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Parliament Approves Law Allowing Entry of Foreign Banks

Dec 17 , 2024

Parliament has approved the Banking Business Proclamation, permitting foreign banks to enter and operate in Ethiopia.

The new legislation allows foreign banks to establish subsidiaries, purchase shares in local banks, and open branches or liaison offices. However, the law prohibits foreign investors from owning more than 40pc of shares in local banks. It also limits the combined shareholding of foreign nationals and foreign-owned Ethiopian organizations to 49pc of a local bank’s total shares.

The law stipulates that foreign banks can employ foreign nationals as senior executives but mandates the inclusion of resident Ethiopians on their boards.

The Council of Ministers approved the draft legislation in June. The government plans to issue banking permits to five foreign investors over the next five years.

However, some MPs opposed the bill arguing that the domestic banking sector, which suffers from a shortage of working capital and foreign currency, is not ready to face competition from foreign banks. They also stated that the central bank lacks the capacity to regulate foreign financial institutions effectively. Three MPs voted against the proclamation.

National Bank of Ethiopia (NBE) Governor Mamo Mihretu defended the law, stating that opening up the banking sector to foreign investors will benefit domestic banks. He said that the NBE has spent the past three years preparing regulatory mechanisms to oversee foreign banks.

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