Ethiopia Restricts New Financial Firms from Operating in SEZs

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Only banks with at least 2% of the total banking sector’s assets can operate in SEZs. According to Article 4.6.1 of the directive, eligibility is determined based on the latest fiscal year-end calculations.

The National Bank of Ethiopia (NBE) has issued a draft directive restricting small and newly established financial firms from opening branches in Special Economic Zones (SEZs), a move experts say is aimed at encouraging bank mergers.

The draft, released this week alongside two others on insurance business regulations and minimum reserve requirements, stipulates that only banks with at least 2% of the total banking sector’s assets can operate in SEZs. According to Article 4.6.1 of the directive, eligibility is determined based on the latest fiscal year-end calculations.

Industry estimates suggest a bank would need a total capital of at least Birr 66 billion to qualify, given that Ethiopia’s banking sector reached Birr 3.3 trillion in total assets by the end of the 2023/24 financial year, which is a 15.2% increase from the previous year. Loans, advances, and bonds accounted for 66.9% of these assets.

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Currently, only a few banks, including state-owned institutions such as the Commercial Bank of Ethiopia (CBE) and the Development Bank of Ethiopia (DBE), meet the threshold. CBE alone holds 43.5% of the sector’s total assets, reaching Birr 1.35 trillion as of June 30, 2024.