meeting to approve its financial statements within four months from closing its financial year, and exhibition and publishing of financial statements by a Government owned bank shall occur within two weeks after approval of the financial statements by the Board of Directors of the Government Owned Bank.”

20/ Article 28 (5) and (6) of the Proclamation (as renumbered) are deleted and replaced by the following new sub-articles (5) and (6):-

“5/The National Bank may collect any appropriate information from Banks in line with the requirements of a Directive to be issued by the National Bank. Provided, however, that such information may not be disclosed to any person unless the disclosure:

a)Is made for the purpose of fulfilling the requirements of this Proclamation;

b)Is required to ensure the financial soundness of banks;

c)Is made to recipients who are legally authorized to obtain such information;

d)Is made to the body to which the National Bank is accountable;

e)Is ordered by a Court; or

f)Is required for the purpose of meeting obligations which Ethiopia entered into under International Agreements.

21/ Article 31 (5) the Proclamation is deleted and replaced by the following new sub-article (5)

“5/ prohibit the Bank from opening new branches and sub-branches”.

22/ A new sub articles (c),(d) and (e) are added following to (1) (b) of Article 32 of the Proclamation:

“c/ The Bank becomes illiquid;

d/ The Bank becomes insolvent; or

e/ The Bank fails to abide by laws and National
Bank Directive;”

23/ Article 33(1) (c) of the Proclamation is deleted and replaced by the following new paragraph (c):

“c/ There is a substantial dissipation of assets or earnings due to a violation of any Law or Directive or due to an unsound practice;

24/ Article 37 (4) of the Proclamation is deleted and replaced by the following new sub-articles

(4):

“4/The receiver shall take over the assets and the records of the bank and operate it with all the Powers of its Shareholders, Directors and Executive Officers and conduct all business of the Bank;”

25/ A new articles 53, 54, 55, 56, 57 , 58 and 59 are added after the following Article 52 of the

Proclamation and the existing article 53 to 61 are renumbered as article 59 to 67, respectively:

“53. Security Measures

The National Bank may issue Directive prescribing standards on banks’ minimum security measures.”

“54. Advertisement

The National Bank may at any time direct a bank in writing to withdraw, amend, or refrain from issuing a paid radio or television announcement, a poster, billboard, brochure, circular, or other document, and a paid advertisement in a regularly published newspaper or magazine that it considers to be false, misleading, deceptive, or offensive in line with a Directive to be issued by the National Bank.’’

“55. Outsourcing of Critical or Important

Functions

Minimum conditions for outsourcing of critical or important functions shall be determined by the Directive to be issued by the National Bank. For the purpose of this sub-article, “critical or important functions” of a Bank include: deposits mobilization, granting loans, remittance, International Banking and any other function as determined by the National Bank.”

“56. Suitability of Services to Disabled Customers

1/A Bank may provide suitable banking services to disabled customers.

2/ The National Bank may issue a Directive to ensure suitability of banking services to disabled customers as it deems appropriate.”

“57.Consumer Protection

Minimum conditions for consumer protection by banks may be determined by the Directive to be issued by the National Bank.”

“58. Digital Financial Services

Minimum conditions to provide digital financial services shall be determined by the National Bank Directive.”

“59. Interest Free Bank

  1. “Without Prejudice to the requirements specified under the provisions of this Proclamations , the National Bank may issue a Directive to prescribe additional conditions of licensing , supervisions and requirements to establish Interest Free Bank. For the purpose of this Sub article, Interest Free Bank means a company licensed by National Bank to Undertake only Interest free banking business.”

2/” Notwistanding sub article (1) of this Article , the National Bank may issues a Directives to regulate a banking business related to interest free deposit mobilizations and fund utilizations within a conventional banking.”

26/The reference to the “inspection” ,“inspect”, “inspector”, and “inspected” in different part of the Proclamation are repealed and replaced by “examination”, “examine “examiner”, and “examined”, respectively.

3.Effective Date

This Proclamation shall enter into force up on the date of publication in the Federal Negarit Gazette.

Done at Addis Ababa, On the 9th Day of September, 2019

SHALEWORK ZEWDE PRESIDENT OF THE FEDERAL DEMOCRATIC

REPUBLIC OF ETHIOPIA

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