Ethiopia's central bank has relaxed rules to allow domestic lenders to invest directly in capital market services, a move aimed at deepening the country's nascent stock exchange.
Under amendments introduced in a directive issued on Friday, the National Bank of Ethiopia (NBE) will permit banks to acquire up to 100 percent stakes in investment banks, brokerages, and other capital market operators, excluding credit ratings agencies. Â
This strategic decision is anticipated to significantly enhance the role of banks in nurturing a robust and effective capital market ecosystem, the NBE said today while announcing the new directive approved by its board.
Previously, banks' equity investments were restricted to holdings of no more than 10 percent in non-banking businesses. The new rules seek to encourage their participation in developing the fledgling bourse.
The changes form part of the NBE's efforts to develop Ethiopia's financial services sector as the government opens key industries to private investors.
The directive kept banks' allowable equity stakes in individual insurers at five percent of the insurer's capital, while keeping their combined holdings in non-bank companies at 15 percent of the lender's total capital.
Banks must obtain regulatory approval for acquisitions and investments above the new thresholds. Â
However, the directive issued by the NBE stated that prudential restrictions would not apply to interest-free banking funded by investment accounts in accordance with Islamic Shariah principles. Â Â
Exemptions were also granted for investments pre-dating previous regulations and those held by banks previously operating as microfinance institutions.
Similarly, dealings in Ethiopian federal government bonds and other securities backed by sovereign guarantees are exempt from restrictions if acquired at par value.