The last year has been an eventful one for the financial sector. Right from the get-go, banks and insurance firms were subject to monumental changes in their respective industries, often at the behest of central bank officials. The year saw the introduction of full-fledged interest-free banks, the surfacing of mortgage banking, and two banks receive operational licenses, the first time the industry is welcoming newcomers in almost a decade. The financial sector is likely to continue changing at a rapid pace as new technologies are introduced and the country's banked population grows. A glance at what transpired over the past year may give insight into what is expected in the near future.


Demonetisation Kicks Off

For the fifth time over the past century, the government carries out a demonitisation process, introducing a 200 Br denomination and changing the colours and security features of the 100 Br, 50 Br and 10 Br notes. People with over 100,000 Br cash on hand were instructed to go to banks and change out their notes within a month while the entire process was wrapped up in three months. The new procedure also compelled people with over 10,000 Br in cash to open a bank account.


Central Bank Allows Import Using Forex Retention Accounts

A directive issued by the National Bank of Ethiopia (NBE) permits exporters to use their foreign currency retention accounts to import different items including pharmaceutical products, agricultural inputs, chemicals, manufacturing inputs, motor oil, and baby formula, as well as edible oil, wheat and sugar. The previous directive limited the account holders to use their forex only to finance direct business and effect current payments.


Pioneer Interest-Free Bank Secures License

ZamZam Bank receives an operating license from the National Bank of Ethiopia (NBE), making it the pioneer full-fledged, interest-free bank in the country. The central bank also approved the appointment of Melika Bedri, former chief financial officer at the Commercial Bank of Ethiopia, as the first president of ZamZam.


Oromia Insurance Awards HQ Contract to Chinese Firm

Jiangxi Corporation for International Economic & Technical Cooperation, a Chinese state-owned firm, wins the contract to build a new headquarters for Oromia Insurance for 1.1 billion Br. Construction is scheduled to finish in three years' time in the heart of Mexico Square, an area quickly developing into the financial district of Addis Abeba. The firm had previously built Wegagen Bank’s headquarters securing the deal for one billion Birr, not far from where its new project is taking place.


Insurance Firms Compelled to Invest in T-Bills

A circular issued by the National Bank of Ethiopia (NBE) requires insurance companies to invest at least 40pc of their assets in treasury bills (T-bills). Insurance executives, already discontented with the Investment of Insurance Funds Directive, claiming that it did not give them room to invest in areas with good returns, are unhappy with the new rule.


Further Transaction Limits

Following bill note changes, the central bank had set limits on the amount of cash that can be withdrawn and the number of transactions that can be made in a week. Individual account holders are not allowed to withdraw more than 50,000 Br a day while businesses have a limit of 200,000 Br a day. Customers were also prohibited from making more than five transfers a week to others.


Amhara Bank Makes Headway with Strong Capital

Amhara Bank, one of the under-formation banks, holds its first general assembly in preparation to join the industry with a paid-up capital of close to six billion Birr. When the Bank goes operational, it will be among the few newcomers to join the banking sector since 2012, a year when two private banks were established – Debub Global and Enat.


Central Bank Cuts Cash-holding Limit

The National Bank of Ethiopia reduces the cash holding limit for businesses from 1.5 million Br to just 200,000 Br. Effective as of March 8, 2020, the adjustment also applies to individuals, whose cash holding limit is also reduced from 200,000 Birr to 100,000 Birr.


Changes Made to Diaspora, Retention Accounts

The central bank orders one-third of export earnings and inward remittance be surrendered to its coffers automatically. Just under half of the remaining 70pc, or 31.5pc of the total, is available for the exporter in a retention account while the balance remains with the respective bank. Diaspora account holders that receive inward remittance are also subject to the 30pc initial surrender. A new directive dictating the establishment and operation of diaspora accounts prohibits holders from importing non-essential items.


Paid-up Capital Requirement Grows Tenfold

For the first time in a decade, the central bank issues a directive compelling all commercial banks to meet a threshold capital of five billion Birr in five years' time. Banks that have entered the market recently, and those in the process of incorporation, are given seven years to comply. It is a tenfold increase from the previous threshold of 500 million Br.


State Telco Expands to Mobile Money

Telebirr, a mobile money service of Ethio Telecom officially kicks off during a lavish ceremony on May 11, 2021. Within months, the service garnered more than six million users. Ethio telecom targets to have 33 million people subscribed to Telebirr in five years' time and aims to transact 3.5 trillion Br, almost half of the country's GDP, through the platform by 2025.


Accounts in Tigray Frozen, Again

Several bank accounts opened in Tigray Regional State are frozen days after the federal government declared a humanitarian unilateral ceasefire, and authorities in Addis Abeba said they withdrew federal forces from the region on June 28, 2021. Unlike the first freeze in November 2020, authorities at the central bank left the decision to the banks' discretion, cautioning them to manage risks while the regional state is cut off from the rest of the country.


Central Bank Imposes New Limits on Fintech Firms

Foreign nationals of Ethiopian origin are allowed to invest only in foreign currency should they get into the business of payments system operators or instrument issuers. The new rule comes into force just a year after the central bank partially liberalised the digital payment market. The companies are responsible for making sure all shareholders are compliant with the directive and submitting a compiled document to the central bank.


New Banks Nominate Industry Veterans

Ahadu Bank nominates Eshetu Fantaye, former head of Bunna Bank, as its first president, and Amhara Bank picks Henok Kebede, serving Dashen Bank as a senior executive, as its founding president. Ahadu Bank has raised over 740 million Br in subscribed capital from 9,600 shareholders, 545 million Br of which is paid up. The banks have formally submitted requests for operational licenses.


Central Bank Orders Banks Freeze Loans

The National Bank of Ethiopia orders all commercial banks to suspend the issuance of all collateral-based loans. The directive was communicated through text message and includes the disbursement of loans that have already been approved.


More Changes

The beginning of September saw additional regulations issued by the National Bank of Ethiopia (NBE). Commercial banks are obligated to double their reserve ratio to 10pc, effective September 1, 2021. Banks are also obligated to buy government-guaranteed Development Bank of Ethiopia (DBE) bonds, allocating one percent of their loans and advances while insurance firms are required to allocate 15pc of their net income for the bonds.