Central Bank to Put a Leash on Power Plays in Banking

Oct 29 , 2025. By NAHOM AYELE ( FORTUNE STAFF WRITER )

The financial sector is bracing for a regulatory shift that will put the brakes on unchecked bank share transfers. A draft directive from the National Bank of Ethiopia (NBE) proposes a two-percent ceiling on share transfers without prior approval, signalling an era in which large ownership movements in banks will face closer scrutiny. The industry, valued at hundreds of billions of Birr, has long operated with minimal oversight of shareholder dealings.

The National Bank of Ethiopia (NBE) is preparing to issue a directive that will fundamentally alter how bank shares are transferred and owned.

For the first time, there will be a limit, two percent, on how much of a bank’s share capital can be transferred without NBE’s explicit approval. If implemented, it will be a major departure from the laissez-faire framework that has defined the financial sector for decades.

Regulators say the directive seeks to address long-standing concerns about opaque ownership structures, regulatory arbitrage, and the risk of money laundering. Until now, there has been little regulation of how shares in banks are bought and sold, an absence that has left a critical oversight gap and raised questions about the integrity of ownership structures. The draft directive sets out a clear approval process for significant share transfers, particularly when influential shareholders are involved, and gives regulators considerable new supervisory powers.

Under the new rules, banks will be obliged to collect detailed information on any shareholder looking to transfer shares. Shareholders with substantial holdings will be required to disclose the source of funds used to buy shares, while buyers will be required to provide audited financial statements for the previous three years.

The NBE's new oversight powers extend even further. After a transfer is approved and all the paperwork appears to be in order, the Central Bank steps in if it finds that the transaction was based on false information. The Bank may reject, modify, or reverse the transfer and may demand additional information depending on the specifics of each case.

Banks will also be required to promptly report any developments that could affect the suitability of a significant shareholder. If a share purchase results in an investor obtaining significant ownership, the bank would submit all supporting documents to the Central Bank, including evidence of the source of funds, and details of any links between the shareholder and the bank.

Foreign institutions face even stricter requirements. They will need to provide incorporation documents, approval from their governing body, detailed ownership information, and a no-objection letter from the regulatory authorities in their home country. The share transfer process would be accompanied by a purchase agreement contingent on the NBE’s approval, which would spell out the purpose, amount, form, and duration of the transaction, its effects on the bank’s capital and voting rights, and any agreements between the parties. The intended role of the new shareholder in the bank’s governance would also be disclosed.

The NBE will have 45 days to decide whether to approve or reject a transfer after all required documents are submitted. Approvals can be conditional or unconditional.

Industry leaders have largely welcomed the move as a necessary step to modernise the banking industry.

Tadesse Hatiya, the president of Sidama Bank, sees the Central Bank’s involvement as creating a healthier process for share transfers. He noted that some shareholders do not necessarily buy shares for profit alone but may form alliances to exert undue influence on a bank’s decision-making.

“There has to be oversight from the National Bank to prevent improper practices and protect corporate governance,” he said.

According to Tadesse, verifying the source of funds used for share purchases requires banks to obtain comprehensive financial information from buyers as a crucial measure to ensure that shares are bought with legitimate funds, thereby reducing the risk of money laundering.

“The obligation for banks to request comprehensive financial information will help ensure that purchases are made with legitimate funds,” he said.

This sentiment was echoed by Demissew Kassa, secretary general of the Ethiopian Bankers Association. He hopes the directive will help reduce or eliminate the risk of money laundering and promote a transparent and healthy environment for share transfers.

However, Tadesse acknowledged a potential downside, noting that Central Bank intervention could introduce bureaucratic delays. He warned that shareholders who need to sell quickly because of an urgent financial situation might find their options limited by the requirement for prior approval, potentially restricting liquidity and complicating timely transactions.

“Whether the decisions can always be made promptly is the question,” he said. "If the process is efficient, regulatory oversight could ultimately strengthen the sector."

Hijra Bank President, Dawit Keno, supports the directive, describing the new rules as a way for banks to benefit from stronger regulatory protection. He noted that the Central Bank’s decision to set the threshold as stringent but argued that, once the system is well established, the cap could be raised to five percent in the long run.

Not all stakeholders are convinced. Worku Lemma, a financial expert, criticised the directive as overly rigid and difficult to enforce. He argued that banks should be able to manage share transfers internally and inform NBE after transactions.

"The pre-approval process creates unnecessary red tape that could slow transactions and discourage foreign investors, reducing the flow of capital into the country," he told Fortune. “Banks already have strong incentives to monitor their shareholders to maintain the health of their institutions. Heavy intervention from the National Bank is unnecessary.”

Ameha Tefera (PhD), another finance expert, sees both the proposal's strengths and weaknesses. While he agreed that the directive could help prevent monopolistic tendencies in the banking industry, he urged that setting the bar for a “strategic shareholder” at two percent is far too low, particularly for smaller banks.

Foreign ownership is another area in which the NBE has set clear boundaries. According to the draft rules, a foreign individual will be allowed to own up to seven percent of a bank’s shares directly, while a foreign company can own up to 10pc. Strategic investors will be permitted to hold up to 40pc. However, total shareholding by all foreign nationals and foreign-owned Ethiopian entities cannot exceed 49pc, and overall direct and indirect foreign ownership is capped at 20pc. These measures, the Bank says, are meant to strike a balance, encouraging foreign participation in the banking industry while ensuring that domestic shareholders continue to exercise majority control and governance.

PUBLISHED ON Oct 29,2025 [ VOL 26 , NO 1330]