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Ethiopia: Draft Banking Law Prohibits Diverse Shareholdings in Different Banks
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The Reporter (Addis Ababa)
15 December 2007
Posted to the web 17 December 2007
Hayal Alemayehu
The moment the draft revised banking business proclamation was circulated, it became a cause for consternation in the banking industry. Bankers say the draft proclamation is more restrictive than the existing banking law.
It prohibits shareholders possessing one percent or more of the total subscribed capital of a bank from holding equity shares in another. It also slashes the maximum amount share a person can hold from 20 to five percent of the total subscribed capital of a given bank.
The draft proclamation was circulated to commercial banks operating in the country last week. The banks were instructed by the National Bank of Ethiopia (NBE), which formulated the draft, to submit their comments regarding the draft law by the latest on Friday (yesterday).
The draft proclamation was met with criticism from top banking officials for having provisions "that could potentially heart" the streamlining of the banking activities which has been flourishing since the advent of the previous banking business proclamation.
"I wonder what initiated the need for formulating such kind of a proclamation that could potentially constrain capital formation in the sector, which is badly needed for the growth of the banking activity," said a president of one of the commercial banks operating in the country. "The draft law restricts investment in the sector by reducing the maximum amount of share a person can hold in a given bank, and prohibiting major shareholding in more than one bank."
Part of the draft proclamation under article seven stipulates: "No person other than the Federal Government of Ethiopia shall hold more than five percent of a bank's total subscribed equity shares, jointly or severally, with his/her spouse and/or with a person who is below the age of 21 and related to him /her in the first degree of relationship."
The draft law also provides that an 'influential shareholder' in one bank - a person who holds directly or indirectly one percent or more of the total subscribed capital of the bank - shall not hold equity shares in other banks.
"The draft proclamation is simply very stringent on possible measures that could be taken against banks' management personnel for failing to meet duties, while it protects the officers of NBE from any personal liability in carrying out the bank's directives," another bank's chief executive officer said.
The draft law requires a bank's management personnel to cease to exercise his function if involved in court proceedings relating to any default on credit. It also prohibits any person who has been management personnel of any bank that has been wound up, whether in Ethiopia or abroad, from assuming a similar position in other banks. Furthermore, any person who contravenes these provisions will be guilty of an offence and liable to a fine from 50,000 to 100,000 birr and upon conviction, further liable to imprisonment of fifteen years.
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The draft proclamation is expected to be presented to the Council of Ministers before being ratified by Parliament.
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