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NATIONAL BANK OF ETHIOPIAADDIS ABABA

V/GOV /FIS/O 16/2011September 16, 2011

Attached herewith please find the NBE Directives No. SBB/50/20 11 which shall be effective as

of 19[h day of September 2011 and NBE Directives o. SBB/51 /20 1 1 which shall be effective as

of the 1S[ day of October 2011 for information and implementation.

RE. The Governor Chief Economist and V/Governor-Monetary Stability V/Governor-Corporate Services Senior Governor's Advisor All Directorates & Deputy Directors

National Bank of Ethiopia

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ADDRESS: SUDAN STREET r.O.BOX 5550 01'2048 FA-,(No. 0115 5145 8S TEL. t\o. +251-1-115 5174 30.A.DDISABAflATELEGR.i\PHIC ADDRESS: Nil. T ION BAN K TELEX 21020CODES-USED PETERSON 3'd & 4th ED BENTLEY'S 2nd PHRASE II..B,C. 6U1 EDITION

E-mail: nbe.cxcd@ ethionet.et Website. www.http://www.nbe.gov.et

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NATIONAL BANK OF ETHIOPIA

TELEGRAPHIC ADRESS

NATION BANK

TELLEX 21020

CODES USED

PETERSON 3rd & 4th ED.

BENTLEY'S 2nd PH RASE

A. B. C. 6th EDITION

PLEASE ADDRESS ANY REPLY TO

P.O. BOX 5550

Licensing and Supervision of Banking Business

Minimum Capital Requirement for Banks

Directives No. sBB/50/2011

WHEREAS, it has become necessary to raise the minimum capital required to establish

a new bank so that the newly established bank can compete successfully with existing

banks;

WHEREAS, it is known that as banks expand their business they must maintain a level

of capital commensurate with the volume of their business to withstand adverse

operational results;

NOW, THEREFORE, in accordance with Articles 18(1) and 59(2) of Proclamation No.

592/2008, the National Bank of Ethiopia has issued these directives.

2. Definitions

For the purpose of these directives, unless the context provides otherwise:

2.1 "existing banks" refers to banks licensed by the National Bank of Ethiopia

before the effective date of these directives;

2.2 "a bank under formation" means a banking share company under formation

which fulfills all of the following as of the effective date of these directives:

a) its capital has been fully subscribed,

b) collected in cash from its founding shareholders a minimum capital of

Birr75 million (Birr seventy five million) and deposited in an existing bank

in the name and to the account of the bank under formation,

c) held its founding shareholders general meeting which elected board of

directors and approved articles and memorandum of associations, and

d) submitted final application for banking business to the National Bank of

Ethiopia.

These directives shall be applicable to existing banks and applicants for new

banking business including those under formation.

4. Minimum Paid-up Capital

4.1 The minimum paid up capital required to obtain a banking business license

shall be Birr 500 million (birr five hundred million), which shall be fully paid in

cash and deposited in a bank in the name and to the account of the bank

under establishment.

4.2 Existing banks whose paid up capital is below Birr 500 million (birr five

hundred million) shall raise their paid-up capital to the said amount by June

30, 2016. Such banks are required to submit action plan for capital increase

to the National Bank thio ia within 30 days after the effective date of,-~

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4.3 Banks under formation are required to comply with sub article 1 of this article

within five years after commencement of banking operation.

4.4 Notwithstanding the provisions of sub-article 2 of this article, all licensed

banks shall at a minimum maintain capital to risk weighted assets ratio of 8%

at all times.

If a licensed bank fails to comply with the minimum paid up capital requirements

specified under article 4 of these directives, the National Bank of Ethiopia may:

5.1 Prohibit such bank from accepting new deposits, underwriting new loans and

conducting international banking business until the deficiency in capital is

corrected;

5.2 Require such bank to merge with another bank;

5.3 Close such bank; or

5.4 Take any other measures it considers fit.

6. Repeal

Minimum paid up capital to be maintained by banks Directives Number

SBB/24/99 is hereby repealed and replaced by these Directives.

7. Effective Date

These Directives shall enter into force as of 19th day of September 2011.

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ADDIS ABABATELEGRAPHICADRESSN ATIONBANKTELLEX 21020CODES USEDPETERSON 3rd & 4th ED.BENTLEY'S 2nd PHRASEA. B. C. 6th EDITION

PLEASE ADDRESS ANY REPLY TOP.O. BOX 5550ADDIS ABABA

LICENSING AND SUPERVISION OF BANKING BUSINESSDirectives to Authorize the Business of

Interest Free Banking

WHEREAS there has been increasingly strong public demand for interest freebanking products in Ethiopia;

WHEREAS supply of such products by banks has to be carried out in a safeand sound manner;

WHEREAS there has been lack of regulatory framework for interest freebanking business;

NOW, THEREFORE, in accordance with Article 22(2) of Banking BusinessProclamation Number 592/2008, the National Bank of Ethiopia hereby issuesthese directives.

These directives may be cited as "Directives to Authorize the Business ofInterest Free Banking No. SBBI 5112011"

2.1 "bank" means a company licensed by the National Bank to undertakebanking business or a bank owned by the Government;

2.2 "interest free banking business" refers to banking business in whichmobilizing or advancing funds is undertaken in a manner consistent with

Islamic finance principles and mode of operation that avoids receiving orpaying interest;

2.3 "interest free banking window" refers to a unit within a conventional bankexclusively offering interest free banking services; and

2.4 "National Bank" means the National Bank of Ethiopia.

Provisions of these directives shall apply to all banks in Ethiopia engaged ininterest free banking business.

4.1 A bank shall obtain a written authorization from the National Bank to carryon interest free banking business.

4.2 A bank which wishes to obtain an authorization to carry on interest freebanking business shall submit a duly completed application in theprescribed format together with documents specified below:a) a report on resource mobilization and use;b) planned balance sheet structure for interest free window and the whole

bank;c) maximum share of planned interest free business in total consolidated

balance sheet of the bank;d) risk management framework for all interest free banking products;e) a statement on availability of adequate capacity and facilities to run

interest free banking business;f) accounting aspects, such as accounting policies to be followed and profit

and loss sharing mechanisms;g) evidence of financial strength as reflected in capital adequacy, asset

quality, earnings capability, future earnings prospects, and currentliquidity position and forecast for the next 12 months;

h) track records of adherence to prudential regulations, credit discipline,quality of customer services;

i) a statement on the convenience as well as the needs of the populationof the area to be served by interest free banking services;

j) methods of segregating the funds of interest free banking businessesfrom all other business; and

k) such other information as required by the National Bank whileprocessing the application.

4.3 The National Bank shall evaluate the application submitted by a bank inview of risk management, Banking Business Proclamation, applicabledireC~~bY it as well as other rules and regulations; and upon its

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satisfaction, may authorize the applicant to open an interest free bankingwindow.

5.1 Banks shall not alter maximum share of interest free banking business intheir consolidated balance sheet without prior approval of the NationalBank.

5.2 Failure to comply with sub-article 1 of this article may result in the closure ofinterest free banking window.

6.1 keep separate books of accounts in respect of interest free banking operations andensure proper maintenance of records for all transactions for segregation of funds.

6.2 report their interest free banking business activities every month to the NationalBank.

7.1 In conducting interest free banking business, banks shall comply mutatis mutandiswith all regulatory and supervisory requirements except National Bank's directiveson interest rate.

7.2 Equity participation in a project or a company shall be in strict compliance with"limitation on Investment of Banks Directives No. 8BB/12/96".

These Directives shall enter into force as of the 1st day of October 2011.