NBE Directive39 45

LICENSING AND SUPERVISION OF BANKING BUSINESS
Amendment for New Bank Licensing and Approval of Directors and CEO
Directives No. SBB/39/ 2006
1. Issuing Authority These directives are issued by the National Bank of Ethiopia pursuant to the authority vested in it by article 41 of the Monetary and Banking Proclamation No. 83/1994 and by article 36 of the Licensing and Supervision of Banking Business Proclamation No. 84/1994. 2. Definitions In these Directives: 2.1 2.2 The Bank shall mean National Bank of Ethiopia. "Business continuity plan" shall mean the process by which banks ensure the resumption of operations, including services to customers, interrupted as a consequence of adverse events such as natural disasters, technological failures, human error, or terrorism. Financial Institution shall mean insurance companies, banks, microfinance institutions and such other institutions as determined by the Bank.
2.3
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NATIONAL BANK OF ETHIOPIA
2.4
Related Party of a bank shall mean, on the one hand, a shareholder, a director or a principal officer of that bank and/or the spouse or relation in the first degree of consanguinity or affinity of such shareholder, director or principal officer; and on the other, a partnership, a private limited company, a share company, a joint venture, or any other business in which the shareholder, director or principal officer of the bank and/or the spouse or relation in the first degree of consanguinity or affinity of such shareholder, director or principal officer has a business interest as shareholder, director, principal officer, owner or partner. For the purpose of these Directives, a person holding five percent or more of paid up capital of a bank, a partnership, a private limited company, a share company, a joint venture, or any other business shall be considered as a related party.
3. Information Required From Applicants For License In addition to information required under article 5 of Proclamation Number 84/1994, applicants for new banking business license shall submit to the Bank the following: 3.1. Evidence for paid up capital which includes certificate of deposit in a blocked subscription account maintained with a commercial bank for this purpose and evidence for valuation of contribution in kind; 3.2. Names, addresses and occupation (including dates and addresses of employment covering the latest ten years) of the founders;
3.3. A feasibility study of the future operations and development of the business for a minimum period of three years from the date of the commencement of operation, including: 3.3.1. Proposed organizational chart of the bank, and brief description of the functions of the main organizational units; 3.3.2. A schedule of all preliminary expenses including costs of organization, share-selling and brokerage and commission; 3.3.3. Projections of balance sheet, cash flow statement and profit and loss accounts, with the following breakdowns where applicable:
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i. ii. iii. iv. v. vi. vii. viii. ix. x.
deposit mobilization and interest payable stating separately the proposed major sources and types of deposits; loans and advances to be made and interest receivable, stating intended lending by sector; investments to be made and earnings thereof; operating expenses including rents, salaries, employee benefits, directors remuneration; liquid and reserve assets; capital structure; provision for bad and doubtful debts; fixed assets, including business premises; other income, including commissions, fees/charges; and net operating profit/loss.
3.3.4. Interest rate sensitivity analysis of the projections submitted or other similar analyses of the extent to which the forecasts will change when interest rates vary (the assumptions underlying the projections and the sensitivity analysis should be stated); 3.3.5. Statistical and other data which may have been collected in respect of the area in which the applicant intends to operate including population of the area, business located in the area, etc. and existing banking facilities; 3.4. Disclosure of the identity of shareholders who have acquired five or more percent of the capital stock, indicating their names, nationality, number and value of shares held; 3.5. Authenticated ownership certificate and/or lease agreement for items listed under Section 11.1 of Banking Business License Application Form attached with these Directives; 3.6. Descriptions of actual purchases made or proposed purchases of goods and services, or lease of real estate by the bank from related parties;
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3.7. Curriculum vitae of the proposed chief executive officer and directors including their age, marital status, education, employment history for the past ten years, their experience in business and financial affairs, their involvement in civic, social and charitable activities including any leadership position held; 3.8. Completed Propriety questionnaire attached with these directives as annex I for directors and nominated chief executive officer; 3.9. Duly completed application form and enclosures thereto as prescribed by the Bank; 4. Selection Criteria and Appointment of Chief Executive Officer 4.1 Board of directors of a bank shall appoint a chief executive officer who demonstrates his/her competence and ability to understand the technical requirements of banking business, inherent risks and management processes required to conduct banking operations effectively, with due regard to the interests of all stakeholders. In determining competence, and capability of the chief executive officer, the board of directors shall take into account all relevant considerations, at a minimum including, but not limited to: 4.2.1 whether the person has a sound knowledge of the business and responsibilities he will be called upon to shoulder; 4.2.2 whether the person has demonstrated, through his qualifications and experience, the capacity to successfully undertake the responsibilities of the position, including the establishment of effective internal control and risk management regime; 4.2.3 whether the person has ever been: i. fined, suspended, removed, or his/her professional license revoked by a professional, trade or regulatory body because of incompetence, fraud, negligence, or violation of laws, rules, regulations and professional code of conduct; or fined, demoted, dismissed or requested to resign from any position or office for incompetence or mismanagement by his/her employer; and
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4.2
ii.
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4.2.4 whether the person has ever been diagnosed as being mentally ill or unstable.
4.3
Chief executive officer of a bank shall hold a minimum of first degree or equivalent from a recognized higher institution of learning. Chief executive officer shall have a minimum of 10 years experience in banking, of which, at a minimum, five years shall be in senior managerial position. Board of directors of a bank shall appoint a person with high honesty, integrity, reputation and diligence as chief executive officer for the bank. In determining a persons honesty, integrity, reputation and diligence, the board of directors shall consider all appropriate factors (but not limited to) indicated in Annex I of these directives. Chief executive officer of a bank shall be at least 30 years old. Chief executive officer of a bank shall preferably be married or responsible to a family. Appointment of chief executive officer for a bank (be it for new or existing bank) by board of directors shall be subject to approval by the Bank. To obtain approval, the bank shall file with the Bank written request along with relevant documents showing that the board has taken into account all relevant considerations set in these directives. The Bank shall give written response for the request to approve a chief executive officer submitted under Article 4.10 herein above within one month from the date of receipt of such request.
4.4
4.5
4.6
4.7 4.8 4.9
4.10
4.11
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5. Appointment of Board of Directors and Selection Criteria 5.1 Selection Criteria 5.1.1 Education At least seventy five percent of a bank's board members shall hold a minimum of first degree or equivalent from recognized higher learning institution; and the remaining board members should, at a minimum complete general secondary school. 5.1.2 Employment Members of Board of Directors shall have adequate managerial experience, preferably in banking business, and/or should take adequate training in banking business management after holding a seat on the board.
5.1.3
Propriety i. A board member shall be a person with honesty, integrity, diligence and reputation to the satisfaction of the Bank. In determining propriety, the Bank shall take into account all the information (but not limited to) given in Annex I of these directives.
ii.
5.1.4 Prohibition i. A board member of a bank shall not, at the same time, serve as a board member of any other financial institution; Chairperson of board of directors of a bank shall not be chief executive officer of the same bank.
ii.
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5.1.5 Rotation i. ii. A director shall not serve on a board of a bank for more than six consecutive years; however, he/she may be reelected after a lapse of six years. Notwithstanding provisions of article 5.1.5(i) herein above, if the shareholders of a bank wish to maintain continuity in the board and re-elect some of the existing board members, they may re-elect such board members for only one more term. The number of board members so re-elected shall, however, be limited to a maximum of one-third (1/3) of the outgoing board members.
5.1.6 Financial Soundness A director shall not sit on the board of a bank if he /she or a business entity in which he/she served or is serving as director or chief executive officer: i. has filed for bankruptcy, been adjudged bankrupt, had assets sequestrated, or been involved in court proceedings relating to any default on credit (bank or otherwise) repayments or tax payment; carries non-performing loans as defined in the Banks relevant directives from any bank;
ii.
5.2
Age A member of the board of a bank shall be at least 30 years old.
5.3
Appointment 5.3.1 Appointment of members of board of directors for a bank (be it for a new or existing bank) shall be subject to approval by the Bank.
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5.3.2
Banks shall submit to the Bank written request for such approval along with completed PROPRIETY TEST QUESTIONNAIRE (which is annexed with these directives) and other relevant documents necessary to process the approval. The Bank shall give written response for the request to approve appointment of board members submitted under article 5.3.2 herein above within one month from the date of receipt of such request.
5.3.3
6. 6.1
Fees A company applying to undertake banking business shall pay investigation fee of Birr750 (Birr seven hundred and fifty only) that is to be paid at the time of lodging an application. A company licensed to undertake banking business shall pay license fee of Birr5,550 (Birr five thousand five hundred fifty only).
6.2.
6.3. A bank shall renew its banking business license every year between July 1 and September 30 and pay annual license renewal fee of Birr5,550 (Birr five thousand five hundred fifty only).
7.
Application Submission All application documents for banking business license duly completed shall be submitted to the Banking Supervision Department, National Bank of Ethiopia, Addis Ababa.
Financial Year For the purpose of reporting to the Bank, financial year for all banks operating in Ethiopia shall be from July 1 of the current year to June 30 of the following year.
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Commencement of Operation A licensed bank shall fulfill the following before it commences operation: 9.1 Put in place comprehensive risk management policies and operating manuals including, but not limited to:
9.1.1 Credit, 9.1.2 Recruitment and manpower development, 9.1.3 Investment, 9.1.4 Domestic and foreign banking, 9.1.5 Liquidity management, 9.1.6 Audit and inspection, 9.1.7 Management information systems, 9.1.8 Planning and budgeting, 9.1.9 Accounting; and 9.1.10 Business continuity Plan 9.2 9.3 Hire, train and place adequate and appropriate staff; Ensure that the banking hall and staff operating area are suitable for the type of business to be undertaken in the premises housing the bank including but not limited to:
9.3.1 9.3.2 9.3.3 9.3.4
Proper ventilation and circulation of fresh air, Suitable and clean sanitary service, Sufficient and suitable lighting, Display of working hours and copy of the bank's license in a visible area of the bank; 9.3.5 Cashier's till which is restricted to authorized persons; 9.4 Have a strong room with a minimum carrying capacity of 224 cubic meters. Cash loading and unloading area shall be suitable and protected from public view and access. Place fire extinguishers at appropriate places, Have insurance policy for the following at a minimum:
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9.5 9.6 9.7
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9.7.1 9.7.2 9.7.3 9.7.4
Fire and other perils, Burglary and theft, Fidelity, Cash and valuables in premises and in transit,
9.8 Outer doors of the building housing the bank shall be of heavy duty metal; 9.9 All windows and glass walls of the building housing the bank shall be reinforced with metal grills;
10.
Transition Period for Existing Banks The provisions of these directives shall apply on banks operating in Ethiopia prior to the effective date of these directives starting from 1st of July 2007.
11.
Repeal Directives No. SBB/1/1994 are hereby repealed and replaced by these Directives.
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Effective Date These Directives shall enter into force as of 1st day of May 2006.
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Strictly Confidential ANNEX I
NATIONAL BANK OF ETHIOPIA PROPRIETY TEST QUESTIONAIRE

(To be completed by elected board member and nominated chief executive officer of a bank) Please give yes or no answers for the following questions; if your answer is "yes" please give further explanation on separate paper. Position: Board member/Chief Executive Officer (underline the applicable
position)
Full Name .............................................................................................................. Name of Bank: ..
a. Have you been convicted of any criminal offence, particularly an offence relating to dishonesty, fraud, financial crime or other criminal acts or been involved in any acts of misfeasance or serious misconduct? b. Have you been the subject of any proceedings of a disciplinary or criminal nature, or have you been notified of any impending proceedings or of any investigation, which might lead to such proceedings? c. Has any business in which you have equity capital participation of five percent and above or in which you served as a director or as chief executive officer been fined, suspended or disciplined in other way or investigated or criticized by a government regulator or professional body? d. Have you been associated, in ownership or management capacity, with a company, partnership or other business association that has been refused registration, authorization, membership or a license to conduct trade, business or profession, or has had that registration, authorization, membership or license revoked, withdrawn or terminated?
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e. Have you, as a result of the removal of the license, registration or other authority mentioned under d above been refused the right to carry on trade, business or profession requiring a license, registration or other authorization? f. Have you been a director, chief executive officer, or otherwise involved in the management of a business that has gone into receivership, insolvency, or liquidation? g. Have you been dismissed, asked to resign or resigned from employment or from a position because of questions or doubts about your honesty and integrity? h. Have you ever been disqualified, under any law or regulation, from acting as a director or serving in a managerial capacity? I certify that the information given above is complete and accurate to the best of my knowledge.
Signature________________________________________ Date ____________________________________________
AMENDMENT OF BRANCH OPENING

Directives Number SBB/40/ 2006 1. Issuing Authority
These Directives are issued by the National Bank of Ethiopia pursuant to the authority vested in it by Article 41 of the Monetary and Banking Proclamation No. 83/1994 and Article 5(4) of the Licensing and Supervision of Banking Business Proclamation No. 84/1994.
2.
Definition For the purpose of this directive the term: 2.1 2.2 The Bank shall mean National Bank of Ethiopia; Branch shall mean any place of business at which deposits are received or cheques are paid out or money is lent and other
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banking business as defined in article 2(2) of Proclamation number 84/1994 is solicited. 3. Requirement 3.1 3.2 A bank shall obtain prior authorization from the Bank to open a branch office. A bank planning to open a branch shall submit a duly completed application attached to these directives together with a covering letter to the Bank and shall pay the fee indicated under article 6 of these directives. A bank authorized to open a branch shall open the said branch and commence operation within 6(six) months from the date of the grant of authorization. A bank authorized to open a branch shall notify the Bank the date it plans to commence operation in the new branch 15 (fifteen) days before the planned date of commencement of operation. Before commencing operation a bank authorized to open a branch shall fulfill the following:
3.5.1
3.3
3.4
3.5
Ensure that the banks relevant policy and procedure manuals, and NBE directives are distributed to appropriate staff members of the branch to be opened;
3.5.2 Ensure that the branch is adequately guarded; 3.5.3 Display in a visible area of the branch working hours, copy of the bank's license and branch authorization; 3.5.4 Ensure that the banking hall and staff operating area are suitable for the type of business to be undertaken in the premises housing the branch including but not limited to: i. ii. iii. iv. Proper ventilation and circulation of fresh air; Suitable and clean sanitary service; Sufficient and suitable lighting; Cashiers' Till, access to which is restricted to authorized persons.
3.5.5 Ensure that the branch has appropriate strong room or safe/vault; 3.5.6 Place fire extinguishers in appropriate area;
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i. ii. iii. iv.
3.5.7 Have insurance policy at least for the following: Fire and other perils, Burglary and theft, Fidelity, Cash and valuable in premises and transit, 3.5.8 Ensure that outer doors of the building housing the branch are of heavy duty metal; 3.5.9 Ensure that all windows and glass walls of the building housing the branch are reinforced with metal grills;
Obligation of the Bank The Bank shall give a written response within five working days from the date of receipt of the application.
5.
Scope of Application 5.1 Requirements set under sub-article 3.5 herein above shall be applicable on new branches as well as branches opened before the effective date of these Directives. Branches opened before the effective date of these Directives shall fulfill requirements under sub-article 3.5 herein above latest by June 30, 2007.
5.2
6.
Fee A bank applying to open a branch shall pay an investigation fee of Birr 500 (Birr five hundred) for each branch.
7.
Prohibition No bank shall relocate its branch without prior notification and approval by the Bank.
8.
Repeal Directives No. SBB/22/1996 are hereby repealed and replaced by these directives.
9.
Effective Date
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These Directives shall enter into force as of the 8th day of May 2006.
Directives to Transfer Duties and Responsibilities Related to Establishment and Operation of Export Credit Guarantee Scheme from the National Bank of Ethiopia to Development Bank of Ethiopia Directives No. SBB/ 41/2007
Whereas, national exporters need to compete on an equal footing with other exporters in increasingly competitive foreign markets and satisfy foreign buyers' requirements; Whereas, it is necessary that exporters with bona-fide export orders should not lose the export opportunity due to inability to get bank credit; Whereas, operation of enhanced export credit guarantee schemes has been found to be supportive of the export sector by availing the necessary financial resources from banks for pre and post-shipment of exports; Whereas, export credit guarantee schemes have proved to be necessary vehicles to facilitate exporters' access to bank credit; Whereas, the Government of Federal Democratic Republic of Ethiopia has decided to transfer duties and responsibilities related to establishment and operation of export credit guarantee scheme from National Bank of Ethiopia to Development Bank of Ethiopia; Now, therefore, in accordance with Articles 6 and 61 of the Monetary and Banking Proclamation No. 83/1994, the National Bank of Ethiopia hereby issues these directives.
= wN?^ v NATIONAL BANK OF ETHIOPIA Article 1 Definitions For the purpose of these directives, unless the context provides otherwise: 1.1 The Bank shall mean National Bank of Ethiopia;
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1.2 1.3 1.4
"Guarantor" shall mean Development Bank of Ethiopia; "Financing Banks" are licensed commercial Development Bank of Ethiopia) in Ethiopia; banks (excluding
Bankable Export Project shall mean a project appraised by financing banks in line with their applicable credit policy and procedures and found within acceptable risk level by the Guarantor; "Export" is non-coffee export; "Export Credit Guarantee" shall mean a guarantee provided by the Guarantor to safeguard export financing banks against losses resulting from the export transactions they finance; "Exporter" is a person engaged in non-coffee exports; Existing Exporters shall mean exporters who have been engaged in export business for at least 12 months prior to the date of application for export loan under export credit guarantee scheme who can produce evidence of receipt of export proceeds over those months; New Exporters shall mean exporters who have been engaged in export business for less than 12 months at the time of applying for export loan under export credit guarantee scheme; Fund" is a special fund created by the Guarantor for financing guarantee settlements under Export Credit Guarantee Scheme; "Outstanding Active Export Credit Guarantees" shall mean guarantees issued by the Bank to financing banks, which on the effective date of these directives (i) have not expired or (ii) original due dates have expired but extended by the Bank and not yet due; "Outstanding Inactive Export Credit Guarantees" shall mean export credit guarantees issued by the Bank before the effective date of these directives which have been (i) claimed by financing banks, or (ii) claimed by financing banks and disputed, or (iii) settled by the Bank and under litigation or transferred to Legal Services Department of the Bank for litigation;
1.5 1.6
1.7 1.8
1.9
1.10 1.11
1.12
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fruits, vegetables, molasses, unpreserved meat, flowers, live animals and other commodities as determined by the Bank; 1.14 "Pre-Shipment Export Credit Guarantee" is a guarantee provided by the Guarantor up to a maximum of 365 days to financing banks to cover preshipment export loan extended to exporters; "Post-Shipment Export Credit Guarantee" is a guarantee provided by the Guarantor up to a maximum of 180 days to financing banks to cover postshipment export loan extended to exporters.
1.15
Article 2 Eligibility Criteria 2.1 Exporters shall satisfy all of the following in order to be considered eligible for export credit guarantee: 2.1.1 The export project to be financed under the export credit guarantee scheme shall be bankable; 2.1.2 Exporters shall not carry loss category loans, as defined in the Bank's Directives on Provisioning, owed to any bank in Ethiopia; 2.1.3 Exporters shall present a bona-fide order from a foreign buyer; 2.1.4 Exporters shall produce evidence of a valid investment certificate and/or trade license; 2.1.5 New exporters shall: i. produce property or other collateral equivalent to at least 40% for producer exporters and 50% for other exporters of the amount of the loan requested; produce evidence that all proceeds from nonperishable goods to be exported shall be paid through irrevocable letter of credit; however, no letter of credit shall be required for perishable export commodities;
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2.1.6 Existing exporters shall produce from local banks documentary evidence about receipt of export proceeds in the 12 months preceding the date of application for export loan under export credit guarantee scheme; 2.1.7 Exporters shall submit all documents required by financing banks to conduct their normal credit risk analysis. 2.2 Financing banks may approve pre-shipment or post-shipment credit to exporters upon fulfillment of the above eligibility criteria. Article 3 Issuance of Guarantee Upon written request of a financing bank, the Guarantor shall issue export credit guarantee to cover 80% of the outstanding loan balance and interest thereof extended to an exporter by the financing bank, provided the request is acceptable to the Guarantor.
Article 4 The Guarantee Amount The Guarantor may issue export credit guarantee to: 4.1 Existing exporters, who fulfill eligibility criteria set under article 2.1 herein above, up to 100% of export proceeds actually received through financing banks from non-coffee exports in the 12 months preceding the date of application for export loan under export credit guarantee scheme;
4.2 New producer exporters, who fulfill eligibility criteria set under article 2.1 above, up to two point five (2.5) times the estimated value of the pledged collateral; 4.3 Other new exporters, who fulfill eligibility criteria set under articles 2.1 above, up to two (2) times the value of the pledged collateral;
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Obligations of Financing Banks 5.1 Financing banks shall: 5.1.1 critically evaluate credit worthiness of the exporter who applies for a loan and shall ensure that the export project to be financed is bankable; 5.1.2 finance only bankable export projects; 5.1.3 Collect credit information from all banks in Ethiopia to ensure that an exporter applying for export loan does not carry loss category loans owed to any bank; exercise all reasonable and usual care regarding operations of export financing and act with utmost good faith; Channel to the exporter's loan account, in settlement of the loan, all export proceeds collected from an exporter after the disbursement of the loan covered by the export credit guarantee. promptly notify the Guarantor within 15 days of the occurrence of any event or development likely to cause a loss or default; collect on behalf of the Guarantor interest due to it on loans covered by export credit guarantee; and
5.1.4
5.1.5
5.1.6
5.1.7
5.1.8 act as the agent of the Guarantor to recover the due amount from the defaulting exporter and report to the Guarantor actions taken on such borrowers promptly. 5.2 Where the exporter defaults, the financing bank, subject to prior written agreement of the Guarantor, may: 5.2.1 extend the due date of pre or post shipment export credit covered by export credit guarantee for a maximum of 180 days if it determines that the financial position of the borrower is sound and the loan repayment problem is temporary; or provide additional loan that may not exceed 50 percent of the existing outstanding loan covered by export credit guarantee and extend the due date of both the new and the existing loans for a maximum of 180 days if it determines that the borrower will be
5.2.2
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rehabilitated and settle the loans out of the cash flow to be generated. = wN?^ v NATIONAL BANK OF ETHIOPIA 5.3 Financing banks shall submit to the Guarantor: 5.3.1 Relevant credit risk analysis report and all other documents necessary to ensure the export project to be financed is bankable; and
5.3.2 Monthly export credit performance report in accordance with the table attached with these Directives or any other format developed by the Guarantor. Such report shall be filed within twenty days after the end of the reporting month. Article 6 Revolving Credit Financing banks may, during the life of the export credit guarantee, repeatedly disburse loan to a borrower for export purposes equivalent to the amount of the partial or full loan settlement referred to under sub-article 5.1.5, so long as the outstanding balance of the loan does not exceed the export credit guarantee issued to cover it. Article 7 Obligation of the Exporter Exporter shall: 7.1 Provide accurate information, accompanied with all supporting documents, to financing banks on their business, export activities and bank loan repayment status; Exercise due care so as to ensure that the advances are used for the purposes they are earmarked for; Repay the entire amount of the outstanding loan and interest thereof the financing bank on or before due date of the loan; to
7.2 7.3 7.4
In case of difficulties experienced in manufacture or shipment of goods or realization of export proceeds from foreign buyers, they should discuss the problem and the proposed course of action with their financing banks.
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= wN?^ v NATIONAL BANK OF ETHIOPIA Article 8 Risk Coverage 8.1 The Guarantor shall cover 80 percent of the risk, which may result from default of repayment; 8.2 The financing bank shall bear the remaining portion (20 percent) of default risk. Article 9 The Guarantee Fund and Fee
9.1 9.2
The Guarantor shall create a Guarantee Fund Account for funding the Export Credit Guarantee Scheme; Financing banks shall pay, out of the interest rate stated under article 10.1 hereunder, 2 (two) percent of the outstanding loan balance covered by export credit guarantee per annum to the Guarantor calculated in line with interest income accrual or collection policy and procedure of the respective financing bank. They shall pay such interest to the Guarantor on quarterly basis; 9.3 Interest income collected in line with article 9.2 above shall be transferred to Guarantee Fund Account.
. 9.4
The Guarantor may invest the money in the guarantee fund account in risk free and liquid assets such as Treasury bills and transfer the income from such investments to its Income Statement. Guarantee fund created by the Bank in line with provisions of article 9 of the Bank's Directives No. SBB/38/2006 shall be used to settle claims against export credit guarantee filed with the Bank before the effective date of these directives; The closure of the Guarantee fund account with the Bank shall be decided by the Bank . Article 10 Rate of Interest
9.5
9.6
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10.1
Financing banks shall charge their respective prevailing lowest lending interest rate on pre- or post-shipment loans covered by the export credit guarantee scheme; Non-compliance with the stipulation of the credit guarantee scheme might result in charging the penal rate used by the financing bank. In the case of proven mis-use of funds, the financing bank may demand the immediate repayment of the loan.
10.2
= wN?^ v NATIONAL BANK OF ETHIOPIA Article 11 Collateral 11.1 The Export Credit Guarantee of the Guarantor serves as part of the collateral when exporters apply for financing; 11.2 When applying for post-shipment credit, the exporter shall hand over to the financing bank all the necessary shipping and other documents relating to the goods shipped for export. Also, the exporter shall authorize the financing bank to collect or receive payment from the foreign buyer, on the basis of which the post-shipment credit is sanctioned to the exporter. Goods in possession of the financing bank are considered as additional collateral providing the necessary security for the financing bank; In case a borrower defaults, the Guarantor and financing bank shall share the cash collateral, or any proceeds from liquidation of any property pledged as collateral, or any proceeds from liquidation of collateral secured through court ruling, in proportion to the risk they took in lending to the defaulting borrower, that is, the Guarantor shall be entitled to collect 80%, leaving the balance (20%) to the financing bank. Article 12 5 12.1 Repayment Without prejudice to article 5.2 above, repayment period for pre-shipment credit shall not exceed 365 days. Pre-shipment advances shall be repaid by handing over the shipping documents to the financing bank within 10
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11.3
days after the goods have been shipped for export. The date of shipment is the date of the stamp on the bill of lading or other shipping documents. The repayment of loan may be by way of adjusting from post-shipment credit obtained against the documents or by payment in an accepted manner; 12.2 Exporters, adjusting the pre-shipment credit, shall have the possibility of extending the credit into the post-shipment period. Exporters willing to use this facility shall have to apply well in advance to their financing bank for a post-shipment credit to avoid possible delays, after the goods have been shipped. Any noncompliance with the above stipulation may result in rejection of the exporter's post-shipment credit application and immediate repayment obligation of the pre-shipment credit; = wN?^ v NATIONAL BANK OF ETHIOPIA 12.3 Without prejudice to article 5.2 above, repayment period of the postshipment credit shall not exceed 180 days. Post-shipment advances will be adjusted by the financing bank out of payments received from the foreign importer to enable it to automatically settle the outstanding debt of its exporter-borrower, after payment from the foreign buyer has been collected. Article 13 Settlement of Guaranteed Portion to Financing Bank 13.1 In case an export credit goes on default, the Guarantor shall pay the guaranteed portion of the loan amount lent to the exporter within seven days after the complete set of necessary documents have been presented to it. The Guarantor, however, shall not pay any interest on the export credit during the seven days following submission of complete set of documents by financing banks; 13.2 When repayment of the full or partial amount of defaulted loan is effected by the defaulting exporter to the financing bank after the settlement of the guaranteed portion, the financing bank shall transfer the money to the Guarantor within 7 days;
Article 14 Expiry of Guarantee
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14.1
Export Credit Guarantee shall be issued for a specific period of time that shall not exceed i) 365 days to cover pre-shipment export credit and ii) 180 days to cover post shipment export credit. However, the Guarantor, upon request of financing banks, may extend expiry date of the guarantee for a maximum of 180 days from its expiry date. At the last day of the guarantee period, unless extended in writing by the Guarantor, the Guarantee shall be null and void; Under normal circumstances, the last day of the Guarantee shall be that indicated on the "Export Credit Guarantee Letter" as ending date of the Guarantee.
14.2
= wN?^ v NATIONAL BANK OF ETHIOPIA Article 15 Default and Non-compliance 15.1 Where an exporter defaults and cannot qualify for loan rescheduling or restructuring stipulated under article 5.2 above, he/she shall be suspended from all types of bank credit from the entire banking system until he/she fully settles the outstanding loan including interest and charges; To facilitate the suspension, the Guarantor shall circulate the names of all defaulters under the export credit guarantee scheme to all banks. Moreover, the Guarantor shall publish the names of such defaulters in widely circulating newspapers; Upon receipt of defaulters list stipulated under sub-article 15.2 above, all banks shall deny provision of new bank credit service(s) and shall not renew all existing overdraft or other credit facilities to any one exporter in the list until the Guarantor notifies them that the exporter has fully settled his/her overdue export loans; If a financing bank does not comply with the provisions of these directives, the Guarantor maintains the power to reduce guarantee coverage and, in extreme cases, to suspend new coverage for a period of four years. Article 16
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15.2
15.3
15.4
Inspection The Bank may undertake an inspection of any bank, including the Guarantor, to verify its compliance with the provisions of these Directives. Article 17 Administration of Outstanding Active Export Credit Guarantees 17.1 The Guarantor shall administer outstanding active export credit guarantees issued before the effective date of these directives in line with the terms and conditions of the guarantees set at the time of their issuance.
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17.2
The Bank shall transfer all files and documents in its possession related to outstanding active export credit guarantees to the Guarantor. Article 18
Administration of outstanding Inactive Export Credit Guarantees The Bank shall administer outstanding inactive export credit guarantees that are outstanding as of the effective date of these Directives until their full settlement or resolution.
Article 19 Repeal The Establishment and Operation of Export Credit Guarantee Scheme Directives Number SBB/38/2006 is hereby repealed and replaced by these Directives. Article 20
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Effective Date These directives shall come into force as of the 1st day of February 2007.
RESERVE REQUIREMENT (3rd REPLACEMENT) DIRECTIVES No. SBB/42/2007 Whereas, the National Bank of Ethiopia is vested with powers, duties and responsibilities of monetary management and regulation and supervision of banks; Whereas, statutory reserve requirement, which obliges banks to hold a proportion of their deposit balance with the National Bank of Ethiopia, is one of the important monetary policy instruments and prudential regulation tools; Whereas, liquidity in the banking system remained relatively high; Whereas, commercial banks have strong incentive to enhance profitability through credit extension; Whereas, it has been found necessary to check monetary growth so as to avoid risk of high inflation and ensure a stable macroeconomic environment for a healthy economic growth; Now, therefore, the National Bank of Ethiopia has issued these directives pursuant to the authorities vested in it by Article 41 of Monetary and Banking Proclamation No. 83/1994 and article 16 of Licensing and Supervision of Banking Business Proclamation No. 84/1994.
= wN?^ v 1. Short Title These Directives may be cited as Reserve Requirement 3rd Replacement Directives No. SBB/42/ 2007. 2. Opening Accounts with the National Bank of Ethiopia
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Banks operating in Ethiopia shall open two separate Birr accounts with the National Bank of Ethiopia to be used as follows: 2.1 Reserve Account a) A reserve account shall exclusively be used to maintain the reserve balance stated under article 3 of these directives; b) No bank shall withdraw any money from its reserve account without prior approval of the Banking Supervision Department of the National Bank of Ethiopia. 2.2 Payments and Settlement Account A payments and settlement account shall be used to carry out all day-to-day transactions of banks through the National Bank of Ethiopia. 3. Requirement
Any bank operating in Ethiopia shall at all times maintain in its Reserve Account stated under sub-article 2.1 of these directives 10% (ten percent) of all Birr and foreign currency deposit liabilities held in the form of demand (current) deposits, saving deposits and time deposits. 4. Computation of Reserve
4.1 Cash items in process of collection, if included under deposits, shall be deducted there from in computing the balance of total deposits for reserve purposes; Cash items in process of collection through the National Bank of Ethiopia shall not be acceptable as reserve until credited to the reserve account;
4.2
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4.3 The reserve required shall be computed on the net deposit balance, i.e. excluding cash items in process of collection, shown at the end of each reporting week.
5.
Reserve Deficiencies
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5.1 5.2
Deficiencies in reserve balance are subject to a penalty; The penalty shall be assessed at a rate twice the current average rate of interest on loans and advances charged by banks computed on the amount of the deficiency in reserve and multiplied by the number of days over which the reserve account remained deficient; The National Bank of Ethiopia may waive the penalty stated herein above on grounds it considers acceptable.
5.3
6.
Reports
For the purpose of determining strict compliance with the reserve requirement stated under article 3 of these Directives, properly checked and signed reports, showing balances as of each Wednesday, shall be submitted to the Banking Supervision Department of the National Bank of Ethiopia. The reports shall be submitted not later than Tuesday of the following week and shall show the balance of each type of deposit under article 3 herein above, reserve balance with National Bank of Ethiopia and the excess/shortfall in reserves. 7. Repeal
Directive No. SBB/37/2004 is hereby repealed and replaced by these Directives. 8. Effective Date
These Directives shall enter into force as of 20th day of July 2007.
Directive No. SBB/43/2007
ASSET CLASSIFICATION AND PROVISIONING (4th REPLACEMENT)

1. Issuing Authority
These directives are issued by the National Bank of Ethiopia pursuant to the authority vested in it by Article 41 of the Monetary and Banking Proclamation No. 83/1994 and by Articles 15(1) and 36 of the Licensing and Supervision of Banking Business Proclamation No. 84/1994.
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2.
Short Title
These Directives may be cited as Asset classification and Provisioning Directives No. SBB/43/2007.
3.
Purpose of Directive
The purpose of these directives is to provide uniform guidelines to banks to assure that: 3.1 3.2 Loans or advances are regularly reviewed and classified in a manner consistent with regulatory standards; Loans or advances which are not performing in accordance with contractual repayment terms are recognized and reported as past due in a manner consistent with regulatory standards; Accrued but uncollected interest on loans or advances is accounted for in accordance with international accounting and regulatory standards; and
3.3
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3.4
Timely and adequate provisions are made to the Provisions for Loan Losses Account in order to accurately reflect the risk inherent in lending activities and to ensure that disclosed capital and earnings performance are accurately reflected. Definitions
4. 4.1
Capitalized Interest means any accrued and uncollected interest that has been added to the principal amount of loans or advances at a payment date or maturity; it also includes uncollected interest that is rolled-over into new loans or advances. Cash Collateral means credit balances on accounts in the books of the lending bank over which customers have given the lending bank a formal letter of cession and which the bank at its discretion has transferred from the customers account(s) to a specific or general cash collateral account(s) or blocked.
4.2
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4.3
Cash-substitutes include: 4.3.1 Ethiopia; A security issued by the Federal Government of
4.3.2 4.3.3
An unconditional obligation or guaranty issued in writing by the Federal Government of Ethiopia; An unconditional obligation or guaranty issued in writing by a foreign bank with an A or above rating by Standard and Poor's Corporation and/or by Moody's Investor Services in their latest rating; Export credit guarantee issued in writing by an institution or agency authorized by Federal Government of Ethiopia; and Other liquid and readily marketable securities approved in writing by the National Bank of Ethiopia and which are held in the vaults of the lending bank. 4.4 Current as used in reference to current written, or similar uses, means information or documentation having an issuance date not more than 12 (twelve) calendar months old.
4.3.4 4.3.5
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4.5 In Process of Collection means that the collection of loans or advances is proceeding in due course in a timely manner through enforcement of judgments against the borrower that is reasonably assured to result in full repayment of the loan or advance (principal plus accrued interest) within 360 (three-hundred-sixty) days from the date the loan or advance first became past due. 4.6 Loans or Advances means any financial assets of a bank arising from a direct or indirect advance (i.e. unplanned overdrafts, participation in loan syndication, the purchase of loans from another lender, etc.) or commitment to advance funds by a bank to a person that are conditioned on the obligation of the person to repay the funds, either on a specified date or dates or on demand, usually with interest. The term includes a contractual obligation of a bank to advance funds to or on behalf of a person, claim evidenced by a lease financing transaction in which the bank is the lessor, and an overdraft facility to be funded by the bank on behalf of a person. The term does not include accrued but uncollected interest or discounted interest.
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4.7
Net Recoverable Value means the most probable value of a loan or an advance which will be realized from the sale of collateral securing the loan or advance in a competitive and open market. For purposes of these directives, the most probable value of a loan or an advance recoverable from the sale of collateral securing the loan or advance shall be the outstanding principal balance of the loan or advance multiplied by the average recovery rate of a bank for loans or advances secured by collateral, provided that such average recovery rate shall not be 15 (fifteen) percentage points greater than industry average recovery rate. If a bank has no information on aggregate net cash receipts or total net market value of acquired properties to compute its own average recovery rate, it shall use industry average recovery rate to determine the most probable value of a loan or an advance. 4.7.1 The term average recovery rate means aggregate net cash receipts from sale of collateral plus total net market value of acquired properties, divided by the aggregate outstanding principal balance of the loans or advances backed by the collateral sold or otherwise acquired by a bank calculated over the period of 18 consecutive months preceding the date of computing minimum provision requirement as laid down in these directives. In case a loan or an advance is secured by more than one collateral, such loan or advance and the collateral securing it shall be excluded from computation of average recovery rate unless all properties backing the loan or advance are sold or otherwise acquired by the bank.
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NATIONAL BANK OF ETHIOPIA 4.7.1 Aggregate net cash receipts means net cash collection (after deduction of any expenses associated with the sale of the collateral which may have been necessary to place the collateral in a saleable condition), over 18 consecutive months preceding the date of calculating minimum provision requirement, of a bank from the sale of collateral which have been seized or foreclosed by the bank in satisfaction of loans or advances previously granted.
4.7.2
The term total net market value of acquired properties as used in these directives shall mean the average of ask or reserve price of acquired properties and the highest offer bid amount registered at the last auction in the market that preceded the acquisition by a bank for properties which previously were offered by borrowers as collateral against loans or advances. The highest offer bid amount for auctioned property in absence of a bidder at the last auction shall be zero.
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4.7.3
Ask or reserve price shall mean minimum price at which the lending bank is willing to sell foreclosed assets. The term industry average recovery rate means aggregate net cash receipts plus total net market value of acquired properties, divided by the aggregate outstanding principal balance of the loans or advances backed by the collateral at the time the collateral was seized, foreclosed, repossessed or otherwise acquired by all banks operating in Ethiopia calculated over the period of 18 consecutive months preceding the date of determining minimum provision requirement. In case a loan or an advance is secured by more than one collateral, such loan or advance and the collateral backing it shall be excluded from computation of industry average recovery rate unless all properties held as collateral against the loan or advance are sold or otherwise acquired by banks. The National Bank of Ethiopia shall compute such industry average recovery rate every calendar quarter and distribute to all banks operating in Ethiopia. In determining the average recovery rate as set out under 4.7.1 herein above, the net market value of acquired property and/or the net cash receipt from the sale of collateral shall not exceed 100% of each outstanding non-performing loan backed by the collateral and used in the calculation of the average recovery rate.
4.7.4
4.7.5
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4.8 Non-accrual Status means that a loan or advance has been placed on a cash basis for financial reporting purposes. Interest on such loans or advances accrued on the books of the bank, or for which a specific reserve (such as a suspended interest account) has been established by the bank to offset the full amount of interest being accrued, shall not be taken into income unless as otherwise provided in these directives. 4.9 Non-performing means loans or advances whose credit quality has deteriorated such that full collection of principal and/or interest in accordance with the contractual repayment terms of the loan or advance is in question.
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4.9.1
For purposes of these directives, loans or advances with preestablished repayment programs are non-performing when principal and/or interest is due and uncollected for 90 (ninety) consecutive days or more beyond the scheduled payment date or maturity. For purposes of these directives, overdrafts and loans or advances that do not have a pre-established repayment program shall be non-performing when: a) The debt remains outstanding for 90 (ninety) consecutive days or more beyond the scheduled payment date or maturity; The debt exceeds the borrowers approved limit for 90 (ninety) consecutive days or more; Interest is due and uncollected for 90 (ninety) consecutive days or more; or For overdrafts, (i) the account has been inactive for 90 (ninety) consecutive days or (ii) deposits are insufficient to cover the interest capitalized during 90 (ninety) consecutive days or (iii) the account fails to show the following debit balance at least once over 360 days preceding the date of loan review: i. ii. 20% of approved limit or less latest by June 30, 2008; 5% or less effective from June 30, 2009.
4.9.2
b) c) d)
4.9.3 For purposes of these directives, the entire principal balance of loans or advances outstanding exhibiting the characteristics described under 4.9.1 and 4.9.2 shall be considered as nonperforming.
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4.10 4.11 4.12
Overdraft means a deposit account on the books of the bank with a debit balance. Person shall mean any judicial and natural person. Provisions for Loan Losses Account means a balance sheet valuation account established through charges to provision expense in the income statement in respect of possible losses in the loans or advances portfolio.
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4.13
Renegotiated Loans or Advances means loans or advances, which have been refinanced, rescheduled, rolled-over, or otherwise modified at favorable terms and conditions for the borrower because of weaknesses in the borrowers financial condition and/or ability to repay. Short or medium term loans means loans or advances with original repayment or maturity period of 5 (five) years or less. Suspended Interest Account means an account where previously accrued but uncollected interest on loans or advances required to be placed on non-accrual status is reserved out of the income of the bank. Total capital shall mean the paid up capital, legal reserve and any other unencumbered reserve acceptable to the National Bank of Ethiopia held by a bank. Well-Secured means that a loan or advance is secured by cash collateral or cash-substitutes sufficient to repay the full debt (principal plus accrued interest); for purposes of these directives, sufficiency shall include proper legal documentation evidencing the banks claim on the collateral. Responsibility for Loan Review and Specific Requirements
4.14 4.15
4.16
4.17
5.
5.1 The board of directors of each bank is responsible for establishing a loan review system which: 5.1.1 recognizes accurately and timely problem of deteriorating loans or advances. 5.1.2 assures the adequacy of the Provisions for Loan Losses Account.
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NATIONAL BANK OF ETHIOPIA 5.1.3 assures that accrued but uncollected interest reflected on the books of the bank are in accordance with the requirements laid out in these directives. 5.1.4 ensures that overdraft facilities are properly used by borrowers only for the purpose specified in the loan contract they entered with the
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bank, and in case such loans are diverted from the intended purpose enables to take timely, prompt and appropriate correction actions. 5.2 The board of directors of each bank shall assure that a review is made of the quality of the banks loans or advances portfolio on a regular basis, but no less than once each calendar quarter. At the end of each calendar quarter, or more frequently if warranted, the board of directors shall require the executive officer(s) of the bank to take appropriate measures in response to the findings of the loan review function to: 5.2.1 Accurately reflect earnings by assuring that all loans or advances categorized as non-performing in accordance with the requirements laid out in these directives are placed on non-accrual status and accrued but uncollected interest has been reversed out of the banks income; Assure that the Provisions for Loan Losses Account is adequate to absorb potential losses in accordance with the requirements laid out in these directives; and Correct problems, either in individual loans or advances, loan underwriting practices, compliance with prudent lending standards and the board-approved lending policy, or other credit administration weaknesses as may be identified by the loan review function, within a specified time frame.
5.2.2
5.2.3
5.3 The board of directors of each bank shall maintain adequate records supporting its evaluation of potential losses in the loans or advances portfolio and the entries made to reflect earnings and the adequacy of the Provisions for Loan Losses Account; such records shall be made available to examining personnel of the National Bank of Ethiopia upon request. 5.4 The loan review function shall assure on an on-going basis, at a minimum, that: 5.4.1 Lending activities are in compliance with prudent written lending standards as approved and adopted by the board of directors;
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NATIONAL BANK OF ETHIOPIA 5.4.2 The borrowers are using overdraft facilities for the purpose they negotiated with the bank; and incase of diversion
35
from the intended purpose that timely measures are taken to correct the problem. 5.4.3 The board of directors is adequately informed of the risks and potential loss exposure in outstanding loans or advances; Problem or deteriorating loans or advances are properly and timely identified, classified, and placed on non-accrual status in accordance with the requirements laid out in these directives; Appropriate provisions are made to the Provisions for Loan Losses Account for loans or advances classified in accordance with the requirements laid out in these directives; and Uncollectible non-performing advances are written off as appropriate. loans or
5.4.4
5.4.5
5.4.6
5.5 The loan review function shall regularly and on an ongoing basis review all loans or advances which exceed 5% (five percent) of a banks total capital to a single borrower, calculated in accordance with the Single Borrower Loan Limit, all loans or advances required to be placed on non-accrual status in accordance with the requirements laid out in these directives, and a sampling of the remaining loans or advances portfolio to determine that: 5.5.1 loans or advances reflected as performing on the books of the bank are in fact performing pursuant to the requirements and definitions laid out in these directives, and overdraft facilities are used by borrowers for the intended purpose.
5.5.2
5.6 The loan review function shall be performed by the board of directors of each bank or a group of individuals to be designated by the board of directors, who are knowledgeable in credit analysis methodologies and who are not involved in the lending activities of the bank. In the latter case, the group shall on a regular basis, but not less than once each calendar quarter, report its findings directly to the board of directors in writing.
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6. 6.1
Placement of Loans or Advances on Non-accrual Status All non-performing loans shall be placed on non-accrual status, unless the loans or advances are (i) well-secured and (ii) in process of collection. Accrued but uncollected interest being carried on the books for loans or advances which are required to be placed on non-accrual status in accordance with the requirements laid out in these directives shall be eliminated by the end of the calendar quarter in which the loans or advances are required to be placed on non-accrual status, but in no event later than the fiscal year-end date of the bank, whichever is sooner. A non-performing loan or advance placed on non-accrual status may be restored to accrual status only when: 6.3.1 and 6.3.2 None of the outstanding principal and/or interest is past due; For renegotiated loans or advances, where all past due interest is paid by the borrower in cash at the time of renegotiation and the loan or advance is not classified as substandard in accordance with 7.1.6. of these directives.
6.2
6.3
6.4
Banks shall report to the National Bank of Ethiopia on a quarterly basis loans or advances which exceed 5% (five percent) of the bank's capital that have been restored from non-accrual to accrual status. If a bank has multiple loans outstanding to a single borrower as calculated in accordance with the Single Borrower Loan Limit, and one loan or advance meets the criteria for non-accrual status, then the bank shall prepare a current written evaluation of the borrowers creditworthiness evidencing that repayment prospects for the other loans or advances are reasonably assured; should such written creditworthiness evaluation suggest that repayment prospects for the other loans or advances are in question or otherwise uncertain, then all such loans or advances to the borrower shall be placed on non-accrual status regardless of any requirements laid out in these directives.
6.5
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NATIONAL BANK OF ETHIOPIA 7. 7.1 Classification of Loans or Advances For purposes of these directives, banks shall classify all loans and advances, whether such loans or advances have pre-established repayment programs or not, into the following five classification categories using the criteria described below: 7.1.1 Pass Loans or advances in this category are fully protected by the current financial and paying capacity of the borrower and are not subject to criticism. In general, any loan or advance, or portion thereof, which is fully secured, both as to principal and interest, by cash or cash-substitutes, shall be classified under this category regardless of past due status or other adverse credit factors. 7.1.2 Special Mention
The following loans and advance at a minimum shall be classified special mention:
a) loans or advances with pre-established repayment programs past due 30 (thirty) days or more, but less than 90 (ninety) days; b) overdrafts and loans or advances that do not have a preestablished repayment program, if : i. The debt remains outstanding for 30 (thirty) consecutive days or more beyond the scheduled payment date or maturity, but less than 90 (ninety) days; or The debt exceeds the borrowers approved limit for 30 (thirty) consecutive days or more, but less than 90 (ninety) days; or iii. Interest is due and uncollected for 30 (thirty) consecutive days or more; but less than 90 (ninety) days ; or iv. For overdrafts, the account has been inactive for 30 (thirty) consecutive days or more, but less than 90 (ninety) days or the account fails to show the following
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ii.
debit balance at least once over 360 days preceding the date of loan review: 1) ten to nineteen percent of the approved limit latest by June 30, 2008;
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NATIONAL BANK OF ETHIOPIA 2) one to four percent of the approved limit effective from June 30, 2009. 7.1.3 Substandard The following non-performing loans and advances at a minimum shall be classified substandard: a. loans or advances with pre-established repayment programs past due 90 (ninety) days or more, but less than 180 (onehundred-eighty) days; b. overdrafts and loans or advances that do not have a preestablished repayment program, if: i. The debt remains outstanding for 90 (ninety) consecutive days or more beyond the scheduled payment date or maturity, but less than 180 (onehundred-eighty) days; or
ii.
The debt exceeds the borrowers approved limit for 90 (ninety) consecutive days or more, but less than 180 (one-hundred-eighty) days; or Interest is due and uncollected for 90 (ninety) days or more, but less than 180 (one-hundred-eighty) days; or For overdrafts, the account has been inactive for 90 (ninety) consecutive days or more, but less than 180 (one-hundred-eighty) days; or the account fails to show the following debit balance at least once over 360 days preceding the date of loan review: 1) twenty to thirty-nine percent of the approved limit latest by June 30, 2008;
iii. iv.
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2) 7.1.4 Doubtful
five to nineteen percent of the approved limit effective from June 30, 2009.
The following non-performing loans and advances at a minimum shall be classified doubtful: a. loans or advances with pre-established repayment programs: past due 180 (one-hundred-eighty) days or more, but less than 360 (threehundred-sixty) days;
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b. overdrafts and loans or advances that do not have a pre-established repayment program, if : i. the debt remains outstanding for 180 (one-hundred-eighty) consecutive days or more beyond the scheduled payment date or maturity, but less than 360 (three-hundred-sixty) days; or the debt exceeds the borrowers approved limit for 180 (onehundred-eighty) consecutive days or more, but less than 360 (three-hundred-sixty) days; or interest is due and uncollected for 180 (one-hundred-eighty) days or more, but less than 360 (three-hundred-sixty) days; or for overdrafts, the account has been inactive for 180 (onehundred-eighty) consecutive days or more, but less than 360 (three-hundred-sixty) days; or the account fails to show the following debit balance at least once over 360 days preceding the date of loan review:
ii.
iii. iv.
1) forty to sixty-nine percent of the approved limit latest by June 30, 2008; 2) twenty to forty-nine percent of the approved limit effective from June 30, 2009. 7.1.5 Loss The following non-performing loans and advances at a minimum shall be classified loss:
40
a) None performing loans or advances with pre-established repayment programs past due 360 (three-hundred-sixty) days or more; b) overdrafts and loans or advances that do not have a preestablished repayment program, if : i. The debt remains outstanding for 360 (threehundred-sixty) consecutive days or more beyond the scheduled payment date or maturity; or
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NATIONAL BANK OF ETHIOPIA ii. iii. iv. The debt exceeds the borrowers approved limit for 360 (three-hundred-sixty) days or more; or Interest is due and uncollected for 360 (threehundred-sixty) days or more; or For overdrafts, the account has been inactive for 360 (three-hundred-sixty) consecutive days or more, or the account fails to show the following debit balance at least once over 360 days preceding the date of loan review: 1) seventy percent and above of the approved limit latest by June 30, 2008; 2) fifty percent and above of the approved limit effective from June 30, 2009. 7.1.6 Without prejudice to the classification criteria used for the SubStandard category set out under 7.1.3 herein above, the following non-performing loans and advances shall be categorized as substandard: a) Renegotiated term loans unless equivalent of all past due interest is paid by the borrower in cash at the time of renegotiation and the following payments are made by the borrower on a consistent and timely basis in accordance with the restructured terms of the loan or advance:
41
i.
in the case of term loans with monthly or quarterly installment repayments, at least 3 (three) consecutive repayments; in the case of loans with semi-annual installment repayments, at least 2 (two) consecutive repayments; in the case of loans with annual installment repayments, at least one repayment;
ii. iii.
b) Renegotiated non-performing overdraft facilities unless equivalent of all past due interest is paid by the borrower in cash at the time of renegotiation and the account shows at a minimum: i. ii. a nil balance at least once; or a turnover rate of once the approved limit.
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NATIONAL BANK OF ETHIOPIA c) Renegotiated non-performing merchandize loans unless physical inventory of the merchandize taken by the bank at the time of renegotiation shows that the outstanding principal loan and interest thereof are fully covered and the safety margin determined following the inventory is at least not lower than the margin stated in the loan contract entered into by the bank and the borrower at the time of initial extension of the loan. 7.1.7 If a bank has multiple loans outstanding to a single borrower as calculated in accordance with the Single Borrower Loan Limit, and one loan or advance meets the criteria for non performing, then the bank shall prepare a current written evaluation of the borrowers creditworthiness evidencing that repayment prospects for the other loans or advances are reasonably assured; should such written creditworthiness evaluation suggest that repayment prospects for the other loans or advances are in question or otherwise uncertain, then all such loans or advances to the borrower shall at a minimum be classified substandard regardless of any requirements laid out in these directives. 7.1.8 A bank shall not reschedule, restructure or renegotiate short or medium term loan to a borrower for more than three iterations. Before rescheduling, restructuring or renegotiating a short or a
42
medium term loan, a bank shall collect in cash full amount of interest in arrears thereof and the following principal amounts: a. a minimum of 25% of outstanding principal balance in case of rescheduling, restructuring or renegotiating for the second time. b. a minimum of 50% of outstanding principal balance in case of rescheduling, restructuring or renegotiating for the third time. 7.2 Notwithstanding the classification criteria laid out under 7.1 herein above, loans or advances may be subject to more severe classification by examiners of the National Bank of Ethiopia if the actual condition of the loan or advance warrants such classification. Conditions that warrant more severe classification may include, but are not limited to: (i) significant departure from the primary source of repayment; (ii) repayment terms which are too liberal or inconsistent with the purpose and nature of the loan or advance and/or collateral held; (iii) delinquencies which have been technically cured by modifying the repayment terms, refinancing or renewing the loan or advance, or
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NATIONAL BANK OF ETHIOPIA advancing additional funds for the purpose of meeting repayment requirements on an existing loan or advance. 8. 8.1 Provisioning Requirements for Loans or Advances All banks shall maintain a Provisions for Loan Losses Account which shall be created by charges to provision expense in the income statement and shall be maintained at a level adequate to absorb potential losses in the loans or advances portfolio. In determining the adequacy of the Provisions for Loan Losses Account, provisions may be attributed to individual loans or advances or groups of loans or advances. The Provisions for Loan Losses Account shall always have a credit balance. Additions to or reductions of the Provisions for Loan Losses Account shall be made only through charges to provisions in the income statement at least every calendar quarter. Banks shall maintain the following minimum provision percentages against the outstanding principal amount of each loan or advance classified in
8.2
8.3
43
accordance with the criteria for the classification of loans or advances as laid out under article 7 herein above: Classification Category 8.3.1 8.3.2 8.3.3 8.3.4 8.3.5 Pass Special Mention Substandard Doubtful Loss Minimum Provision 1% 3% 20% 50% 100%
8.4
Where reliable information, such as (i) historical loan loss experience, (ii) current economic conditions, (iii) delinquency trends, (iv) ineffectiveness of lending policies and/or collection procedures, or (v) lack of timeliness and accuracy in the loan review function, suggests that losses are likely to be more than the above minimum provision percentages, banks may be required to maintain larger provisions. The minimum provision requirements for each classification category here in above shall be applied against the total outstanding principal balance, not against the amount of past due payments, for each loan or advance, or portion thereof, classified regardless of whether the loan or advance is analyzed and provided for individually or as part of a group.
8.5
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8.6
Before applying the minimum provision percentages laid out under 8.3.3, 8.3.4 and 8.3.5 herein above, banks may deduct from the outstanding nonperforming loans or advances: 8.6.1 any accrued but uncollected interest held in a suspended interest account (by debiting this account); and 8.6.2 in the case of loans secured by physical collateral net recoverable value, or estimated collateral value backing the non performing loan; whichever is lower.
8.7 Not withstanding deductions stipulated under 8.6 herein above, minimum provision percentage maintained by a bank for each loan or advance classified as 'non performing' shall not be less than 3 percent of the outstanding loan or advance.
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9. Portfolio Composition and Review of Financial Statements of Borrowers 9.1 The share of overdraft loans (excluding those secured by cash collateral) in total loans or advances portfolio of a bank shall not exceed at any time: 9.1.1 30 percent by June 30, 2008; 9.1.2 25 percent starting from June 30, 2009. 9.2 Banks shall review financial statements for the latest financial year of a borrower, who has been in business for a year or above, audited by external auditors before granting loans or advances of: 9.2.1 Birr 10 million or above starting from June 30, 2008; 9.2.2 Birr 5 million or above starting from June 30, 2009. 10. Examiner Review
10.1 Each bank shall maintain adequate records in support of its evaluation of potential loss exposure in the loans or advances portfolio and of the entries made to ensure an adequate Provisions for Loan Losses Account which shall be made available to examining personnel of the National Bank of Ethiopia upon request to assess the reasonableness of the banks loss estimation procedures, the reliability of the information on which estimates are based, and the adequacy of the Provisions for Loan Losses Account.
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10.2 Should examining personnel in applying the requirements of these directives and after discussions with the executive officer(s) of the bank find the Provisions for Loan Losses Account to be inadequate by more than 10% (ten percent) when compared to the findings of an on-site examination, the board of directors shall within 30 (thirty) days of such notice by the National Bank of Ethiopia of any deficiency in the Provisions for Loan Losses Account require the executive officer(s) to record the appropriate entries to increase the balance of the Provisions for Loan Losses Account to a level which is within 10% (ten percent) of the estimated amount of the Provisions for Loan Losses Account determined by examining personnel of the National Bank of Ethiopia. 10.3 In the event of material disagreements between examining personnel of the National Bank of Ethiopia and the executive officer(s) of the bank regarding the appropriateness of additional provisions needed to the
45
Provisions for Loan Losses Account, the board of directors may appeal to the National Bank of Ethiopia. Notwithstanding this appeal, it is incumbent on the executive officer(s) of the bank to attend all loan discussions and meetings during on-site inspections in order to be fully apprised of examiner concerns with respect to all classified loans or advances. 11. 11.1 11.2 11.3 Other Provisioning Requirements Provision for depreciation of fixed assets shall be made out of the annual income of a bank in accordance with the law. Operating and accumulated losses shall be provided for from the annual net profit until such losses are fully covered. The value of any assets lodged or pledged to secure a liability, as indicated under Article 15(1)(d) of Proclamation No. 84/1994, shall be fully provided for upon the lodging or pledging of any asset. Preliminary expenses representing expenses relating to organization or extension or the purchase of business or good will and including shareunderwriting commission shall be fully provided for within 5 (five) years. Any uncollectible claims, other than loans or advances, shall be classified and provided for in the same manner and method laid down in these directives for term loans with monthly repayment program or otherwise written off as other operating expense of the bank as they are identified.
11.4
11.5
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12.
Interpretation of the Directives All loans or advances held by a bank must be accounted for and categorized in accordance with the requirements laid out in these directives. No interpretation of these directives shall be permitted unless confirmed in writing by the National Bank of Ethiopia. In recording a loan or advance not covered in principle by the requirements laid out in these directives, a bank shall make a written request to the National Bank of Ethiopia to confirm the proper application of the requirements laid out in these directives.
13.
Reporting
46
Banks shall submit to the Banking Supervision Department of the National Bank of Ethiopia a quarterly report on loan classification and provisioning in accordance with the table attached with these directives, which shall be part of the Directive. 14. Repeal Directive No. SBB/32/2002 is hereby repealed and replaced by these directives. 15. Effective Date These directives shall enter into force as of the 1 day of January
st
2008.
LIQUIDITY REQUIREMENT
(3rd replacement)
Directives No. SBB/44/08

1. Issuing Authority
This directives are issued by the National Bank of Ethiopia pursuant to the authority vested in it by Article 41 of the Monetary and Banking Proclamation No. 83/1994 and by Article 16 of the Licensing and Supervision of Banking Business Proclamation No. 84/1994.
2.
Definitions
2.1 For the purpose of liquidity requirement "liquid assets", in addition to what has been provided for under 16(2) of Proclamation No. 84/1994, include deposits held in Organization for Economic Cooperation and Development (OECD) member countries currencies and payable by banks of OECD countries and in such other currencies as may be approved by the National Bank of Ethiopia as well as securities issued by OECD countries denominated in currencies of such countries with tenures as indicated under article 16 (2)(b) of Licensing and Supervision of Banking Business Proclamation No. 84/1994.
47
2.2
"Current liabilities" shall mean the sum of demand (current) deposits, savings deposits and time deposits and similar liabilities with less than one-month maturity period.
1 of 2
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NATIONAL BANK OF ETHIOPIA 3. Total Requirement
Any licensed bank shall maintain liquid assets of not less than 25% (twenty five percent) of its total current liabilities.
4.
Specific Requirements
For the purpose of meeting the liquidity requirement, each bank shall maintain:
4.1
at least twenty percent (20%) of the current liabilities in the form of primary reserve assets; and 4.2 five percent (5%) of the current liabilities in the form of secondary
reserve assets.
5.
Reports
Banks shall submit to the Banking Supervision Department of the National Bank of Ethiopia properly certified weekly liquidity positions showing the end-of-week balances of each Wednesday not later than Tuesday of the following week.
6.
Repeal
Directives No. SBB/15/96 are hereby repealed and replaced by this Directives.
7.
Effective Date This Directives shall enter into force as of the 7 day of April 2008.
th
48
RESERVE REQUIREMENT
(4th Replacement)
DIRECTIVE NO. SBB/45/2008
Whereas, the National Bank of Ethiopia is vested with powers, duties and responsibilities of monetary management and regulation and supervision of banks; Whereas, statutory reserve requirement, which obliges banks to hold a proportion of their deposit balance with the National Bank of Ethiopia, is one of the important monetary policy instruments and prudential regulation tools; Whereas, liquidity in the banking system remained relatively high; Whereas, commercial banks have strong incentive to enhance profitability through credit extension; Whereas, it has been found necessary to check monetary growth so as to avoid risk of high inflation and ensure a stable macroeconomic environment for a healthy economic growth; Now, therefore, the National Bank of Ethiopia has issued these directives pursuant to the authorities vested in it by Article 41 of Monetary and Banking Proclamation No. 83/1994 and article 16 of Licensing and Supervision of Banking Business Proclamation No. 84/1994.
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1.
Short Title These Directives may be cited as " Reserve Requirement - 4th Replacement " Directives No. SBB/45/2008.
2.
Opening Accounts with the National Bank of Ethiopia Banks operating in Ethiopia shall open two separate Birr accounts with the National Bank of Ethiopia to be used as follows: 2.1. Reserve Account
49
c) A reserve account shall exclusively be used to maintain the reserve balance stated under article 2 of these directives; d) No bank shall withdraw any money from its reserve account without prior approval of the Supervision Department of the National Bank of Ethiopia. 2.2 Payments and Settlement Account
A payments and settlement account shall be used to carry out all day-to-day transactions of banks through the National Bank of Ethiopia. 3. Requirement Any bank operating in Ethiopia shall at all times maintain in its Reserve Account stated under article 2.1 of these directives 15% (fifteen percent) of all Birr and foreign currency deposit liabilities held in the form of demand (current) deposits, saving deposits and time deposits. 4. Computation of Reserve
4.1 Cash items in process of collection, if included under deposits, shall be deducted therefrom in computing the balance of total deposits for reserve purposes;
4.2
Cash items in process of collection through the National Bank of Ethiopia shall not be acceptable as reserve until credited to the reserve account;
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4.3
The reserve required shall be computed on the net deposit balance, i.e. excluding cash items in process of collection, shown at the end of each reporting week.
5.
Reserve Deficiencies 5.1 5.2 Deficiencies in reserve balance are subject to a penalty; The penalty shall be assessed at a rate twice the current average rate of interest on loans and advances charged by banks computed on the amount of the deficiency in reserve and multiplied by the number of days over which the reserve account remained deficient;
50
5.3 6.
The National Bank of Ethiopia may waive the penalty stated herein above on grounds it considers acceptable.
Reports For the purpose of determining strict compliance with the reserve requirement stated under article 2 of these Directives, properly checked and signed reports, showing balances as of each Wednesday, shall be submitted to the Supervision Department of the National Bank of Ethiopia. The reports shall be submitted not later than Tuesday of the following week and shall show the balance of each type of deposit under article 2 herein above, reserve balance with National Bank of Ethiopia and the excess/shortfall in reserves.
7.
Repeal Directives No. SBB/42/2007 is hereby repealed and replaced by these Directives.
8.
Effective Date These Directives shall enter into force as of the 7th day of April 2008.
51

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LICENSING AND SUPERVISION OF BANKING BUSINESS

Directives No. SBB/39/ 2006

NATIONAL BANK OF ETHIOPIA

NATIONAL BANK OF ETHIOPIA

i. ii. iii. iv. v. vi. vii. viii. ix. x.

NATIONAL BANK OF ETHIOPIA

NATIONAL BANK OF ETHIOPIA

4.7 4.8 4.9

NATIONAL BANK OF ETHIOPIA

NATIONAL BANK OF ETHIOPIA

Age A member of the board of a bank shall be at least 30 years old.

NATIONAL BANK OF ETHIOPIA

NATIONAL BANK OF ETHIOPIA

9.3.1 9.3.2 9.3.3 9.3.4

9.5 9.6 9.7

NATIONAL BANK OF ETHIOPIA

9.7.1 9.7.2 9.7.3 9.7.4

Strictly Confidential ANNEX I

NATIONAL BANK OF ETHIOPIA PROPRIETY TEST QUESTIONAIRE

Full Name .............................................................................................................. Name of Bank: ..

Signature________________________________________ Date ____________________________________________

AMENDMENT OF BRANCH OPENING

i. ii. iii. iv.

1.2 1.3 1.4

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= wN?^ v NATIONAL BANK OF ETHIOPIA Article 5

7.2 7.3 7.4

Article 14 Expiry of Guarantee

= wN?^ v NATIONAL BANK OF ETHIOPIA

NATIONAL BANK OF ETHIOPIA

ASSET CLASSIFICATION AND PROVISIONING (4th REPLACEMENT)

Cash-substitutes include: 4.3.1 Ethiopia; A security issued by the Federal Government of

4.10 4.11 4.12

Directives No. SBB/44/08

DIRECTIVE NO. SBB/45/2008

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Signature Date ____