Promoters of two interest-free banks under formation, Ramis and Zad, have agreed to a merger deal, under pressure to meet central bank requirements, persons close to the matter disclosed to Fortune.

It is a move signalling that promoters of financial institutions rushing to join the banking industry have to raise half a billion Birr in capital before the deadline in mid-September this year. Others are pleading with regulators at the central bank for an extension.

Ramis, which began selling shares in September 2019, has raised more than 400 million Br in paid-up capital, while Zad has managed to raise somewhere around 80 million Br. If the merger goes through, the interest-free bank will be the third to join the industry after ZamZam and Hijra banks, which entered the financial sector earlier this year with a paid-up capital of 870 million Br and 700 million Br, respectively.

A recent directive approved by the National Bank of Ethiopia (NBE) requires commercial banks in operation to raise paid-up capital in five years to five billion Birr. New entrants were given the option to get incorporated with 500 million Br capital and increase tenfold in sevenyears. Several initiatives currently offering shares to the public have thus far failed to attain their goals due to political instability, lack of interest from prospective shareholders, and insufficient time to complete paperwork.

Promoters of another new entrant, Akufada Bank, one among over two dozen banks currently selling shares to the public, are downbeat about meeting the requirement before the deadline, having raised just 25pc of the required amount. The current state of affairs with instability in the country and the economic slowdown are not helping, says Robel Nigusse, project manager of Akufada.

The group is considering the option of a merger and has held a few discussions with prospective partners, disclosed Robel. The promoters might attempt to raise five billion Birr in seven years, the other option laid out in the directive, instead of dissolving.

It is not the only group on the lookout for prospective partners in the merger bid. Ge'ez Bank, mobilising 300 million Br from 5,000 shareholders since last year, is devising new sales strategies, according to Layne Kinfe, marketing manager. Ge'ez hopes to meet the threshold set by the central bank upon deadline but remains open to merge with others. The group has been approached for a merger, an offer promoters are considering, according to Layne.

"We won't achieve much on our own," said Layne.

Promoters of Jano and Kush banks remain hopeful they will conclude selling shares soon. Jano hopes to close initial public offerings this week, having raised the required capital while the latter is still mobilising equity from the public.

Promoters of Ge'ez and Jano, along with six others, filed a petition before the Governor of the central bank two weeks ago, pleading that the six-month period provided in the directive is not sufficient to complete selling shares, hold shareholders assemblies and file the necessary paperwork before the public notary office. The promoters of these groups hope to be granted an extension of six months up to a year.