CHAPTER 6
National Bank of Ethiopia
MISSION STATEMENT
Vision of the bank
Tobe one of the strongest and most reputable
central banks in Africa.
Mission of the bank
Tomaintain price and exchange rate stability, to
foster a sound financial system and undertake
such other functions as are conducive to the
economic growth of Ethiopia.
THE EVOLUTION OF NATIONAL
BANK OF ETHIOPIA
The agreement b/n the Emperor Minilik II and
Mr.Ma Gillivray, in 1905 brings to the
introduction of modern banking in the country
Bank of Abysinia was inaugurated in Feb.16, 1906
The capital of the Bank was agreed to be Pound
Sterling 500,000 and one-fifth was subscribed
and the rest was to be obtained by selling shares
in some important cities such as London, Paris
and New York
By 1931 Bank of Abyssinia was legally replaced by
Bank of Ethiopia shortly after Emperor Haile
Selassie came to power
CONT’…
During the invasion, the Italians established
branches of their main Banks namely Banca
d’Italia, Banco di Roma, Banco di Napoli and
Banca Nazionale del lavoro and started
operation in the main towns of Ethiopia
In 1941 Barclays Bank came to Ethiopia with the
British troops and organized banking services in
Addis Ababa, until its withdrawal in 1943
Then on 15th April 1943, the State Bank of
Ethiopia commenced full operation after 8
months of preparatory activities and acts as the
central bank
CONT’…
Then the Ethiopian Monetary and Banking law that
came into force in 1963 separated the function of
commercial and central banking creating National
Bank of Ethiopia and commercial Bank of Ethiopia
Moreover it allowed foreign banks to operate in
Ethiopia limiting their maximum ownership to be
49 percent while the remaining balance should be
owned by Ethiopians
The first privately owned bank, Addis Ababa Bank
share company, was established on Ethiopians
initiative and started operation in 1964 with a
capital of 2 million.
CONT’…
Following the declaration of socialism in
1974 the government extended its control
over the whole economy and nationalized all
large corporations
Monetary and Banking proclamation
No.83/1994 and the Licensing and
Supervision of Banking Business No.84/1994
laid down the legal basis for investment in
the banking sector
Consequently following the proclamation
private banks started to be established
Powers & duties of NBE
The Bank has the following powers and duties:
Coins prints and issues the legal tender currency,
and regulates the country's money supply
Regulates the applicable interest rate and other
cost of money charges
Formulating, implements and follows-up the
country's exchange rate policy, and manages and
administers the international reserves of the
country
Licenses, supervises and regulates the operations
of banks, insurance companies and other financial
institutions
CONT’…
Sets limits on gold and foreign exchange assets
Provides short and long term refinancing
facilities to banks and other financial institutions
Accepts deposit of any kind from foreign sources
Promotes and encourages the dissemination of
banking and insurance services throughout the
country
Prepares periodic economic studies
Acts as banker, fiscal agent and financial advisor
to the Government
Represents the country in international monetary
institutions
ETHIOPIAN MONETARY POLICY
Monetary policy refers to a bundle of actions
and regulatory stances taken by the central
bank including all of the following:
Setting minimum interest rates on deposits or
the rediscount rate charged to Commercial banks
borrowing reserves;
Setting reserve requirements on various classes
of deposits;
Increasing or decreasing commercial bank
reserves through open market purchases or sales
of government securities
CONT’…
Regulatory actions to constrain commercial bank
financial activity or to set minimum capital
requirements;
Intervention in foreign exchange markets to buy
and sell domestic currency for foreign exchange;
Decide on level of required reserve of
commercial banks total deposit
CONT’…
Monetary Policy Objective
Pricestability
Exchange stability
Macroeconomic stability
fosters employment and economic growth
Intereststability
Maintaining balance of payment
CONT’…
Monetary Policy Instruments
Open Market Operation (Sale & purchase of
bonds or securities issued by governments)
A standing central bank credit facility
Reserve requirement
Setting of floor deposit interest rate
Direct borrowing/lending in the inter-bank
money market and introducing re-purchase
agreement
Use of selected credit control when necessary
LICENSING PROCEDURES
Requirements to obtain bank license include the
following:
Pre-application phase
Evidence of registration of trade name from Ministry of
Trade and/or Regional Trade Bureau
Signed minutes of first meeting of organizers along with
attendance sheet
Submission of prospectus
Written application requesting to open blocked
subscription account indicating the name of the bank
Evidence of payment of investigation fee
CONT’…
Application phase
Duly completed application form
Evidence of paid-up capital which includes certificate of
deposits in a blocked account and evidence for valuation
of contribution in kind (if any)
Signed minutes of subscribers meeting with attendance
sheet
List of names, nationality, address, number and value of
subscribed shares of founder to be published in
newspaper
Articles and memorandum of associations written in
Amharic
CONT’…
Authenticated ownership certificate and/or lease
agreement for building, land, vault, equipment,
fixtures and professional services
Evidence for insurance coverage for premises
acquired and leased
Duly completed general information, and
propriety test questionnaires for influential
shareholders, directors, chief executives officers
and senior executive officers
Disclosures of names, nationality, address,
number and values of subscribed capital of
influential shareholders who have acquired 2% or
more
CONT’…
Business plan
Financial projection for the first three years
including balance sheet, income statement, cash
flows projection and sensitivity analysis
Conclusion/ recommendation
