NBE Green Lights Investment Licensing For Commercial Banks As ESX Nears Debut

Central bank Governor Mamo Mihretu has given the go-ahead for commercial banks to begin investing in capital market service providers, allowing them to invest in full ownership of investment banking ventures as the authority in charge of the upcoming capital market announces the imminent operation of the Ethiopian Securities Exchange (ESX).

A National Bank of Ethiopia (NBE) directive issued on July 19, 2024, permits commercial banks to acquire up to 100 percent of equity shares in capital market service providers, with the exception of credit rating agencies.

The directive limits bank equity ownership in non-banking businesses (which does not include investment banking) to 10 percent, and five percent in insurance companies.

A commercial bank’s aggregate equity investments in non-bank businesses, including capital market service providers and insurance firms, is, however, limited to no more than 15 percent of its own capital.

The Governor has also capped banks’ real estate acquisitions, other than for their own business premises, to 10 percent of capital.

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The NBE directive comes on the heels of another directive from the Ethiopian Capital Markets Authority (ECMA) enabling the utilization of the Ethiopian Securities Exchange for selling shares and bonds.

The Authority’s ‘Directive on Licensing, Operation, and Supervision of Securities Exchanges, Derivatives Exchanges, and the Over-the-Counter Market’ introduces the requirements and supervisory framework necessary for the operation of ESX.

“This directive consolidates the previously fragmented securities trading in Ethiopia into a single, licensed, and regulated market enhancing the sector’s contribution to stakeholders and the national economy. It also paves the way for the Ethiopian Securities Exchange S.C. to commence operations by granting an exchange license,” it reads.

ESX wrapped up its share offering earlier this year after raising more than 1.5 billion birr from 48 investors, including 16 of the country’s commercial banks and 12 insurers. Three foreign investors – the Trade and Development Bank (TDB), FSD Africa, and the Nigeria Exchange Group (NGX) – have also acquired stakes in the upcoming capital market.

The ESX shareholders’ list also includes a handful of state-owned enterprises under the Ethiopian Investment Holdings (EIH), such as Ethio telecom and the Ethiopian Insurance Corporation.

Government officials, including Prime Minister Abiy Ahmed (PhD), have previously stated that 10 percent of equity shares in Ethio telecom would be offered to the public via ESX.