During its 11th regular session held today, the House of People’s Representatives of Ethiopia (HoPR) approved the National Bank of Ethiopia (NBE) Proclamation and Banking Business Proclamation.
The review and deliberation on these draft legislations was held in the presence of the central bank governor Mr. Mamo Mihretu. On the occasion, the NBE proclamation has been unanimously approved 1359/2017, whereas, the Banking Business Proclamation has been approved as 1360/2017 with a majority vote and three against.
It is worth noting that this bill was examined and forwarded to the parliament by the Council of Ministers, during its 35th regular session held on 14th June 2024, for review, comment, and final ratification.
These legislations reportedly represent a significant step in laying a strong foundation for growth and enhancing the credibility, accountability, transparency, and governance of the National Bank of Ethiopia.
The amended proclamations have been designed taking into account the current and future level of development and policy direction as well as the rapid technological advancement, international principles, and best practices and experiences of peer Central Banks.
The proclamations are also said to be an integral part of the NBE reform agenda as indicated in the Bank’s strategic plan.
The central bank’s proclamation gives the NBE an opportunity to set a hierarchy for its monetary policy objectives and to choose appropriate monetary policy instruments to achieve its goals. It provides for the establishment of a Monetary Policy Committee to ensure the quality and effectiveness of its monetary policy.
Meanwhile, the proclamation provides for the Bank to set price stability targets in consultation with concerned government entities, provides for increasing the Bank’s capital, and provides for establishing a National Financial Stability Committee to ensure the soundness of the financial sector.
The proclamation defines the number, composition, tenor, and eligibility criteria for NBE Board members, as well as the tenor and employment criteria for the Governor and Vice Governors.
Moreover, it defines the Bank’s relationship with the government, particularly in terms of the amount of government borrowing and modalities of loan repayment, and defines the role of macroprudential policy formulation on risk management of the financial sector. Whereas, it also sets a clear legal basis for financial services consumer protection; and establishes a legal framework for the introduction of central bank digital currency, as necessary.
On the other hand, the Banking Business Proclamation provides for opening up the banking sector to foreign investment; foreign banks can invest in the banking business through opening foreign bank subsidiaries, branches or investing in shares of existing domestic banks; and representatives of foreign banks will be under the regulatory umbrella of the National Bank.
This amended proclamation also introduces a range of prompt corrective actions to be taken by the National Bank on problem banks: it sets a regulatory sandbox framework for introducing new and innovative financial services; and gives the National Bank of Ethiopia resolution authority to deal with likely to fail or a failed bank to minimize the cost to customers, and further introduces changes to the composition of commercial banks’ Board of Directors.
Source: FBC
