Licensing and Supervision of Banking Business Consolidated National Bank Directives

CONSOLIDATED NATIONAL BANK of ETHIOPIA DIRECTIVES
LICENSING AND SUPERVISION OF BANKING BUSINESS
Abrham Yohannes Hailu
Law Teacher at Haramaya University
College of Law
Licensed Lawyer
Federal and Harari Courts
E-mail: abrham@chilot.me
Mobile: +251913388259
+251915742253
Blog: www.chilot.me
http://abookmedhin.wordpress.com
CONSOLIDATED NATIONAL BANK of ETHIOPIA DIRECTIVES
Table of Contents
DIRECTIVE PAGE
SBB/1/94 Licensing and Supervision of Banking Business 31
Sbb-3-95_2 CONTRIBUTION IN KIND 1
Sbb-4-95 LEGAL RESERVE 2
Sbb-9-95 COMPUTATION OF RISK WEIGHTED ASSET 3
Sbb-10-95 LIMITATION ON ACCOMMODATION 4
Sbb-12-96 LIMITATION ON INVESTMENT OF BANKS 5
Sbb-13-96 NAMING OF OFFICERS 7
Sbb-19-96 Approval of Appointment of an Independent Auditor 8
Sbb-21-96 Manner of Reporting Financial Information 10
Sbb-24-99 Minimum Paid up Capital to be maintained by Banks 11
Sbb-26-01 Establishment of Special Account for Effecting Payments for 12
Coffee Purchases From the Coffee Auction Center
Sbb-29-02 Amendment of Single Borrower Loan Limit 16
Sbb-30-02 Amendment of Limitation on Loans to Related Parties 21
Sbb-31-02 Directive for the Proper Operation of Current Account and 26
Cheque
SBB/32/2002 Amendment of Provisions 34
SBB/34/2004 Amendment to the Establishment and Operation of 45
Export Credit Guarantee Scheme Directive
SBB/35/2004 Amendment of Penalty for Non-compliance with the 52
Directives of the National Bank of Ethiopia Directive No. SBB/20/96
SBB/36/2004 Credit Information Sharing 53
SBB/37/2004 RESERVE REQUIREMENT 59
Sbb-39-06 Amendment for New Bank Licensing and Approval of 62
Directors and CEO
Sbb-40-06 Amendment of Branch Opening 71
Sbb-41-07 Directives to Transfer Duties and Responsibilities Related to 73
Establishment and Operation of Export Credit Guarantee Scheme from
the National Bank of Ethiopia to Development Bank of Ethiopia
Sbb-44-08 Liquidity Requirement (3rd replacement) 82
Sbb-46-10 Customer Due Diligence of Banks 83
Sbb-47-10 Time Limit for reduction and/or Relinquishing Shareholdings 93
Sbb-48-10 Asset Classification and Provisioning for Development 96
Finance Institutions
Sbb-49-11 Limits on Board Remuneration and Number of Employees 109
Who Sit on a Bank Board
Sbb-50-11 Minimum Capital Requirement for Banks 111
Sbb-51-11 Directives to Authorize the Business of Interest Free Banking 114
Abrham Yohannes Haramaya University College of Law www.chilot.me
LICENSING AND SUPERVISION OF

BANKING BUSINESS
Directive No. SBB/3/95
CONTRIBUTION IN KIND
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 5(b)(5) of the Licensing and Supervision of Banking
Business
Proclamation No. 84/1994.
2. Contribution in Kind
2.1. Items like built in vault, buildings, essential vehicles and others that are
acceptable to the Bank may be considered as capital contributions.
2.2. Contributions in kind should be valued by professional valuers acceptable
to the National Bank of Ethiopia.
2.3. Capital contributions in kind shall not be considered for the purposes of
fulfilling minimum required capital and shall not exceed 25% of paid up
capital in excess of minimum required capital.
These Directives shall enter in to force as of 21st day of August 1995.
Page 1 of 116

BANKING BUSINESS
LEGAL RESERVE
authority vested in it by Article 41 of the Monetary and Banking Proclamation
No. 83/1994 and by article 13(4) of the Licensing and Supervision of Banking
Business Proclamation No. 84/1994.
2. Requirement
2.1 Every bank shall transfer annually 25% of its annual net profit to its
13
Legal Reserve Account until such account equals its capital.
2.2 When the legal reserve account equals the capital of the bank, the
amount to be transferred to the legal reserve account shall be 10% (ten
percent) of the annual net profit.
These Directives shall enter into force as of 21st day of August 1995.
Page 2 of 116

BANKING BUSINESS
COMPUTATION OF RISK WEIGHTED ASSET
No. 83/1994 and by article 36 of the Licensing and Supervision of Banking
2. Definition
2.1 For the purpose of these Directives, the capital of a bank consists of issued
and fully paid in shares, legal reserves and other reserves to be approved by
the National Bank of Ethiopia and
2.2 The minimum capital requirement shall be applied to a bank on a
consolidated basis, including subsidiaries and affiliates engaged in banking
and financial activities.
3. Manner of computation
Risk weighted assets and percentage weight attached to each asset shall be
calculated in the manner as shown in the tables attached herewith which shall be
a
part hereof.
These Directives shall inter into force as of 21st day of August 1995.
Page 3 of 116

BANKING BUSINESS
LIMITATION ON ACCOMMODATION
No. 83/1994 and by article 17(1) of the Licensing and Supervision of Banking
2. Definition
For the purposes of this Directive, ‘person’ physical (natural) person.
3. Limitation on Accommodation
No bank shall, directly or indirectly, except with the prior written approval of the
Bank, grant or permit to be outstanding unsecured loans, advances or credit
facilities of an aggregated amount in excess of birr 30,000.=(Thirty Thousand
Birr).
3.1 to its directors, or any of them, whether severally or jointly with any other
person.
3.2 To any person of whom or of which it or any one or more of its directors is
a guarantor.
These directives shall enter into force as of 1st day of September 1995.
Page 4 of 116

BANKING BUSINESS
LIMITATION ON INVESTMENT OF BANKS
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
Business
1. No bank shall engage in insurance business but may hold up to 20% in an
insurance company and up to a total of 10% of the banks equity capital in such
business.
2. Banks are prohibited from engaging directly in non-banking businesses such
as
agriculture, industry, and commerce.
3. A bank may hold shares in a non-banking business only up to 20% of the
company’s share capital and total holdings in such business shall not
exceed10%
of the bank’s net worth.
4. A bank’s equity participation in another bank shall be subject to prior
authorization by National Bank of Ethiopia.
5. No bank shall commit more than 20% of its net worth in real estate acquisition
and development other than for own business premises with out prior approval of
the National Bank of Ethiopia.
6. A bank may not invest more than 10 %(ten percent) of its net worth in other
securities.
7. The aggregate sum of all investments at any one time (excluding investment in
government securities) may not exceed 50% of the bank’s net worth, with out
prior approval by the National Bank of Ethiopia.
8. Dealing in securities shall be done by banks only through a limited liability
subsidiary company wherein the holding of the bank shall not exceed 10% (ten
Page 5 of 116
percent) of its equity capital.

These Directives shall enter into force as of 8th day of April 1996.
Page 6 of 116

BANKING BUSINESS
NAMING OF OFFICERS
2. Designation
Unless a General Manager, Chief Executive or Principal Officer of a bank is
member of the Board of Directors of the bank, it is prohibited to designate him a s
a Managing director.
3. Effective date
These Directives shall enter into force as of 8th day of April 1996.
Page 7 of 116
LCENSING AND SUPERVISION OF

BANKING BUSINESS
Approval of Appointment of an
Independent Auditor
18
This directive is 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. Definition
1.1 For the purpose of this Directive "associate" shall mean "any company where the
independent auditor or his partner(s) has a business interest".
1.2 The term "bank shall mean a company licensed under Licensing and Supervision
of Banking Business Proclamation 84/1994 to undertake banking business.
3. Application for Approval
1.3 After appointing an independent auditor in line with Article 370 of the
Commercial Code of Ethiopia, every licensed bank shall annually apply to the
National Bank of Ethiopia for approval of the appointed independent auditor.
1.4 In the application for approval, the bank should confirm that such an auditor has
been properly assessed prior to the appointment and is, in the bank's view, able to
comply with the provisions of Article 18 of the Licensing and Supervision of
Banking Business Proclamation No. 84/1994. For this purpose the bank must
seek a declaration from the auditor which will be submitted together with the
application to the effect that:
a) The auditor is qualified in terms of Article 18 of the Licensing and
Supervision of Banking business Proclamation No. 84/1994.
b) The auditor, his partners or associates do not operate an account or have
not been granted any type of facilities in the bank except in the normal
course of business and at arm's length.
Directive No. SBB/7/95 is hereby repealed and replaced by this Directive. This
Directive
Page 8 of 116
shall enter into force as of 20th day of November 1996.
Page 9 of 116

BANKING BUSINESS
Manner of Reporting Financial Information
This directive is 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
19
and by Article 19 of the Licensing and supervision of Banking Business
3. Reports
Reports shall be submitted to the Supervision Department of the National Bank
of
Ethiopia within twenty days after the end of the period for which the data are
reported except the Reserve and Liquidity requirement reports which shall be
submitted in accordance with Directives No. SBB/14/96 & SBB/15/96,
respectively, in the form and manner as shown in the tables attached herewith
which shall be part hereof.
This Directive shall enter into force as of 20th day of November 1996.
Page 10 of 116

BANKING BUSINESS
Minimum Paid up Capital to be maintained by Banks
WHEREAS, it has been necessary to raise the minimum capital required to
establish a
new bank so that the newly established bank can compete successfully with
existing
banks;
WHEREAS, it is known that as banks expand their business they must maintain
a level of
capital commensurate with the volume of their business to withstand adverse
operational
results;
NOW, THEREFORE, in accordance with Article 13(1) and 36 of Proclamation
No.
84/1994, the National Bank of Ethiopia has issued these directives.
1. Minimum paid-up Capital
1.1 The minimum paid up capital that shall be required to obtain a banking
business license shall be Seventy Five Million Birr, which shall be fully paid
21
in cash and deposited in a bank in the name and to the account of the bank
under formation.
1.2 Existing banks whose paid up capital is below Seventy Five Million Birr
shall raise their paid up capital to the said amount by end of June 2002. In
the mean time, they will continue to maintain minimum total capital levels
not less than 8% of risk weighted assets.
2. Sanctions for failure top comply with the new capital requirement
2.1 If a bank fails to comply with the capital requirements specified under
subarticle
1.2 above, the National Bank of Ethiopia may
a. prohibit such bank from engaging in any additional business until the
deficiency in capital is corrected;
b. require such bank to merge with another bank;
c. close such bank; or
d. take away other measures it considers fit.
3. Effective Date
These Directives shall enter into force as of the first day of June 1999.
Page 11 of 116
Establishment of Special Account for Effecting Payments for

Coffee Purchases from the Coffee Auction Center
Whereas, issuing cheques without sufficient cover to coffee sellers has become a
concerning development;
Cognizant, that the practice of issuing such cheques has far-reaching negative
consequences on the supply of Ethiopian coffee to the international market;
Cognizant, that such malpractice erodes public confidence in the overall cheque
payment system of banks;
Now, therefore, the National Bank of Ethiopia has issued these directives pursuant
to the authority vested in it under Article 61 of the Monetary and Banking
1. Definition
“Coffee Auction Center” shall mean the Coffee Auction Center operated by Coffee
and Tea Authority.
2. Opening of a Special Coffee Auction Account
2.1 Upon a written request by a coffee exporter, commercial banks shall open
special coffee auction account in the name of the coffee exporter;
2.2 Balances in the special coffee auction account opened in accordance with 2.1
above shall be used solely for effecting payments to coffee sellers for coffee
purchases won at the coffee auctions conducted by the Coffee Auction Center.
3. Operation of the special coffee auction account
3.1 Upon request of the holder of the Special Coffee Auction Account, branches
of commercial banks shall issue, on behalf of the concerned bank, original
Letter of Undertaking addressed to the Coffee Auction Center, Coffee and Tea
Authority, with a copy to the account holder. The contents of the Letter of
Undertaking and the signatories shall be as specified inn the attachment to
these directives which shall be a part thereof;
3.2 The Letter of Undertaking which a bank issues to the Coffee auction Center in
Page 12 of 116
accordance with 3.1 above shall constitute a commitment on the part of the
concerned bank to pay the coffee seller named in the payment authorization
the full amount upon receipt of a payment authorization letter from the Coffee
Auction Center and corresponding cheque from the holder of the Special
Coffee Auction Account;
3.3 No cheques shall be drawn on the Special Coffee Auction Account in favor of
the holder of the account or in favor of a third party other than the coffee
seller(s) specified in the payment authorization issued by the Coffee Auction
Center;
3.4 In the event that the holder of the Special Coffee Auction Account fails to win
at the coffee auction or otherwise disqualified from participation in the coffee
auction(s) or the amount payable by the account holder is less than the amount
blocked in his/her/their special account, the concerned bank may release the
original or the excess amount to the account holder provided that the bank
receives a written blocked account release authorization letter from the Coffee
Auction Center;
3.5 Commercial banks may charge their customers fees for the special service
they render in connection with the opening and operation of the Special
Coffee Auction Account.
4. Scope of Application
The provisions of these directives are applicable only to the purchase of, and
payment
for, coffee at the coffee auctions conducted by the Coffee Auction Center.
5. Effective Date
These directives shall come into force as of 1 March 2001.

COFFEE AUCTION CENTER
(Addis Ababa/Dire Dawa, as Applicable)
_________________________________
PAYMENT AUTHORIZATION
Date _________________
Page 13 of 116
To: The Branch Manager

______________ Branch
______________ Bank
Dear Sir/Madam:
Re: Your Ref. No. ________________ dated _____________
We hereby authorize you to honour and pay the under listed cheque(s) from
Mr./Mrs./M/S __________ (name of the buyer) Special Coffee Auction Account to
the
under listed coffee seller(s).
No.
Name of Seller
Cheque No.
Amount to be
paid
Remaining
balance
Total XXXXXXXX
(Total amount in words ______________________________)
Sincerely yours,
Signature ___________ ___ Name & Title ________________ Date ______________
COFFEE AUCTION CENTER
(Addis Ababa/Dire Dawa, as Applicable)

_________________________________
BLOCKED ACCOUNT REALEASE AUTHORIZATION
Date _________________
To: The Branch Manager
______________ Branch
______________ Bank
Dear Sir/Madam:
Re: Your Ref. No. ________________ dated _____________
You are hereby authorized to release any unutilized balance blocked in the Special
Page 14 of 116
Coffee Auction Account of Mr./Mrs./M/S _____________ maintained with your

Branch.
Sincerely yours,
COFFEE AUCTION
LETTER OF UNDERTAKING
To: Coffee Auction Center
Coffee and Tea Authority
(Addis Ababa/Dire Dawa, as applicable)
_________________
Dear sirs:
The _______________ (name of the bank), _____________ Branch confirms that it has
blocked
Birr ____________ (Amount in words) _________________ in the Special Coffee Auction
Account of Mr./Mrs./M/S _______________ as per Article 2 of the National Bank of
Ethiopia's
Directive No. SBB/26/2001 to enable him/her/them/participate in coffee auction. The
_________
(name of bank) undertakes to pay coffee seller(s) up to the limit of this blocked amount from
the account of the holder mentioned above upon presentation of letter of payment
authorization from Coffee Auction Center and corresponding duly signed cheque(s) drawn
against the
aforementioned account. This undertaking will be valid only if signed by two authorized
signatories of the Bank and bears the Bank's stamp. The Bank is not liable for amounts
exceeding this undertaking.
Truly yours,
Page 15 of 116

BANKING BUSINESS
Amendment of Single Borrower Loan Limit
This Directive is 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 36 of the Licensing and Supervision of Banking Business Proclamation
No.
84/1994.
2. Definition
2.1 “Affiliated Financial Institution” means a Company:
2.1.1 In which a bank, directly, owns or controls 10% or more of the voting
shares
or controls in any manner the election of a majority of its directors or other
persons exercising similar function;
2.1.2 Which owns or controls in any manner, directly or indirectly, 10% or more of
the voting shares of a bank or controls in any manner the election of a
majority of the directors, or persons exercising similar function of a bank;
2.1.3 In which 50% or more of the voting shares is held, or control is held directly
or indirectly, through stock ownership or in any other manner, by the
shareholders of a bank who own or control 50% or more of the voting shares
of a bank; or
2.1.4 In which a majority of its directors, or other persons exercising similar
functions, are directors of a bank.
The term “company” as used in this definition means a bank or insurance
company
and “indirect ownership or control” refers to ownership or control exercised
through
Page 16 of 116
ownership or control of entities that are shareholders in the same financial

institution
or through similar arrangements.
2.2 “Cash collateral” means credit balances on accounts in the books of the
lending
bank over which the customers have given the lending bank a formal letter of
cession and which the bank at its discretion has transferred from the customer’s
account(s) to a specific or general cash collateral account(s) or blocked.
2.3 “Cash-substitutes” shall mean:
2.3.1 A security issued by the Federal Government of Ethiopia;
2.3.2 An unconditional obligation or guaranty issued in writing by the Federal
Government of Ethiopia or a non-affiliated domestic financial institution,
where the beneficiary bank maintains a current written and wee-documented
32
evaluation evidencing that the non-affiliated financial institution is financially
sound and capable of honoring the guaranty on demand with respect to
repayment of the both principal and interest, or a specific amount, and the
lending bank has not been advised of any determination by the guarantor to
deny payment under the terms of the obligation or guarantee; and
2.3.3 An unconditional obligation or guaranty issued in writing by a foreign bank
with an A or above rating by Standards and Poor’s Corporation and/or by
Moody’s Investor Services in their latest rating.
2.4 “Loan” 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 transactions in
which the bank is the lessor, overdraft facility to be funded by the bank on behalf
Page 17 of 116
of a person, revocable or irrevocable documentary letters of credit, standby

letters
of credit, and guarantees or sureties issued on behalf of a borrower.
The term “person” as used in this definition and elsewhere referred in this
Directive, includes individuals, groups of individuals, partnerships, common
enterprises, share companies, joint ventures, private limited companies, public
enterprises, corporate entities or other similar business groups and companies.
2.5 “ Majority-owned Subsidiaries” means a subsidiary controlled by a business
entity holding over 50% of its capital.
2.6 “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.
3. Combination of Loans
For the purpose of this Directive, a loan or extension of credit to one or more
borrowers in each of the companion categories listed below shall be combined
and
shall be subject to the credit limit to one borrower:
i) A corporation, a share company, a public enterprise or any business entity
and its majority-owned subsidiaries;
ii) One or more private limited companies and
A) individuals who fully own such companies and/or spouses or relations in
the first degree of consanguinity or affinity of such individuals,
33
B) individuals who are majority-owners of such companies and/or spouses
or relation in the first degree of consanguinity or affinity of such
individuals, and
C) businesses which have a majority ownership in such companies;
iii) A partnership or joint venture and its individual general partners or
venturers;
iv) A partnership or joint venture and its limited liability partners or venturers;
v) A common enterprise and the participants therein who borrow for that
Page 18 of 116
enterprise.
4. Single Borrower loan limit
The aggregate loan or extension of credit by a bank to any one borrower,
whether a
natural person or business organization, shall at no time exceed 25% of the total
capital of the bank
5. Exclusion
For the purpose of this Directive, the following types of loans or extensions of
credit
shall not be subject to the credit limit prescribed under article 4 hereinabove:
i) Loans fully secured by cash collateral; and
ii) Loans fully secured by cash substitutes.
6. Reporting Requirement
Reports showing month-end exposures to every single borrower that exceed
10% of
total capital of a bank shall be submitted to the Supervision Department of the
National Bank of Ethiopia with in twenty days after the end of the period for which
the data are reported. The report shall be submitted in accordance with the table
attached herewith which shall be a part thereof.
7. Repeal
Directive No. SBB/16/1996 is hereby repealed and replaced by this directive
8. Effective Date
This Directive shall enter into force as of 13th day of May 2002
34
Monthly Return on Loans to Related Parties
List of All Related Borrowers
(in millions of Birr)
Name of Bank: _______________________
Reporting month _____________________
Approved Loan Limit Collateral
Borrower
Page 19 of 116
Type of
Loan/facility2 Amount Percent of
Capital
Type3 Estimated/Face
Value
Outstanding
Balance
Status
(classification)4
1) Include all facilities extended to the borrower, be it on or off balance-sheet (i.e. overdrafts, term loans,
mercandize loans, L/C facilities, guarantees, etc.) and whether
secured or clean.
2) In case the collateral is financial guarantee bond, indicate whether it is issued by affiliated or non affiliated
finacial institution as defined in this directive.
3) Classified in line with provisions of article 6 of NBE Directive No. SBB/28/2002.
Prepared b: _____________________ Approved by: __________________
(name and signature) (name and signature)
Telephone: _____________________ Telephone: __________________
Page 20 of 116

BANKING BUSINESS
Amendment of Limitation on Loans to Related Parties
This Directive is 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 36 of the Licensing and Supervision of Banking Business Proclamation
No.
84/1994.
2. Definition
2.1 “Affiliated Financial Institutions” shall mean a company:
2.1.1 In which a bank, directly, owns or controls 10% or more of the voting
shares or controls in any manner the election of a majority of its
directors or other persons exercising similar function;
2.1.2 Which owns or controls in any manner, directly or indirectly, 10% or
more of the voting shares of a bank or controls in any manner the
election of a majority of the directors, or persons exercising similar
function of a bank;
2.1.3 In which 50% or more of the voting shares is held, or control is held
directly or indirectly, through stock ownership or in any other manner,
by the shareholders of a bank who own or control 50% or more of the
voting shares of a bank; or
2.1.4 In which a majority of its directors, or other persons exercising similar
functions, are directors of a bank.
The term “company” as used in this definition means a bank or insurance
company and “indirect ownership or control” refers to ownership or control
exercised
through ownership or control of entities that are shareholders in the same
financial
Page 21 of 116
institution or through similar arrangements.

2.2 “Cash collateral” means credit balances on accounts in the books of the
lending bank over which the customers have given the lending bank a formal
letter of cession and which the bank at its discretion has transferred from the
customer’s account(s) to a specific or general cash collateral account(s) or
blocked.
2.3 “Cash-substitutes” shall mean:
36
2.3.2 An unconditional obligation or guaranty issued in writing by the
Federal Government of Ethiopia or a non-affiliated domestic financial
institution, where the beneficiary bank maintains a current written and
wee-documented evaluation evidencing that the non-affiliated
financial institution is financially sound and capable of honoring the
guaranty on demand with respect to repayment of the both principal
and interest, or a specific amount, and the lending bank has not been
advised of any determination by the guarantor to deny payment under
the terms of the obligation or guarantee; and
2.3.3 An unconditional obligation or guaranty issued in writing by a foreign
bank with an A or above rating by Standards and Poor’s Corporation
and/or by Moody’s Investor Services in their latest rating.
2.4 “Loan” 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 transactions in which the bank is the lessor, overdraft facility to be
funded by the bank on behalf of a person, revocable or irrevocable
documentary letters of credit, standby letters of credit, and guarantees or
Page 22 of 116
sureties issued on behalf of a borrower.

The term “person” as used in this definition and elsewhere referred in this
Directive, includes individuals, groups of individuals, partnerships, common
enterprises, share companies, joint ventures, private limited companies, public
enterprises, corporate entities or other similar business groups and companies.
2.5 “ Majority-owned Subsidiaries” means a subsidiary controlled by a
business entity holding over 50% of its capital.
2.6 “Related Party” to a bank shall mean,
On the one hand,
A share holder, 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 share holder,
director or principal officer; and
On the other,
A partnership, a common enterprise, a private limited company, a share
company, a joint venture, a corporation, or any other business in which the share
37
holder, director or principal officer of the bank and/or the spouse or relation in the
first degree of consanguinity or affinity of such share holder, director or principal
officer has a business interest as shareholder, director, owner or partner.
2.7 “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.
3. Threshold for Treatment of Shareholders as Related Party
As regards shareholders, only those shareholders of a bank with holdings of 5%
or
more of a bank’s subscribed capital shall be treated as related party and shall be
subject to the provisions of this Directive.
4. Limitations
4.1 Banks shall not extend loans to related parties on preferential terms with
respect to conditions, interest rates and repayment periods other than the
terms and conditions normally applied to other borrowers.
Page 23 of 116
4.2 The aggregate sum of loans extended or permitted to be outstanding directly

or indirectly to one related party at any one time shall not exceed 15% of the
total capital of the bank.
4.3 The aggregate sum of loans extended or permitted to be outstanding directly
or indirectly to all related parties at any one time shall not exceed 35% of the
total capital of the bank.
5. Exclusion
For the purpose of this Directive, the following types of loans or extensions of
credit
shall not be subject to the credit limit prescribed under article 4 hereinabove:
iii) Loans fully secured by cash collateral; and
iv) Loans fully secured by cash substitutes.
6 Responsibility of Identifying Related Parties
Identification of related parties shall be responsibility of each individual bank.
7. Reporting Requirement
Reports showing month-end exposures to each related party shall be submitted
to the
Supervision Department of the National Bank of Ethiopia with in twenty days after
the end of the period for which the data are reported. The report shall be
submitted in
accordance with the table attached herewith which shall be a part thereof.
8. Repeal
38
Directive No. SBB/17/96 is hereby repealed and replaced by this directive
9. Effective Date
This Directive shall enter into force as of 13th day of May 2002
39
30 Monthly Return on Loans to Related Parties
List of All Related Borrowers
(in millions of Birr)
Name of Bank: _______________________
Page 24 of 116
Reporting month ____________________

Approved Loan Limit Collateral
Borrower
Type of
Loan/facility2 Amount Percent of
Capital
Type3 Estimated/Face
Value
Outstanding
Balance
Status
(classification)4
1) Defined in line with Article 2.6 of NBE Directive No. Sbb/30/2002.
2) Include all facilities extended to the borrower, be it on or off balance-sheet (i.e. overdrafts, term loans,
mercandize loans, L/C facilities, guarantees, etc.) and
whether secured or clean.
3) In case the collateral is financial guarantee bond, indicate whether it is issued by affiliated or non affiliated
finacial institution as defined in this directive.
4) Classified in line with provisions of article 6 of NBE Directive No. SBB/28/2002.
Prepared b: _____________________ Approved by: __________________
(name and signature) (name and signature)
40
Telephone: _____________________
Telephone: ____________________
Page 25 of 116

Amendment of
Directive for the Proper Operation of
Current Account and Cheque
Whereas, the proper use of current accounts and the function of cheque as an
instrument
of payment is crucial in a modern society;
Whereas, cheque as a negotiable instrument is recognized and given legal
protection
under Ethiopian law;
Whereas, the National Bank of Ethiopia is entrusted with the responsibility of
creating
and maintaining an efficient and sound financial system;
Now, therefore, the National Bank of Ethiopia has issued these Directives
pursuant to
the authority vested in it under Article 61 of the Monetary and Banking
Proclamation No.
83/1994.
1. Definitions
In these Directives, unless the context otherwise requires,
1.1 "Cheque" shall have the meaning ascribed to it under the Ethiopian
Commercial Code.
1.2 "Current Account" shall mean an active account on which cheques are
drawn and to which deposits are made and credits paid.
1.3 "Banks" shall mean all banks licensed and operating under proclamation
No. 84/1994.
1.4 "Delinquent List" shall mean the register held by the National Bank of
Ethiopia, indicating the names of current account holders whose cheques
have been dishonored repeatedly and whose accounts are closed by banks.
1.5 "Dishonored Cheque" shall mean a cheque drawn without sufficient
Page 26 of 116
cover and is rejected by banks for this reason.

41
1.6 "Drawer" shall mean a person who signs a cheque giving an order to a
bank to pay the amount mentioned therein.
1.7 "Persons" shall include physical and juridical persons.
2. Bank' Action on Dishonoring Cheques
2.1 Banks shall maintain a register where all cheques dishonored for the first
time shall be registered. Banks shall notify drawers of the dishonored
cheques of such registration;
2.2 The register shall include the name and address of the bank and its branch,
the name and address of drawer, the date on which the cheque was
dishonored, the amount of the dishonored cheque and the action taken by
the bank;
2.3 Banks shall regularly check the register under 2.1 above and upon
dishonoring a cheque drawn by a current account holder whose name
appears on the register, they shall levy a fine of 5% of the amount
appearing on the dishonored cheque;
2.4 Upon dishonoring a cheque drawn by an account holder fined under 2.3
above, banks shall close the current account of such person at all their
branches.
3. Opening of Current Accounts
Banks shall, upon opening of current accounts,
3.1 verify that the name of the person requesting to open a current account
does not appear in the dishonored cheques register or in the list of persons
whose current accounts have been closed that is circulated by the National
Bank of Ethiopia;
3.2 check the memorandum and articles of association of juridical persons to
verify that the name of the members do not appear in the delinquent list;
3.3 inform their customers about the use and purpose of current account and
cheque and the consequences of misusing it; and
3.4 include in the current account deposit agreement a clause about the
Page 27 of 116
measures that shall be taken when there is misuse of cheque.

4. Reporting
42
Banks shall send a report to the National Bank of Ethiopia, Supervision
Department, regarding customers whose current accounts are closed on the
following three working days from the date of such closing. the report shall
include the name and address of the drawer, the name of the branch where the
account was held and the date on which the account was closed.
5. Delinquent List
5.1 The National Bank of Ethiopia shall keep a delinquent list of the names of
reported misusers of current accounts;
5.2 The National Bank of Ethiopia shall send information to Banks about
persons whose names appear on the delinquent list;
5.3 Banks shall deny service of current account to customers whose names
appear on the delinquent list and shall close all already existing current
accounts under such names.
6. Conditions for Deletion of Names of Misusers of Current Accounts from
the
Delinquent List
6.1 The NBE may delete the name of a current account misuser from the
Delinquent List stated under article 5 of this directive if such person
fulfills all of the following conditions;
6.1.1 Is suspended from use of current account for a minimum of 18
months from the date of closure of the account or produces a
guarantee valid for 18 consecutive months from a domestic bank
explicitly stating that the bank shall cover and effect full payment
against any one cheque drawn by such person at any one time;
6.1.2 Presents satisfactory evidence to the NBE with respect to full
settlement of all dishonored cheques and penalty charges related to
the earlier closure of current account, and
6.1.3 Files with the NBE a written application, with a copy to the
Page 28 of 116
Federal Police Commission, indicating his/her intention and

commitment to operate current account honestly and carefully in
the future.
6.2 The NBE may authorize all banks to provide current account service to the
person whose name has been deleted from the delinquent list.
6.3 Banks shall maintain a separate register, wherein they book names of
persons deleted from NBE's delinquent list.
43
6.4 Upon dishonoring at any one time a cheque drawn by a person who has
been provided with current account service in line with the authorization
obtained from the NBE under article 6.2 and recorded in register book
established in accordance with article 6.3 of this directive, banks shall i)
levy a fine of 10% of the amount appearing on the dishonored cheque, and
ii) automatically close current accounts of such person in all their branches
and report to the NBE within the following three working days.
6.5 The NBE shall reenter the name of a person whose current account has
been closed in line with article 6.4 of this directive into its delinquent list
and shall inform all banks about the closure of current account of such
person for the second time. Banks shall apply all requirements set out
under articles 3 and 5.3 of this Directive with respect to such person:
6.6 Persons whose names are re-entered in the delinquent list for the second
time and subsequently shall be eligible to use current account service if
they fulfill the conditions specified in sub-article 6.1 of this directive.
7. Repeal
Directive No. SBB/25/200 is hereby repealed and replaced by this directive.
8. Effective Date
These Directives shall enter into force as of the 17th day of June 2002.
Page 29 of 116
¾›=ƒÄåÁ wN?^© v”¡

NATIONAL BANK OF ETHIOPIA
ADDIS ABABA
TELEGRAPHIC ADDRESS PLEASE ADDRESS ANY REPLY TO

NATIONAL BANK P.O.BOX 5550
TELEX 21020 ADDIS ABABA
CODES USED
PETERSON 3rd & 4th ED.
BENTLEY'S 2nd PHRASE
A. B. C. 6th EDITION
Supervision of Banking Business Directives
Title Directive
No.
Licensing and Supervision of Banking Business SBB/1/94
Contribution in kind SBB/3/95
Legal Reserve SBB/4/95
Computation of Risk Weighted Asset SBB/9/95
Limitation on Accommodation SBB/10/95
Limitation on Investment of Banks SBB/12/96
Naming of Officers SBB/13/96
Reserve Requirement SBB/14/96
Liquidity Requirement SBB/15/96
Approval of Appointment of an Independent SBB/19/96
Auditor
Manner of Reporting Financial Information SBB/21/96
Amendment of Branches SBB/22/96
Minimum Paid up capital to be Maintained by SBB/24/99
Banks
Establishment of special Accounts for Effecting SBB/26/2001
Payments for coffee Purchases from the Coffee
Auction Center
Limitation on Open Foreign Currency Position of SBB/27/2001
Banks
Single Borrower Loan Limit SBB/29/2002
Limitation on Loans to Related Parties SBB/30/2002
Proper Operations of Current Account and SBB/31/2002
Cheque
Provisions SBB/32/2002
Page 30 of 116
Amendment to the Establishment and Operation SBB/34/2002

of Export Credit Guarantee Scheme
Penalty for non-compliance with the Directives of SBB/35/2004
the National Bank
Credit Information Sharing Reserve Requirement SBB/36/2004
Reserve Requirement SBB/37/2004

BANKING BUSINESS
DIRECTIVE NO. SBB/1/94
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 Related parties shall mean directors, founders, principal officers, employees and
other businesses in which they have direct interest.
2.2 Residence shall have the meaning assigned to it under article 174 of the
Commercial Code of Ethiopia.
3. Information Required From Applicants For License.
3.1. Evidence for paid up capital which includes certificate of deposit in a blocked
subscription account and evidence for valuation of contribution in kind.
3.2. Names and occupation (including dates and addresses of previous employment), of
the organizers of the bank if these are other than the directors.
3.3. Feasibility study document.
3.4. Projection of Financial statements for the first three years of operation showing
major categories of loans by economic sectors and liabilities.
Page 31 of 116
3.5. Disclosure of the identify of shareholders who have acquired more than ten percent
of the capital stock, indicating their names, nationality, number and value of shares
held.
3.6. Separate cost of vault, equipment, furniture and fixture purchased or leased.
3.7. Authenticated ownership certificate and/or lease agreement for items listed under
Section 11.1 of the application form.
3.8. Description of any purchase or proposed purchase of goods and services, or lease of
real estate by the bank from related parties.
3.9. Proposal of insurance coverage and extent of such coverage.
3.10. Curriculum vitae of the proposed Chief Executive, founders and/or directors
including their age, martial 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.
3.11. Duty completed application form as prescribed by the Bank and submit enclosures
specified therein.
3.12. Proposed organizational chart of the bank, and brief description of the functions of
the main organizational units.
4. Criteria For Selection Of Chief Executive
4.1. Education
A minimum of first degree or equivalent in relevant field having attended a

recognized higher institution of learning.
4.2. Employment
A minimum of 10 years of reputable managerial experience in a financial or related

institution at a senior level which can expose him to acquire sufficient banking and
management skills.
4.3. Age
A minimum of 35 years
4.4. Marital Status
Page 32 of 116
Preferably married or responsible to a family
5. Criteria For Selection Of Members Of Board Of Directors
5.1. Education
A minimum completion of high school education with ability to read and grasp
reports, especially financial statements.
5.2. Employment
Members of Board of Directors shall have adequate managerial experience in

business and/or similar organizations.
5.3. Age
A minimum of 30 years of age
6. Fees
6.1. 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.
6.2. A company licensed to undertake banking business shall pay initial registration fee
currently prescribed by the Ministry of Trade for registration of Memorandum and
Articles of Association.
6.3. A company licensed to undertake banking business shall pay initial license fee of
Birr5,550.- (Birr five thousand five hundred fifty only).
6.4. A licensed bank shall pay annual license renewal fee of Birr5,550.- (Birr five
thousand five hundred fifty only).
These Directives shall enter into force as of Fifteenth day of May 1994.

BANKING BUSINESS
Page 33 of 116
AMENDMENT OF PROVISIONS
This Directive is 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.
2. Purpose of Directive
The purpose of this Directive is to provide uniform guidelines to banks to assure that:
2.1 Loans or advances are regularly reviewed and classified in a manner consistent with
regulatory standards;
2.2 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;
2.3 Accrued but uncollected interest on loans or advances is accounted for in accordance with
international accounting and regulatory standards; and
2.4 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.
3. Definitions
3.1 “Affiliated Financial Institution” means a “company”:

3.1.1 In which a bank, directly or indirectly, owns or controls 10% (ten percent) or more
of the voting shares or controls in any manner the election of a majority of its
directors or other persons exercising similar functions;
3.1.2 In which 50% (fifty percent) or more of the voting shares is held, or control is held,
directly or indirectly, through stock ownership or in any other manner, by the
shareholders of a bank who own or control 50% (fifty percent) or more of the
voting shares of a bank;
3.1.3 In which a majority of its directors, or other persons exercising similar functions,
are directors of a bank; or
3.1.4 Which owns or controls in any manner, directly or indirectly, 10% (ten percent) or
more of the voting shares of a bank or controls in any manner the election of a
majority of the directors, or persons exercising similar functions of a bank.
The term “company” as used in this definition means a bank or insurance company and
“indirect ownership or control “ refers to ownership or control exercised through ownership
or control of entities that are shareholders in the same financial institution or through
similar arrangements.
Page 34 of 116
3.2 “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.
3.3 “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 customer’s account(s) to a specific or general
cash collateral account(s) or blocked.
3.4 “Cash-substitutes” include:

3.4.2 An unconditional obligation or guaranty issued in writing by the Federal
Government of Ethiopia or a non-affiliated domestic financial institution, where the
beneficiary bank maintains a current written and well-documented evaluation
evidencing that the non-affiliated financial institution is financially sound and
capable of honoring the guaranty on demand with respect to repayment of both
principal and interest, or a specific amount, and the lending bank has not been
advised of any determination by the guarantor to deny payment under the terms of
the obligation or guarantee; and
3.4.3 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.
3.4.4 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.
Provided, any loan or advance unconditionally guaranteed in writing by an affiliated

financial institution as of the issuance of this Directive shall continue to be treated as a
“cash-substitute” until the maturity of the loan or advance as stated in the loan
contract/agreement, or the loan or advance is otherwise restructured, or has its terms or
maturity modified, or the loan or advance is renewed. At which time, such affiliated
financial institution guarantee shall no longer be considered a “cash-substitute” for
purposes of this Directive.
3.5 “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.
3.6 “In Process of Collection” means that the collection of loans or advances is proceeding in due
course in a timely manner either through:
3.6.1 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;
Page 35 of 116
or
3.6.2 Commencement of collection efforts not involving legal action but which are
reasonably assured to result in full repayment of the loan or advance (principal plus
accrued interest) within 180 (one-hundred-eighty) days from the date the loan or
advance first became past due; or
3.6.3 Restoration of the loan or advance to a current status through payment, in cash, of
all past due amounts within 180 (one-hundred-eighty) days from the date the loan or
advance first became past due is reasonably assured.
3.7 “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.
The term “person” as used in this definition and elsewhere referenced in this Directive,
includes individuals, groups of individuals, partnerships, and corporate entities or other
similar business groups and companies.
3.8 “Net Recoverable Value” means the most probable value of a loan or advance which will
be realized from the sale of collateral securing the loan or advance in a competitive and
open market. For purposes of this Directive, the most probable value of a loan or advance
recoverable from the sale of collateral securing a loan or advance shall be the outstanding
principal balance of a loan multiplied by the “average recovery rate” of a bank for loans or
advances secured by collateral.
3.8.1 For purposes of determining the outstanding principal balance of a loan, accrued
interest (limited to 90 days) may be added to the outstanding principal balance.
3.8.2 The term “average recovery rate” as used in this definition means the ratio of (i)
aggregate net cash receipts (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) of a bank over the preceding 12 (twelve) consecutive months from the
sale of collateral which have been seized, foreclosed, repossessed or otherwise
acquired by a bank in satisfaction of loans or advances previously granted to (ii) 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 the bank.
3.8.3 In determining the average recovery rate as set out under 3.8.2 herein above, the net
cash receipt from the sale of collateral backing each outstanding non-performing
loan that shall be used in the computation shall not exceed 100% of the outstanding
non-performing loan.
Page 36 of 116
3.9 “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 this Directive.
3.10 “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.
3.10.1 For purposes of this Directive, loans or advances with pre-established repayment
programs are non-performing when principal and/or interest is due and uncollected
for 90 (ninety) days or more beyond the scheduled payment date or maturity.
3.10.2 For purposes of this Directive, overdrafts and loans or advances that do not have a
pre-established repayment program shall be considered as non-performing when:
a) The debt remains outstanding for 90 (ninety) consecutive days or

more beyond the scheduled payment date or maturity;
b) The debt exceeds the borrower’s approved limit for 90 (ninety)
consecutive days or more;
c) Interest is due and uncollected for 90 (ninety) days or more; or
d) For overdrafts, the account has been inactive for 90 (ninety)
consecutive days and/or deposits are insufficient to cover the interest capitalized
during the period;
3.10.3 For purposes of this Directive, the entire principal balance of loans or advances
outstanding exhibiting the characteristics described under 3.10.1 and 3.10.2 shall be
considered as non-performing.
3.11 “Overdraft” means a deposit account on the books of the bank with a debit balance.
3.12 “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.
3.13 “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 borrower’s financial condition
and/or ability to repay.
3.14 “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.
Page 37 of 116
3.15 “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
3.16 “Well-Secured” means that a loan or advance is secured by:
3.16.1 Cash collateral or cash-substitutes sufficient to repay the full debt (principal plus
accrued interest); for purposes of this Directive, sufficiency shall include proper
legal documentation evidencing the bank’s claim on the collateral; and/or
3.16.2 A guaranty from a financially responsible third party where the beneficiary bank
maintains a current written and well-documented evaluation evidencing that the
guarantor is capable of honoring the guaranty on demand; for purposes of this
Directive, a guaranty must be (i) independently confirmed in writing by the
guarantor, (ii) unconditional, and (iii) payable on demand.
4. Responsibility for Loan Review and Specific Requirements
4.1 The board of directors of each bank is responsible for establishing a loan review system
which provides for the accurate and timely recognition of problem or deteriorating loans or
advances, assuring the adequacy of the Provisions for Loan Losses Account, and assuring
that accrued but uncollected interest reflected on the books of the bank are in accordance
with the requirements laid out in this Directive.
4.2 The board of directors of each bank shall assure that a review is made of the quality of the
bank’s 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 principal officer(s) of the bank to take appropriate measures in
response to the findings of the loan review function to:
4.2.1 Accurately reflect earnings by assuring that all loans or advances categorized as
non-performing in accordance with the requirements laid out in this Directive are
placed on non-accrual status and accrued but uncollected interest has been reversed
out of the bank’s income;
4.2.2 Assure that the Provisions for Loan Losses Account is adequate to absorb potential
losses in accordance with the requirements laid out in this Directive; and
4.2.3 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.
4.3 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.
Page 38 of 116
4.4 The loan review function shall assure on an on-going basis, at a minimum, that:
4.4.1 Lending activities are in compliance with prudent written lending standards as
approved and adopted by the board of directors;
4.4.2 The board of directors is adequately informed of the risks and potential loss
exposure in outstanding loans or advances;
4.4.3 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 this Directive;
4.4.4 Appropriate provisions are made to the Provisions for Loan Losses Account for
loans or advances classified in accordance with the requirements laid out in this
Directive; and
4.4.5 Uncollectible non-performing loans or advances are written off as appropriate.
4.5 The loan review function shall regularly and on an ongoing basis review all loans or
advances which exceed 5% (five percent) of a bank’s total capital to a single borrower,
calculated in accordance with in 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
this Directive, and a sampling of the remaining loans or advances portfolio to determine
that 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 this Directive.
4.6 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.
5. Placement of Loans or Advances on Non-accrual Status
5.1 All loans or advances categorized under 6.1.3, 6.1.4 and 6.1.5 in accordance with the
requirements laid out in this Directive shall be placed on non-accrual status effective
January 1, 2004 unless the loans or advances are (i) well-secured and (ii) in process of
collection. Notwithstanding this provision a bank which has already placed its non-
performing loans on non-accrual status shall continue to do so.
5.2 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 this Directive 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.
5.3 A non-performing loan or advance placed on non-accrual status may be restored to accrual
status only when:
5.3.1 None of the outstanding principal and/or interest is past due; and,
Page 39 of 116
5.3.2 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 6.1.6. of this Directive; and
5.3.3 The bank expects full repayment of the remaining contractual principal and interest
as evidenced by a current written and well-documented evaluation of the borrower’s
creditworthiness.
5.4 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.
5.5 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 borrower’s
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 this Directive.
6. Classification of Loans or Advances
6.1.For purposes of this Directive, 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:
6.1.1 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.
6.1.2 Special Mention

Any loan or advance past due 30 (thirty) days or more, but less than
90(ninety) days shall be classified Special Mention.
6.1.3 Substandard
Non-performing loans or advances past due 90 (ninety) days or more but less than
180 (one-hundred-eighty) days shall, at a minimum, be classified Substandard;
6.1.4 Doubtful
Non-performing loans or advances past due 180 (one-hundred-eighty) days or more
but less than 360 (three-hundred-sixty) days shall be classified, at a minimum, as
Doubtful.
Page 40 of 116
6.1.5 Loss
Non-performing loans or advances past due 360 (three-hundred-sixty) days or more
shall be classified Loss.
6.1.6 Without prejudice to the classification criteria used for the Sub-Standard category
set out under 6.1.3 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:
i) in the case of term loans with monthly installment repayments, at least 3
(three) consecutive repayments;
ii) in the case of term loans with quarterly installment repayments, at least 3
(three) consecutive repayments;
iii) in the case of loans with semi-annual installment repayments, at least 2
(two) consecutive repayments.
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) a nil balance at least once; or
ii) a turnover rate of once the approved limit.
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.
6.2 Notwithstanding the classification criteria laid out under 6.1 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 advancing additional funds for the purpose of meeting repayment
requirements on an existing loan or advance.
7. Provisioning Requirements for Loans or Advances
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7.1 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.
7.2 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
7.3 Banks shall maintain the following minimum provision percentages against the outstanding
principal amount of each loan or advance classified in accordance with the criteria for the
classification of loans or advances as laid out under 6.1 herein above:
Classification Category: Minimum Provision:
7.3.1. “Pass” (in accordance with the following build

up in minimum required provisions)
(a) by December 31, 2002 0.5%
(b) by June 30, 2003 0.75%
(c) Effective January 2004 1%
7.3.2. “Special Mention” (in accordance with the following build
up in minimum required provisions)
(a) by December 31, 2002 1%
(b) by June 30, 2003 2%
(c) Effective January 2004 3%
7.3.3. “Substandard”
(a) Until December 31, 2003 25%
(b) Effective January 2004 20%
7.3.4. “Doubtful” 50%
7.3.5. “Loss” 100%
7.4 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.
7.5 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.
7.6 Before applying the minimum provision percentages laid out under 7.3.3, 7.3.4 and 7.3.5
herein above, banks may deduct from the outstanding non-performing loans or advances:
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7.6.1 any accrued but uncollected interest held in a suspended interest account (by
debiting this account), cash collateral and cash substitutes held as collateral; and
7.6.2 in the case of loans secured by physical collateral:
a) Until 31 December 2003, 67% (sixty-seven percent) of the estimated value of
the collateral backing the non-performing loan, provided the estimated value of
the collateral used for this purpose shall not exceed 100% (one hundred
percent) of the outstanding non-performing loan;
b) starting from 1 January 2004, net recoverable value.
7.7 Required provisions computed in accordance with 7.6.2.a. herein above shall be set aside in
the following manner:
7.7.1 at least 50% (fifty percent) of the required provisions by June 30, 2002;
7.7.2 at least 70% (seventy percent) of the required provisions by December
31, 2002;
7.7.3 at least 85% (eighty five percent) of required provisions by June 30, 2003; and
7.7.4 100% (hundred percent) of the required provisions by December 31, 2003.
7.7.5 Notwithstanding the percentages set under items 7.7.1, 7.7.2 and 7.7.3 herein above,
the provisions to be set aside shall not be lower than those held prior to the coming
into force of this Directive.
7.8 Provisions required to be maintained against non-performing loans or advances

classified in accordance with the requirements of this Directive may only be reduced by a
bank when:
7.8.1 Cash payments on the loan or advance are received in full; or
7.8.2 A current written and well-documented evaluation of the borrower’s
creditworthiness clearly and unquestionably demonstrates that repayment
prospects have improved and are reasonably assured; and repayment terms on the
loan or advance are consistent with other loans or advances being made by the bank
and in accordance with guidelines laid out in the board-approved loan policy; or
7.8.3 The loan is not classified as Substandard in accordance with article 6.1.6. of this
Directive.
8. Examiner Review
8.1 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 bank’s
loss estimation procedures, the reliability of the information on which estimates are based,
and the adequacy of the Provisions for Loan Losses Account.
8.2 Should examining personnel in applying the requirements of this Directive and after
discussions with the principal 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 principal officer(s) to record the appropriate entries to increase the
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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.
8.3 In the event of material disagreements between examining personnel of the National Bank
of Ethiopia and the principal officer(s) of the bank regarding the appropriateness of
additional provisions needed to the 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 principal 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.
9. Other Provisioning Requirements
9.1 Provision for depreciation of fixed assets shall be made out of the annual income of a bank
in accordance with the law.
9.2 Operating and accumulated losses shall be provided for from the annual net profit until
such losses are fully covered.
9.3 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.
9.4 Preliminary expenses representing expenses relating to organization or extension or the

purchase of business or good will and including share underwriting commission shall be
fully provided for within 5 (five) years.
9.5 Any uncollectible claims, other than loans or advances, shall be written off as other
operating expense of the bank as they are identified.
10. Application and Interpretation of Directive
All loans or advances held by a bank must be accounted for and categorized in accordance with the
requirements laid out in this Directive. No interpretation of this Directive 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 this Directive, a bank shall make a written request to
the National Bank of Ethiopia to confirm the proper application of the requirements laid out in this
Directive.
11. Reporting
Banks shall submit to the Supervision Department of the National Bank of Ethiopia a quarterly
report on loan classification and provisioning in accordance with the table attached with this
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Directive which shall be part of the Directive.
12. Repeal
Directive No. SBB/28/2002 is hereby repealed and replaced by this Directive.
13. Effective Date
This Directive shall enter into force as of the 1st day of September 2002.
National Bank of Ethiopia

Amendment to
The Establishment and Operation of
Export Credit Guarantee Scheme Directive
Whereas, national exporters need to compete on an equal footing with other exporters in
increasingly competitive foreign markets and to 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;
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
on Establishment and Operation of Export Credit Guarantee Scheme.
Article 1
Definitions
For the purpose of these directives, unless the context provides otherwise:
1.1 "Export Credit Guarantee" shall mean a guarantee provided by the Bank to
safeguard export financing banks against losses resulting from the export
transactions they finance;
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1.2 "Exporter" is a person engaged in non-coffee exports;

1.3 "Export" is non-coffee export;
1.4 “The Bank” is the National Bank of Ethiopia;
1.5 "Financing Banks" are licensed commercial banks in Ethiopia;

1.6 "Pre-Shipment Export Credit Guarantee" is a guarantee provided by the Bank upto
a maximum of 180 days to the exporter to cover pre-shipment export loan
extended by a financing bank starting from the issue date of the guarantee;
1.7 "Post-Shipment Export Credit Guarantee" is a guarantee provided by the Bank upto a
maximum of 180 days to the exporter to cover post-shipment export loan extended
by a financing bank starting from issue date of the guarantee;
1.8 “Fund" is a special fund created by the Bank for financing Export Credit Guarantee
Scheme;
1.9 “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;
1.10 “Perishable export commodities” shall mean export commodities subject to
significant deterioration in quality or spoilage or decay, such as fruits, vegetables,
molasses, unpreserved meat, flowers, live animals and other commodities as
determined by the Bank;
1.11 “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 and who can produce evidence of receipt of
export proceeds over those months;
1.12 “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.
Article 2
Eligibility Criteria
2.1 Exporters shall satisfy all of the following in order to be considered eligible for pre-or
post-shipment export credit guarantee:
a. The export project to be financed under the export credit guarantee scheme
shall be bankable;
b. Exporters shall not carry “loss” category loans, as defined in National Bank of
Ethiopia’s Directives on Provisioning, owed to any bank in Ethiopia;
c. Exporters shall present a bona-fide order from a foreign buyer;
d. Exporters shall produce evidence of a valid investment certificate and/or trade
license;
e. New exporters shall:
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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;
ii. produce evidence that all proceeds from non-perishable goods to be
exported shall be paid through irrevocable

letter of credit; however, no letter of credit shall be required for

perishable export commodities;
f. 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;
g. 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 their

clients upon fulfillment of the above eligibility criteria.
Article 3
Issuance of Guarantee
Upon written request of a financing bank, the Bank shall issue pre- or post-shipment
export credit guarantee to cover 80% of the outstanding loan balance and interest
thereof extended to an exporter provided the request is acceptable to the Bank.
Article 4
The Guarantee Amount
The Bank may issue export credit guarantee to:
4.1 Existing exporters, who fulfill eligibility criteria set under article 2.1 herein above,
upto 100% of export proceeds actually received through financing banks from
export of 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, upto 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 upto two (2)
times the value of the pledged collateral;
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Article 5
Obligations of Financing Banks
5.1 Financing banks shall:

a. critically evaluate credit worthiness of the exporter who applies for a loan and shall
ensure that the export project to be financed is bankable;
b. finance only bankable export projects;
c. 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;
d. exercise all reasonable and usual care regarding operations of export
financing and act with utmost good faith;
e. promptly notify the Bank within 15 days of the occurrence of any event or
development likely to cause a loss or default;
f. collect on behalf of the Bank interest due to the Bank on loans covered by export
guarantee; and
g. act as the agent of the Bank to recover the due amount from the defaulting exporter and
report to the Bank actions taken on such borrowers promptly.
5.2 Where the exporter defaults, the financing bank may:

a. extend the due date of export loan 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
b. 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 rehabilitated and settle the loans out of the cash flow to be generated.
5.3 Financing banks shall submit to the Supervision Department of the Bank:
a. Relevant credit risk analysis report and all other documents necessary to
ensure the export project to be financed is bankable; and
b. Monthly export credit performance report in accordance with the table attached
with this Directive.

Article 6
Obligation of the Exporter
Exporter shall:
6.1 Provide accurate information, accompanied with all supporting documents, to
financing banks on their business, export activities and bank loan repayment
status;
6.2 Exercise due care so as to ensure that the advances are used for the purposes they
are earmarked for;
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6.3 Repay the entire amount of the outstanding loan and interest thereof to the financing
bank on or before due date of the loan;
6.4 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.
Article 7
Risk Coverage
7.1 The Bank shall cover 80 percent of the risk which may result from default of
repayment;
7.2 The financing bank shall bear the remaining portion (20 percent) of default risk.
Article 8
The Guarantee Fund and Fee
8.1 The Bank shall create a Guarantee Fund Account for funding the Export Credit
Guarantee Scheme;
8.2 Financing banks shall pay, out of the interest rate stated under article 9.1 here
under, 2 (two) percent of the outstanding loan balance covered by pre-shipment
export credit guarantee per annum to the Bank calculated in line with interest
income accrual or collection policy and procedure of the respective financing bank.
They shall pay such interest to the Bank on quarterly basis;
8.3 Interest income collected in line with article 8.2 above shall be transferred to Guarantee
Fund Account of the Bank by debiting the reserve account of the financing bank;
.
Article 9
Rate of Interest
9.1 Financing banks shall charge their respective prevailing lowest lending interest rate
on pre- or post-shipment loans covered by the export credit guarantee scheme;
9.2 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.
Article 10
Collateral
10.1 The pre-or post-shipment credit guarantee of the Bank serves as part of the
collateral when applying to a financing bank for pre-or post-shipment finance;
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10.2 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;
10.3 In case a borrower defaults, the Bank 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 Bank shall be entitled to collect 80%
leaving the balance (20%) to the financing bank.
Article 11
Repayment
11.1 Without prejudice to article 5.2 above, repayment period for pre-shipment credit
shall not exceed 180 days. Pre-shipment advances shall be repaid by handing
over the shipping documents to the financing bank within 10 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;
11.2 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 non-compliance 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;

11.3 Without prejudice to article 5.2 above, period of the post-shipment 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 12
Settlement of Guaranteed Portion to Financing Bank
12.1 In case an export credit goes on default, the reserve account of the financing bank
shall be credited by the guaranteed portion of the amount it lent to the exporter
within seven days after the complete set of necessary documents have been
presented to the Bank. The Bank, however, shall not pay any interest on the
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export credit during the seven days following submission of complete set of
documents by financing banks;
12.2 When repayment of the full amount of defaulted loan is effected after the
due date by an exporter, the financing bank shall inform the Bank within 7
days to debit its reserve account by the amount which it received from the
Export Credit Guarantee Fund.
Article 13
Opening of a Special Unit
13.1 Financing banks utilizing the Export Credit Guarantee Scheme shall establish
within their head offices a special unit, which will deal with the assessment and
approval of export credit guarantee applications with the view of facilitating the
operations of the scheme.
13.2 The special units created by financing banks in line with requirement of article 13.1
shall have their own operational manual approved by the Bank.
Article 14
Expiry of Guarantee
14.1 Export Credit Guarantee will be issued for a specific period of time that shall not
exceed 180 days. However, the Bank, upon request of financing banks, may
extend expiry date of the guarantee. At the last day of the guarantee period,
unless extended in writing by the Bank, the Guarantee shall be null and void;
14.2 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.

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;
15.2 To facilitate the suspension, the Bank shall circulate the names of all defaulters
under the export credit guarantee scheme to all banks. Moreover, the Bank shall
publish the names of such defaulters in widely circulating newspapers;
15.3 Upon receipt of defaulters list stipulated under 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 Bank
notifies them that the exporter has fully settled his/her overdue export loans;
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15.4 If a financing bank does not comply with the provisions of these directives, the
Bank maintains the power to reduce guarantee coverage and, in extreme cases, to
suspend new coverage for a period of four years.
Article 16
Inspection by the Bank
The Bank may undertake an inspection of any financing bank at any time to verify that the
financing bank complies with the provisions of these Directives.
Article 17
Repeal
The Establishment and Operation of Export Credit Guarantee Scheme Directive Number
SBB/33/2002 is hereby repealed and replaced by these Directives.
Article 18
Effective Date
These directives shall come into force as of the 1st day of March 2004.

BANKING BUSSINESS
Amendment of
Penalty for Non-compliance with the
Directives of the National Bank of Ethiopia
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 20(3)
(d) of the Licensing and Supervision of Banking Business Proclamation No. 84/1994.
2. Penalty
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2.1 Any bank that fails to comply with the requirements of any of the Directives of the
National Bank of Ethiopia, excluding Directive No. SBB/14/96, shall be subject to a
penalty of Birr10,000 (ten Thousand Birr) for each violation.
2.2 The National Bank of Ethiopia may, in addition to the penalty indicated under 2.1
above, take any other measures it considers necessary.
3. Waiver
The National Bank of Ethiopia may waive the penalty on grounds that it considers to be
reasonable.

4.Repeal
Directive No. SBB/20/96 is hereby repealed and replaced by these directives.
These Directives shall enter into force as of 1st day of March 2004.
Licensing and Supervision of Banking Business

Credit Information Sharing
Whereas adequate and timely information that enables a satisfactory assessment of the
creditworthiness of borrowers applying for a bank loan is crucial for making prudent lending
decisions;
Whereas prudent lending decisions made on the basis of adequate information on the
creditworthiness of borrowers are one of the principal factors in ensuring the financial soundness
of banks;
Whereas there is still serious difficulty in Ethiopia of getting adequate and timely information on
prospective borrowers that facilitates the making of such prudent lending decisions;
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Whereas one of the means for alleviating this difficulty of getting adequate and timely
information on prospective borrowers is the establishment of a Credit Information Center where
relevant information on borrowers is pooled and made available to lending banks;
Whereas hitherto no such Center has been established;
Now, therefore, in line with the powers vested in it by article 36 of the Licensing and Supervision
of Banking Business Proclamation No. 84/1994, the National Bank of Ethiopia has issued these
directives to establish such a Credit Information Center.

1. Definitions
For the purpose of these directives:

1.1 “Banks” shall mean business entities licensed and supervised by the National Bank
of Ethiopia in accordance with the Licensing and Supervision of Banking Business
Proclamation No. 84/1994;
1.2 “Central Database” shall mean the Credit Information Database maintained by
the Credit Information Center of the National Bank of Ethiopia;
1.3 “Credit Information” shall mean all information about a borrower specified in the
Data Input Requirement attached to these directives;
1.4 “Credit Information Center” shall mean the Center located in the Supervision
Department of the National Bank of Ethiopia;
1.5 “Defaulter” shall mean a borrower whose outstanding loans have been classified as
“substandard” and/or “doubtful” and/or “loss” in accordance with Directive No.
SBB/32/2002 of the National Bank of Ethiopia;
1.6 “Loans or Advances” shall mean 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 which are
approved and outstanding as of the reporting date;
1.7 “Online System” shall mean a system whereby provision of input data, updating
and correction of input data and other related activities are carried out electronically
through computer networks;
1.8 “User Group” shall mean banks and the National Bank of Ethiopia.
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2. Modus Operandi of the Credit Information Sharing System
2.1 Banks shall provide, alter and update credit information on each and every one of their
borrowers using online system;
2.2 Upon written request by banks, the Supervision Department of the National Bank of
Ethiopia shall provide to the requesting bank, in writing, all credit information available
in the Central Database on a prospective borrower within three working days from the
date of receipt of the request;
2.3 Access to the Central Database shall be restricted to the user group.

3. Role and Responsibility of the National Bank of Ethiopia
3.1 The role of the National Bank of Ethiopia shall be restricted to administering the
Credit Information Sharing system, providing in writing credit information on
borrowers available at Credit Information Center to banks, ensuring that access to
online system to update or alter credit information is given only to authorized persons
and ensuring that the system is operating smoothly and reliably;
3.2 The National Bank of Ethiopia shall not be responsible for any damages, claims or
liabilities that may arise as a result of inaccurate, misleading or incomplete credit
information on borrowers supplied to the Credit Information
Center by individual banks and shared, through the National Bank of Ethiopia, with
other banks.
4. Obligations of Each Bank
4.1 Each bank shall provide, electronically, the initial credit and other related
information to the Credit Information Center on each and every one of its borrower in
such detail as specified in the Data Input Requirement attached to these directives,
which shall be part of these directives;
4.2 Banks are encouraged to update, electronically, their credit information on each and
every one of existing borrowers provided to the Credit Information Center on an on-
going basis but each bank shall update such information at least once a month. In the
case of the latter, the updating, showing positions as of the close of each month, shall
be made within 30 (thirty) days from the close of each month;
4.3 Each bank shall designate at least two officers who shall be responsible for providing
and updating input data and for making written enquiries to the National Bank of
Ethiopia on prospective borrowers. Each bank shall communicate to the Supervision
Department of the National Bank of Ethiopia in writing the full names and telephone
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numbers of such officers. If such officers are replaced, each bank shall promptly
communicate the full names and telephone numbers of the replacements to the
Supervision Department;

4.4 Banks are encouraged to obtain credit information from the Credit Information Center
on prospective borrowers irrespective of the size of the loan. However, from the
effective date of these directives, no bank shall extend new, or renew, reschedule or
refinance existing, loans or advances equivalent to, or above, Birr 200,000 (two
hundred thousand) without first obtaining credit information on borrowers from the
Credit Information Center;
4.5 From the effective date of these directives no bank shall extend new loans or advances
to a defaulter in any form whatsoever;
4.6 The provisions of sub-article 4.5 herein above shall have no effect on sub-article 2.1(b)
of the National Bank of Ethiopia Directive No. SBB/34/2004 on Establishment and
Operation of Export Credit Guarantee Scheme;
4.7 Each bank shall be fully responsible for providing accurate, complete and timely
credit information to the Credit Information Center. In cases where errors have been
made, such errors shall be corrected promptly by the concerned bank;
4.8 Each bank shall be fully responsible for any damages, claims or liabilities that may
arise as a result of providing inaccurate, misleading or incomplete credit information to
the Credit Information Center or failure to provide, inadvertently or otherwise,
information to the Center that should have been provided in line with these directives;
4.9 Each bank shall use the credit information on borrowers obtained from the Central
Database of the Credit Information Center only and only for making a lending decision.
Such information shall be treated with utmost confidentiality and shall not be disclosed
to any third party or used for any other purpose;
4.10 Each bank shall be fully responsible for any damages, claims or liabilities that may
arise as a result of disclosure of credit information on borrowers obtained from the
Credit Information Center to third parties or use of that information for purposes other
than for making a lending decision.
5 Penalty for Failure to Comply with the Requirements of these Directives
5.1 A bank that violates any of the provisions of these directives shall be penalized in line
with article 2 of National Bank of Ethiopia Directives number SBB/35/2004;
5.2 In addition to the financial penalty specified under Directives number SBB/35/2004, the
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National Bank of Ethiopia may require the removal of

concerned officers of a bank in breach of the requirements of these directives

depending on the frequency and seriousness of the violations.
6 Effective Date
These directives shall come into force as of June 15, 2004.
Credit Information Center

Data Input Requirement
1. Bank’s Profile
Name
Capital and Reserves as at reporting date
Borrower’s Profile
Identification and Address
(a) Full Name (if individual, including grand father’s name)
(b) All previous names (if any)
(c) If individual, Name of the spouse
(d) If company, its form (Public Enterprise, PLC, Share Company, Sole
Proprietorship)
(e) If company, Establishment date
(f) ID of Borrower (Tax ID)
(g) If company, Trade Registration No.
(h) Address (Current):
- Region
- City
- Woreda
- House No.
- P.O.Box
- Telephone
(i) Two most recent previous addresses:
- Region
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- City
- Woreda
- House No.
- P.O.Box
- Telephone
Relation with the lending bank (Related/non related party, as defined by

NBE Directive No. SBB/30/2002)
If Company, list of first 20 largest shareholders/owners

(a)
(b)
(c)
.
.
.
Name of Affiliated/related/subsidiary companies
(a)
(b)
(c)
..
..
..
Sector
(a) Agriculture
(b) Manufacturing
(c) Mining and quarrying
(d) Building and Construction
(e) Trade and Services
- domestic trade
- International trade
- Hotel and tourism
- Transport and communications
- other services (specify)
(f) Other businesses (specify)
(g) Personal loan
If the borrower is a company/an enterprise, its board directors and CEO

- Name of members of board of directors
(a)
(b)
(c)
.
.
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.
- Name of CEO/General manager
3. Existing Loans and Advances

3.1 Type of Loans and Facilities: Term loan/overdraft/L/C facility/merchandize loan
3.2 Date on which loan/facility/was approved
3.3 Due/expiry date
3.4 Amount Approved
3.5 Repayment schedule, if term loan (monthly, quarterly, semi-annually…)
3.6 Outstanding balance as at reporting date
3.7 Loan status (Pass, Special mention, Sub-standard, Doubtful, or Loss as defined by
NBE Directive No. SBB/32/2002) or settled as at reporting date
4. Collateral
- Type
- Collateral identification
(a)
(b)
(c)
..
..
- Estimated value
- Degree of security (first degree, second degree,…)
5. If Company, date of Most Recent Audited Financial Statements
6. Loan Workout, Involuntary Loan Collection and Legal Measures Taken on the loans
- Number of times loan/facility has been restructured/renewed
- Legal measures taken (foreclosure, litigation,…)

BANKING BUSINESS
RESERVE REQUIREMENT
DIRECTIVE NO. SBB/37/2004
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;
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Whereas, a bank operating in Ethiopia currently has one reserve account with the National
Bank of Ethiopia which is used to carry out day-to-day settlement of transactions through
the National Bank of Ethiopia and to maintain statutory reserve balance;
Whereas, the frequency of daily deposits to and withdrawals from the reserve accounts of
Banks has been too high and thus made it difficult to monitor compliance with statutory
reserve requirement by banks;
Whereas, because of the above reasons it has been found necessary to amend National Bank
of Ethiopia Directives No SBB/14/1996, so as to properly monitor statutory reserve
requirement;
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.

1. 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:
1.1. Reserve Account
a) A reserve account shall exclusively be used to maintain the reserve balance stated
under article 2 of these directives;
b) No bank shall withdraw any money from its reserve account without prior
approval of the Supervision Department of the National Bank of Ethiopia.
1.2 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.
2. Requirement
Any bank operating in Ethiopia shall at all times maintain in its Reserve Account
stated under article 1.1 of these directives 5% of all Birr and foreign currency
deposit liabilities held in the form of demand (current) deposits, saving deposits
and time deposits.
3. Computation of Reserve
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3.1 Cash items in process of collection, if included under deposits, shall be deducted
therefrom in computing the balance of total deposits for reserve purposes;
3.2 Cash items in process of collection through the National Bank of Ethiopia
shall not be acceptable as reserve until credited to the reserve account;
3.3 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.

4. Reserve Deficiencies
4.1 Deficiencies in reserve balance are subject to a penalty;

4.2 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;
4.3 The National Bank of Ethiopia may waive the penalty stated herein above
on grounds it considers acceptable.
5 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.
6 Repeal
Directive No. SBB/14/96 is hereby repealed and replaced by these Directives.
These Directives shall enter into force as of 31st day of January 2005.
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BANKING BUSINESS
Amendment for New Bank Licensing and Approval of Directors and CEO
Issuing Authority
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
Definitions
In these Directives:
“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.
“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.
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:
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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;
Names, addresses and occupation (including dates and addresses of employment

covering the latest ten years) of the founders;
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:
Proposed organizational chart of the bank, and brief description of the functions of
the main organizational units;
A schedule of all preliminary expenses including costs of organization, share-selling

and brokerage and commission;
Projections of balance sheet, cash flow statement and profit and loss accounts, with
the following breakdowns where applicable:
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.
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);
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;
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;
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Authenticated ownership certificate and/or lease agreement for items listed under
Section 11.1 of Banking Business License Application Form attached with these
Directives;
Descriptions of actual purchases made or proposed purchases of goods and services,

or lease of real estate by the bank from related parties;
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;
Completed “Propriety” questionnaire attached with these directives as annex I for

directors and nominated chief executive officer;
Duly completed application form and enclosures thereto as prescribed by the Bank;
Selection Criteria and Appointment of Chief Executive Officer
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:
whether the person has a sound knowledge of the business and responsibilities he
will be called upon to shoulder;
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;
whether the person has ever been:
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 whether the person has
ever been diagnosed as being mentally ill or unstable.
Chief executive officer of a bank shall hold a minimum of first degree or equivalent
from a recognized higher institution of learning.
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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 person’s 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.
Appointment of Board of Directors and Selection Criteria
Selection Criteria
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.
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.
Propriety
A board member shall be a person with honesty, integrity, diligence and reputation
to the satisfaction of the Bank.
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In determining propriety, the Bank shall take into account all the information (but
not limited to) given in Annex I of these directives.
Prohibition
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.
Rotation
A director shall not serve on a board of a bank for more than six consecutive years;
however, he/she may be re-elected 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.
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:
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 Bank’s relevant directives from any
bank;
Age
A member of the board of a bank shall be at least 30 years old.
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.
5.3.3 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.
6. Fees
6.1 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.
6.2. A company licensed to undertake banking business shall pay license fee of
Birr5,550 (Birr five thousand five hundred fifty only).
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.
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,
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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 Hire, train and place adequate and appropriate staff;
9.3 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:
Proper ventilation and circulation of fresh air,

9.3.2 Suitable and clean sanitary service,
9.3.3 Sufficient and suitable lighting,
9.3.4 Display of working hours and copy of the bank's license in a visible area of
the bank;
Cashier's till which is restricted to authorized persons;
9.4 Have a strong room with a minimum carrying capacity of 224 cubic meters.
9.5 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:
9.7.1 Fire and other perils,

9.7.2 Burglary and theft,
9.7.3 Fidelity,
9.7.4 Cash and valuables in premises and in transit,
Outer doors of the building housing the bank shall be of heavy duty metal;
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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12 Effective Date
These Directives shall enter into force as of 1st day of May 2006.
Strictly Confidential
ANNEX I

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: …………………………………………………………………………..
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?
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?
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?
Have you been associated, in ownership or management capacity,
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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?
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?
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?
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?
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 ____________________________________________
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AMENDMENT OF BRANCH OPENING
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
2. Definition
For the purpose of this directive the term:
2.1 “The Bank” shall mean National Bank of Ethiopia;
2.2 “Branch” shall mean any place of business at which deposits are received or
cheques are paid out or money is lent and other banking business as defined in
article 2(2) of Proclamation number 84/1994 is solicited.
3. Requirement
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:
Ensure that the bank’s relevant policy and procedure manuals, and NBE directives
are distributed to appropriate staff members of the branch to be opened;
Ensure that the branch is adequately guarded;
Display in a visible area of the branch working hours, copy of the bank's license and
branch authorization;
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:
Proper ventilation and circulation of fresh air;

Suitable and clean sanitary service;
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Sufficient and suitable lighting;

Cashiers' Till, access to which is restricted to authorized persons.
Ensure that the branch has appropriate strong room or safe/vault;
Place fire extinguishers in appropriate area;
Have insurance policy at least for the following:

Fire and other perils,
Burglary and theft,
Fidelity,
Cash and valuable in premises and transit,
Ensure that outer doors of the building housing the branch are of heavy duty metal;
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.
5.1 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.
5.2 Branches opened before the effective date of these Directives shall fulfill
requirements under sub-article 3.5 herein above latest by June 30, 2007.
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
These Directives shall enter into force as of the 8th day of May 2006.
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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
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.
Article 1
Definitions
“The Bank” shall mean National Bank of Ethiopia;
"Guarantor" shall mean Development Bank of Ethiopia;
"Financing Banks" are licensed commercial banks (excluding Development Bank of

Ethiopia) in Ethiopia;
“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;
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"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;
1.13 “Perishable Export Commodities” shall mean export commodities subject

to significant deterioration in quality or spoilage or decay, such as 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 pre-shipment
export loan extended to exporters;
1.15 "Post-Shipment Export Credit Guarantee" is a guarantee provided by the

Guarantor up to a maximum of 180 days to financing banks to cover post-shipment
export loan extended to exporters.
Article 2
Eligibility Criteria
Exporters shall satisfy all of the following in order to be considered eligible for export
credit guarantee:
The export project to be financed under the export credit guarantee scheme shall be
bankable;
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Exporters shall not carry “loss” category loans, as defined in the Bank's Directives on
Provisioning, owed to any bank in Ethiopia;
Exporters shall present a bona-fide order from a foreign buyer;
Exporters shall produce evidence of a valid investment certificate and/or trade

license;
New exporters shall:
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 non-perishable goods to be exported shall
be paid through irrevocable letter of credit; however, no letter of credit shall be
required for perishable export commodities;
Existing exporters shall produce from local banks documentary evidence about
receipt of export proceeds in the 12 months preceding the date of application for
Exporters shall submit all documents required by financing banks to conduct their
normal credit risk analysis.
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
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;
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Other new exporters, who fulfill eligibility criteria set under articles 2.1 above, up to
two (2) times the value of the pledged collateral;
Article 5
Obligations of Financing Banks
Financing banks shall:
critically evaluate credit worthiness of the exporter who applies for a loan and shall
ensure that the export project to be financed is bankable;
finance only bankable export projects;
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
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.
Where the exporter defaults, the financing bank, subject to prior written agreement
of the Guarantor, may:
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 rehabilitated and settle the loans out of the cash flow to be generated.
Financing banks shall submit to the Guarantor:
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Relevant credit risk analysis report and all other documents necessary to ensure the
export project to be financed is bankable; and
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;
7.2 Exercise due care so as to ensure that the advances are used for the
purposes they are earmarked for;
7.3 Repay the entire amount of the outstanding loan and interest thereof to the
financing bank on or before due date of the loan;
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.
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 The Guarantor shall create a Guarantee Fund Account for funding the Export
Credit Guarantee Scheme;
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9.2 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.
9.5 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;
9.6 The closure of the Guarantee fund account with the Bank shall be decided by
the Bank .
Article 10
Rate of Interest
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;
10.2 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.
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;
11.3 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.
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Article 12
Repayment
12.1 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 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
non-compliance 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;
12.3 Without prejudice to article 5.2 above, repayment period of the post-shipment
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
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;
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14.2 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.
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;
15.2 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;
15.3 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;
15.4 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
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.
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
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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
Effective Date
These directives shall come into force as of the 1st day of February 2007.
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LIQUIDITY REQUIREMENT
(3rd replacement)
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
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.
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 7th day of April 2008.
Page 82 of 116

ADDIS ABABA
TELAGRAPHIC ADDRESS PLEASE ADDRESS ANY REPLY TO
NATION BANK P. O. Box 5550
TELEX 21020 ADDIS ABABA
CODES USED
BENTLEY’S 2nd PHRASE
A. B. C. 6th EDITION.
Customer Due Diligence of Banks

Directives No. SBB/46/2010
WHEREAS, sound know your customer policies and procedures constitute an

essential part of internal control and risk management aspects of banks;
WHEREAS, there is a need to strengthen internal control and risk management

systems of banks to prevent them from exposure to undue reputational,
operational, legal and concentration risks that may result from abuse of money
launderers and terrorist financiers;
WHEREAS, conducting customer due diligence is a key part of customer

identification, internal control and risk management of banks;
WHEREAS, there is a need to ensure that banks have sound policies,

procedures and controls in place that enable them to identify their new and
existing customers ;
Now, therefore, in accordance with article 53 of Banking Business Proclamation

Number. 592/2008 and articles 3(2) and 3(3) of Prevention and Suppression of
Money Laundering and Financing of Terrorism Proclamation number 657/2009,
`the National Bank of Ethiopia hereby issues these directives.
1. Short Title
These directives may be cited as “Customer Due Diligence of Banks

Directives No. SBB/46/ 2010”.
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2. Definitions
1) “beneficial owner” refers to the natural person(s) who ultimately owns

or controls a bank customer, in case the customer is legal person or
arrangement, and/or the person on whose behalf a transaction is being
conducted;
2) “correspondent banking” is the provision of banking services by one

bank (the correspondent bank) to another bank (the respondent bank);
3) “cross-border transfer” means any wire transfer where the originator

and beneficiary persons are located in different jurisdictions at the time
of initiating the transfer. This term also refers to any chain of wire
transfers that has at least one cross-border element;
4) “domestic transfer” means any wire transfer where the originator and
beneficiary persons are located in the same jurisdiction at the time of
initiating the transfer. This term, therefore, refers to any chain of wire
transfers that takes place entirely within the borders of a single
jurisdiction, even though the system used to effect the wire transfer
may be located in another;
5) “high risk categories” means customers, businesses or transactions

that need to be subjected to more regular reviews, particularly against
the know-your-customer information held by the bank and the activity
in the account. Such categories shall include, but not be limited to:
(a) complex, unusual or large transactions,

(b) relationships or transactions with countries known to have
material deficiencies in anti money laundering and terrorist
financing strategies,
(c) politically exposed persons,
(d) non-resident customers such as those staying in the country for
less than one year or those in short visit or travel,
(e) legal persons or arrangements such as trusts that are personal
asset holding vehicles, and
(f) Companies that have shares in bearer form;
6) “Legal person” refers to a body corporate, foundation, partnership,

non-profit organization or association, or any similar body that can
establish customer relationship with a bank or other financial
institution, or otherwise own property;
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7) “Money laundering” shall have the meaning ascribed under article

2(10) of the Proclamation to provide for Prevention and Suppression
of Money Laundering and Financing of Terrorism number 657/2009;
8) “Originator” is bank account holder, or where there is no account, the
person that places an order with the bank or other financial institution
to perform the wire transfer;
9) “Payable-through accounts” refers to correspondent accounts that are
used directly by third parties to transact business on their own behalf;
10) “person” means any natural or juridical person;
11) “politically exposed persons”are individuals in a foreign country who
are or have been entrusted with senior government functions, such as
heads of state or of government, senior politicians, senior government,
judicial or military officials, senior executives of state owned
corporations, important political party officials;
12) “Shell bank” means a bank that has no physical presence in the
country in which it is incorporated and licensed, and which is
unaffiliated with a regulated financial services group that is subject to
effective consolidated supervision.
13) “senior management” means a team of executives at the highest
level who have the day-to-day responsibilities of managing a bank as
defined by each bank;
14) “terrorist financing” means an offence defined under article 5(1)(d) of
Anti-Terrorism Proclamation number 652/2009;
15) “wire transfer” refers to any transaction carried out on behalf of an
originator person through a bank or other financial institution by
electronic means with a view to making an amount of money available
to a beneficiary person at another bank or financial institution. The
originator and the beneficiary may be the same person.
3. Customer Acceptance Policy, Procedure, and Compliance

Arrangement
a. Banks shall establish and maintain internal procedures,

policies and controls to prevent money laundering and
terrorist financing, and communicate these to their
employees and the National Bank of Ethiopia; at a minimum
these procedures, policies and controls shall cover:
a) explicit criteria for identification and acceptance of customers,

b) appropriate risk management systems to determine whether a
potential customer, an existing customer or beneficial owner is a
politically exposed person or high risk categories of customers,
c) record retention techniques, methods and period ;
d) unusual and suspicious transactions detection, techniques,
methods and the reporting obligation;
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e) measures to be taken to prevent the misuse of technological

developments in money laundering or terrorist financing schemes;
and
f) specific risks associated with non-face to face business
relationships or transactions.
b. Banks shall develop appropriate compliance management
arrangements which at a minimum include:
i. designation of a compliance officer at the
management level; and
ii. ensure application of all laws related to anti-money
laundering and combating terrorist financing; these directives; and
internal policies, procedures and controls when establishing
customer relationships and conducting ongoing due diligence.
c. Banks shall maintain an adequately resourced and
independent internal audit function to test compliance with
laws; directives of the National Bank of Ethiopia; and
internal policies, procedures and controls.
4. Customer Identification and Due Diligence
1) banks may not keep anonymous accounts or accounts in fictitious

names;
2) Banks shall not enter into, or continue, correspondent banking
relationships with shell banks.
3) Banks shall undertake customer due diligence measures when:
i. establishing business relations with a customer;
ii. carrying out occasional cash transaction with a
customer, which at a minimum exceeds Birr 200,000, USD 10,000
or equivalent in other foreign currencies; this shall include situations
where the transaction is carried out in a single operation or in
several operations that appear to be linked or structured;
iii. there is a suspicion of money laundering or terrorist
financing, regardless of any exemptions or thresholds that are
referred to under these directives; and
iv. they have doubts about the veracity or adequacy of
previously obtained customer identification data.
4) Banks shall identify the customer, whether regular or occasional,
natural or legal person or legal arrangement, and verify that customer’s
identity using as much as possible reliable, independent source
documents, data or information.
5) Identification requirements for natural persons shall include, at a
minimum:
a) given or legal name and all other names used;
b) permanent address;
c) telephone number, fax number and e-mail address, if available;
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d) date and place of birth, if possible;

e) nationality;
f) occupation, public position held and/or name of employer;
g) type of account; and
h) signed statement certifying accuracy of the information provided.
6) For customers that are legal persons or legal arrangements, banks

shall:
a) take reasonable measures to understand the ownership and
control structure of the customer and determine who the natural
persons that ultimately own or control the legal person or
arrangement are; this shall include those natural persons who
exercise ultimate effective control over the legal person or
arrangement;
b) verify that any person purporting to act on behalf of the customer is
so authorized, and identify and verify the identity of that person;
c) verify the legal status of the legal person or legal arrangement at a
minimum by obtaining proof of incorporation or similar evidence of
establishment or existence and information concerning the legal
person’s or legal arrangement’s :
i. name,
ii. legal form,
iii. some form of official identification number such as tax
identification number (if available),
iv. address which includes country, city/town/kebele in which
the head office is located and if available, house number,
mailing address, telephone number and fax number,
v. names of directors, if applicable, and the chief executive
officer,
vi. provisions regulating the power to bind the legal person or
arrangement;
vii. the resolution of the board of directors (if applicable) or any
other authorized body or person to open an account; and
viii. identification of those who have authority to operate the
accounts.
7) In carrying out transactions with any person, a bank shall identify the
ultimate beneficial owner and take reasonable measures to verify the
identity of the beneficial owner using relevant information or data
obtained from a reliable source such that the bank is satisfied that it
knows who the beneficial owner is; particularly, for all customers, the
bank shall determine whether the customer is acting on behalf of
another person, and shall then take reasonable steps to obtain
sufficient identification data to verify the identity of that other person.
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8) Establishment of a bank’s new business relationship with a politically

exposed person shall be approved by a senior management member of
the bank.
9) Where a customer has been accepted and the customer or beneficial
owner is subsequently found to be, or subsequently becomes a
politically exposed person, continuation of business relationship with
such person shall be approved by a senior management member of the
bank.
10) Banks shall take reasonable measures to establish the source of
wealth and the source of funds of customers and beneficial owners
identified as politically exposed persons.
11) Banks shall obtain information on the purpose and intended nature of
the business relationship.
12) Banks shall perform enhanced due diligence on high risk categories of
customers, business relationships or transactions.
13) Banks shall give special attention to business relationships and
transactions with persons, including legal persons and other financial
institutions, from or in countries which do not or insufficiently apply anti-
money laundering and combating terrorist financing laws.
5. Account Monitoring
1) Banks shall conduct ongoing due diligence measure on existing

customers and business relationships, including scrutiny of
transactions undertaken throughout the course of that relationship,
to ensure that:
a) the transactions being conducted are consistent with the

bank’s knowledge of the customers, their business and risk
profile, and where necessary, the source of funds; and
b) documents, data or information collected under the due

diligence process is kept up-to-date and relevant by
undertaking reviews of existing records, particularly for higher
risk categories of customers or business relationships.
2) Where banks are in a business relationship with a politically

exposed person, they shall conduct enhanced ongoing monitoring.
3) Banks shall pay special attention to all complex, unusually large
transactions, or unusual patterns of transactions, that have no
apparent or visible economic or lawful purpose such as significant
transactions relative to a relationship, transactions that exceed
certain limits, very high account turnover inconsistent with the size
of the balance, or transactions which fall out of the regular pattern of
the account’s activity.
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4) Banks shall examine as far as possible the background and

purpose of transactions specified under sub article 5.3 herein above
and set forth their findings in writing.
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6. Cross Border Correspondent Banking
1) With respect to cross-border correspondent banking and other similar

relationships, banks, in addition to performing normal customer due
diligence measures, shall:
a) gather sufficient information about a respondent institution to
understand fully the nature of the respondent’s business and to
determine from publicly available information the reputation of the
institution and the quality of supervision, including whether it has
been subject to a money laundering or terrorist financing
investigation or regulatory action;
b) assess the respondent institution’s anti-money laundering and
combating terrorist financing controls, and ascertain that they are
adequate and effective;
c) obtain approval from a senior management member of the bank
before establishing new correspondent relationships; and
d) document the respective anti-money laundering and combating
terrorist financing responsibilities of each institution;
2) Where a correspondent relationship involves the maintenance of “payable-

through accounts”, banks shall be satisfied that:
a) their respondent financial institution has performed all the normal
customer due diligence obligations set out in these directives on
those of its customers that have direct access to the accounts of
the correspondent financial institution; and
b) the respondent financial institution is able to provide relevant
customer identification data upon request to the correspondent
bank.
3) Where a correspondent bank fails to comply with national anti-money

laundering and combating terrorist financing laws, banks shall not open an
account, commence business relations or perform transaction or shall
terminate the business relationship with such correspondent financial
institutions, and shall consider making a suspicious transaction report in
relation to correspondent financial institutions.
4) Banks shall satisfy themselves that respondent financial institutions in
foreign countries do not allow business relationship with shell banks.
7. Wire Transfers
1) For all wire transfers, of Birr 10,000 or USD 1000 or more, ordering banks
shall be required to obtain and maintain the originator’s:
a) full name,
b) account number or a unique reference number, if no account
number exists,
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c) complete address, and

d) date and place of birth (if possible).
2) For cross-border wire transfers of USD 1,000 or more or for domestic

transfers of Birr 10,000 or more, the ordering financial institution or bank
shall be required to include full originator information in the message or
payment form accompanying the wire transfer.
3) Where several individual cross-border wire transfers of USD 1 000 or
more from a single originator are bundled in a batch file for transmission
to beneficiaries in Ethiopia, the ordering foreign financial institution only
needs to include the originator’s account number or unique identifier on
each individual cross-border wire transfer, provided that the batch file (in
which the individual transfers are batched) contains full originator
information that is fully traceable.
4) Banks shall adopt effective risk-based procedures for identifying and
handling wire transfers that are not accompanied by complete originator
information.
8. Exemptions
1) Identification of a customer does not need to be verified where the

customer is itself a regulated bank or other financial institution that is
subject to anti-money laundering and combating terrorist financing laws
and regulations;
2) Credit and debit card transactions are exempted from standard customer
due diligence, provided that they are not used as a payment tools to
effect a money transfer.
9. Record Keeping
1) Banks shall maintain all necessary records on transactions, both

domestic and international, as stipulated in Ethiopian National Archives
and Library Proclamation No. 179/1999.
2) Transaction records to be maintained by banks shall be sufficient to
permit reconstruction of individual transactions so as to provide, if
necessary, evidence for prosecution of criminal activity.
3) Banks shall ensure that all customer and transaction records and
information are available on a timely basis to the National Bank of
Ethiopia and other competent law enforcement authorities.
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10. Reporting
A bank shall report to Financial Intelligence Center of Federal Democratic

Republic of Ethiopia
1) when it suspects or has reasonable grounds to suspect that funds are
the proceeds of a criminal activity;
2) where there are reasonable grounds to suspect that funds are linked or
related to, or to be used for terrorism, terrorist acts or by terrorist
organizations or those who finance terrorism;
3) all cash deposits or withdrawals exceeding Birr 200,000 and/or USD
10,000 or its equivalent in other foreign currency; and
4) all suspicious transactions, including attempted transactions regardless
of the amount of the transaction.
11. Training programs
1) Banks shall establish ongoing employee training programs which at a

minimum incorporate:
a) responsibilities under the bank’s arrangements for money
laundering and terrorist financing prevention;
b) policies, procedures controls and practices for obtaining
identification evidence; applying “know your customer” standard;
account monitoring; enhanced due diligence; record keeping;
and reporting knowledge or suspicion of money laundering and
terrorist financing;
c) audit function to ensure the bank’s compliance with anti-money
laundering and combating terrorist financing laws, directives,
and internal policies and procedures;
d) domestic laws and bank standards related to money laundering
and terrorist financing;
e) relevant typologies of money laundering and terrorist financing;
and
f) potential risks, including reputational, operational, legal and
concentration risks of becoming involved in laundering the
proceeds of crime or terrorist financing.
2) A bank shall provide to the National Bank of Ethiopia the dates and
descriptions of all anti-money laundering and combating terrorist
financing staff training events, at the beginning of each financial year
of the bank.
12. Effective Date
This Directive shall enter into force as of the 4th day of March 2010.
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BANKING BUSINESS
TIME LIMIT FOR REDUCTION AND/OR

RELINQUISHING SHAREHOLDINGS
DIRECTIVE No. SBB /47/ 2010
WHEREAS, the Proclamation prohibits: 1) any person other than the Federal
Government of Ethiopia to hold more than 5% of subscribed capital in a bank,
and 2) any influential shareholder of a bank to hold shares in any other bank;
WHEREAS, it is necessary to issue this directive for the implementation of the

Proclamation;
NOW, THEREFORE, the National Bank of Ethiopia has issued this directive in
accordance with powers vested in it by articles 11(6) and 59(2) of the
Proclamation.
1. Short Title
This directive may be cited as “time limit for reduction and/or

relinquishing shareholding No. SBB/47/2010.”
2. Definition
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In this directive, unless the context requires other wise:
1) “bank” means a company licensed by the National Bank of

Ethiopia to undertake banking business;
2) “influential shareholder” means a person who holds directly or

indirectly two percent or more of the total subscribed capital of a
bank;
3) “person” means any natural or juridical person;
4) “Proclamation” means Banking Business Proclamation No.

592/2008; and
5) provisions of this directive set out in the masculine gender shall

also apply to the feminine gender.
3. Time Limit for Reduction of Excess Shares
Within 36 months from the effective date of this directive, a person who:
1) holds shares in a bank, either on his own or jointly with his spouse or
with a person who is below the age of 18 years and related to him by
consanguinity to the first degree, in excess of 5% of total subscribed
capital of the bank shall reduce such holding to 5% or less;
2) is influential shareholder in a bank shall relinquish his share

holdings in another bank.
4. Penalty
A person who fails to comply with the provisions of this directive shall be
penalized in accordance with article 58(7) of Proclamation number
592/2008.
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5. Effective Date
This Directive shall enter into force as of 16th day of August 2010.
Page 95 of 116

BANKING BUSINESS
Directives No. SBB/ 48/2010
ASSET CLASSIFICATION AND PROVISIONING

FOR DEVELOPMENT FINANCE INSTITUTIONS
These Directives are issued by the National Bank of Ethiopia pursuant to the
authority vested in it by articles 21 and 22 of Banking Business Proclamation
No. 592/2008.
2. Short Title
These Directives may be cited as “Asset Classification and Provisioning for

Development Finance Institutions Directives No. SBB/ 48/2010”.
3. Purpose
The purpose of these Directives is to provide guidelines to development finance

institutions to assure that:
3.1 loans are regularly reviewed and prudently classified in a manner that
appropriately reflect credit risk;
3.2 loans which are not performing in accordance with contractual
repayment terms are timely recognized and reported as past due ;
3.3 accrued but uncollected interest on loans is properly accounted for; and
3.4 timely and adequate provisions are made to the “Provisions for Loan
Losses Account” in order to ensure that disclosed capital and earnings
performance are accurately stated.
4. Definitions
4.1 “Capitalized Interest” means any accrued and uncollected interest that
has been added to the principal amount of loans at a payment date or
maturity; it also includes uncollected interest that is rolled-over into new
loans.
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4.2 “Cash Collateral” means credit balances on accounts in the books of

the development finance institution over which customers have given
the institution a formal letter of cession and which the institution at its
discretion has transferred from the customer’s account(s) to a specific
or general cash collateral account(s) or blocked.
4.3 “Cash-substitutes” include:

4.3.1 a security issued by the Federal Government of Ethiopia;
4.3.2 an unconditional obligation or guaranty issued in writing by the
Federal Government of Ethiopia;
4.3.3 an unconditional obligation or guaranty issued in writing by a
foreign bank with an A or above rating by Standard and Poor's
Corporation, Moody's Investor Services or any other international
rating agency, approved by the National Bank of Ethiopia, in its
latest rating; and
4.3.4 other liquid and readily marketable securities approved in writing
by the National Bank of Ethiopia and which are held in the vaults
of the development finance institution.
4.4 “Development finance institution” means an institution which is engaged

mainly in medium and long term project finance business, with the
purpose of promoting development in the industrial, agricultural,
construction, services, commercial or other economic sectors;
4.5 “Loans” means any financial assets of a development finance institution
arising from a direct or indirect advance of funds (i.e. unplanned over
drawings, participation in loan syndication, the purchase of loans from
another lender, etc.) or commitment to advance funds by a development
finance institution 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 development finance institution to advance funds to or on behalf of a
person, claim evidenced by a lease financing transaction in which the
development finance institution is the lessor, and line of credit to be
funded by the development finance institutions on behalf of a person.
4.6 “Medium or long term loans” means loans with original repayment or
maturity period of two years or more.
4.7 “Net Recoverable Value” means the most probable value of a loan which
will be realized from the sale of collateral securing the loan in a
competitive and open market. For the purposes of these Directives, the
most probable value of a loan recoverable from the sale of collateral
securing the loan shall be the outstanding principal balance of the loan or
advance multiplied by the “average recovery rate” of a development
finance institution for loans secured by the collateral, provided that such
average recovery rate shall not be 15 (fifteen) percentage points greater
than “industry average recovery rate”. If a development finance institution
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.
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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 backed by the collateral sold or otherwise
acquired by a development finance institution 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 development finance institution.
4.7.2 “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 development
finance institution from the sale of collateral which have been
seized or foreclosed by the institution in satisfaction of loans
previously granted.
4.7.3 The term “total net market value of acquired properties” as used in
these Directives means 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
development finance institution for properties which previously
were offered by borrowers as collateral against loans. The highest
offer bid amount for auctioned property in absence of a bidder at
the last auction shall be zero.
4.7.4 “Ask or reserve price” means minimum price at which lending

development finance institution is willing to sell foreclosed assets.
4.7.5 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
backed by the collateral at the time the collateral was seized,
foreclosed, repossessed or otherwise acquired by all banks,
including development finance institutions, operating in Ethiopia
calculated over the period of 18 consecutive months preceding the
date of determining minimum provision requirement. In case a loan
is secured by more than one collateral, such loan and the collateral
backing it shall be excluded from computation of industry average
recovery rate unless all properties held as collateral against the
loan are sold or otherwise acquired by the banks. The National
Bank of Ethiopia shall compute such industry average recovery rate
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every calendar quarter and distribute to development finance

institutions.
4.7.6 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.
4.8 “Non-accrual Status” means that a loan has been placed on a cash basis
for financial reporting purposes. Interest on such loans accrued on the
books of the development finance institution, or for which a specific
reserve (such as a suspended interest account) has been established by
the development finance institution 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 loans ” means loans 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.
4.10 For purposes of these Directives,

4.10.1 short term loans 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;
4.10.2 medium and long term loans are non-performing when principal
and/or interest is due and uncollected for 180 (one hundred and
eighty) consecutive days or more beyond the scheduled
payment date or maturity;
4.10.3 the entire principal balance of loans outstanding exhibiting the

characteristics described under articles 4.10.1 and 4.10.2 hereof
shall be considered as non-performing.
4.11 “Person” means any judicial or natural person.
4.12 “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 loan portfolio.
4.13 “Renegotiated Loans” means loans which have been refinanced,

rescheduled, rolled-over, or otherwise modified at favorable terms and
conditions for the borrower because of weaknesses in the borrower’s
financial condition and/or ability to repay. However, the term excludes
loans held by projects under implementation.
4.14 “Short term loans” means loans with original repayment or maturity period
of less than two years.
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4.15 “Suspended Interest Account” means an account where previously

accrued but uncollected interest on loans required to be placed on non-
accrual status is reserved out of the income of the development finance
institution.
4.16 “Total capital” means the paid up capital, legal reserve and any other
unencumbered reserve acceptable to the National Bank of Ethiopia held
by a development finance institution.
4.17 “Well-Secured” means that a loan 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 institution’s claim on the collateral.
5. Loan Review
5.1 The board of directors of each development finance institution is

responsible for establishing a loan review system which provides for the
accurate and timely recognition of problem or deteriorating loans, assuring
the adequacy of the Provisions for Loan Losses Account, and assuring
that accrued but uncollected interest reflected in the books of the
institution are in accordance with the requirements laid out in these
Directives.
5.2 The board of directors of each development finance institution shall assure
that a review is made of the quality of the institution’s loan 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 institution 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 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 institution’s
income;
5.2.2 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
5.2.3 correct problems, either in individual loans, 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.
5.3 The board of directors of each institution shall maintain adequate records
supporting its evaluation of potential losses in the loans portfolio and the
entries made to reflect earnings and the adequacy of the Provisions for
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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;
5.4.2 the board of directors is adequately informed of the risks and
potential loss exposure in outstanding loans;
5.4.3 problem or deteriorating loans are properly and timely identified,
classified, and placed on non-accrual status in accordance with the
requirements laid out in these Directives;
5.4.4 appropriate provisions are made to the Provisions for Loan Losses
Account for loans classified in accordance with the requirements laid
out in these Directives; and
5.4.5 uncollectible non-performing loans are written off as appropriate.
5.5 The loan review function shall regularly and on an ongoing basis review all
loans which exceed 5% (five percent) of a development finance
institution’s total capital to a single borrower, calculated in accordance with
the Single Borrower Loan Limit Directives of the National Bank of Ethiopia,
all loans required to be placed on non-accrual status in accordance with
the requirements laid out in these Directives, and a sampling of the
remaining loan portfolio to determine that loans reflected as performing
on the books of the institution are in fact performing pursuant to the
requirements and definitions laid out in these Directives.
5.6 The loan review function shall be performed by the board of directors of
each development finance institution 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 institution. 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.
6. Placement of Loans on Non-accrual Status
6.1 All non performing loans shall be placed on non-accrual status, unless
the loans are well-secured.
6.2 Accrued but uncollected interest being carried on the books for loans
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 are required to be
placed on non-accrual status, but in no event later than the fiscal year-
end date of the institution, whichever is sooner.
6.3 A non-performing loan or advance placed on non-accrual status may
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be restored to accrual status only when:
6.3.1 none of the outstanding principal and/or interest is past due; and
6.3.2 for renegotiated loans , 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
article 7.1.6. of these Directives.
6.4 Development finance institutions shall report to the National Bank of

Ethiopia on a quarterly basis loans which exceed 5% (five percent) of
the institution 's capital that have been restored from non-accrual to
accrual status.
6.5 If a development finance institution has multiple loans outstanding to a

single borrower as calculated in accordance with the Single Borrower
Loan Limit Directives of the National Bank of Ethiopia, and one loan or
advance meets the criteria for non-accrual status, then the institution
shall prepare a current written evaluation of the borrower’s
creditworthiness evidencing that repayment prospects for the other
loans are reasonably assured; should such written creditworthiness
evaluation suggest that repayment prospects for the other loans are in
question or otherwise uncertain, then all such loans to the borrower
shall be placed on non-accrual status regardless of any requirements
laid out in these Directives.
7. Classification of Loans
7.1 For the purpose of these Directives, development finance institutions

shall classify all their loans, into the following five classification
categories using the criteria described below:
7.1.1 Pass
Loans in this category are fully protected by the current financial and
paying capacity of the borrower and are not subject to any criticism.
Notwithstanding the generality of this statement, the following loans shall
be classified pass:
a) short term loans past due for less than 30 (thirty) days,
b) medium and long term loans past due for less than 90 (ninety)
days; and
c) any loan, or portion thereof, which is fully secured, both as to
principal and interest, by cash or cash-substitutes, regardless of
past due status or other adverse credit factors.
7.1.2 Special Mention
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The following loans at a minimum shall be classified special mention:
a) short term loans past due for 30 (thirty) days or more,

but less than 90 (ninety) days;
b) medium and long term loans past due 90 (ninety) days

or more, but less than 180 (one-hundred-eighty) days;
7.1.3 Substandard
The following non-performing loans at a minimum shall be

classified substandard:
a) short term loans past due 90 (ninety) days or more, but less
than 180 (one-hundred-eighty) days;
b) medium and long term loans past due 180 (one-hundred-
eighty) days or more, but less than 360 (three-hundred-sixty)
days;
7.1.4 Doubtful

classified doubtful:
a) short term loans past due 180 (one-hundred-eighty) days or
more, but less than 360 (three-hundred-sixty) days;
b) medium and long term loans past due 360 (three-hundred-
sixty) days, but less than 3 ( three) years;
7.1.5 Loss

classified loss:
a) short term loans past due 360 (three-hundred-sixty) days or

more;
b) medium and long term loans past due 3 (three) years or

more;
7.1.6 Without prejudice to the classification criteria used for the Sub-
Standard category set out under article 7.1.3 herein above,
renegotiated non-performing loans shall be categorized as
“Substandard” 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 :
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a) in the case of loans with monthly or quarterly installment

repayments, at least 3 (three) consecutive repayments;
b) in the case of loans with semi-annual installment
repayments, at least 2 (two) consecutive repayments;
c) in the case of loans with annual installment repayments, at
least one repayment.
7.1.7 If a development finance institution has multiple loans outstanding

to a single borrower as calculated in accordance with the Single
Borrower Loan Limit Directives of the National bank of Ethiopia,
and one loan or advance meets the criteria for non performing,
then the institution shall prepare a current written evaluation of the
borrower’s creditworthiness evidencing that repayment prospects
for the other loans are reasonably assured; should such written
creditworthiness evaluation suggest that repayment prospects for
the other loans are in question or otherwise uncertain, then all
such loans to the borrower shall at a minimum be classified as
substandard regardless of any requirements laid out in these
Directives.
7.1.8 A development finance institution shall not reschedule, restructure

or renegotiate a short term loan to a borrower for more than three
iterations.
7.1.9 Before rescheduling, restructuring or renegotiating a short term

loan, a development finance institution 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 article 7.1 herein
above, a loan may be subject to more severe classification by
examiners of the National Bank of Ethiopia if the actual condition of the
loan 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 advancing additional funds for the purpose of
meeting repayment requirements on an existing loan or advance.
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8. Provisioning Requirements for Loans
8.1 Development finance institutions 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 portfolio. In determining the
adequacy of the Provisions for Loan Losses Account, provisions may be
attributed to individual or groups of loans.
8.2 The Provisions for Loan Losses Account shall always have a credit
balance. Additions to or reductions from this account shall be made only
through charges to provisions in the income statement at least every
calendar quarter.
8.3 Development finance institutions shall maintain the following minimum

provision percentages against the outstanding principal amount of each
loan or advance classified in accordance with the criteria for the
classification of loans as laid out under article 7 herein above:
Article Classification Category Minimum Provision for Short,

medium and long term loans
8.3.1 Pass 1%
8.3.2 Special Mention 3%
8.3.3 Substandard 20%
8.3.4 Doubtful 65%
8.3.5 Loss 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, development
finance institutions may be required to maintain larger provisions.
8.5 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.
8.6 Before applying the minimum provision percentages laid out under
articles 8.3.3, 8.3.4 and 8.3.5 herein above, development finance
institutions may deduct from the outstanding non-performing loans :
8.6.1 any accrued but uncollected interest held in a suspended interest
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account (by debiting this account); and
8.6.2 in the case of loans secured by physical collateral net recoverable

value, provided that such net recoverable value to be deducted
shall not exceed 97% (ninety seven percent) ) of the outstanding
non performing loan, or estimated collateral value backing the
non performing loan; whichever is lower.
9. Prohibition and Review of Financial Statements of Borrowers
9.1 Development finance institutions are prohibited from extending

overdraft loans to their borrowers. For the purpose of these
Directives “Overdraft loan” means a deposit account on the books
of the development finance institution with a debit balance.
9.2 Development finance institutions 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 of Birr 5 million or above.
10. Loan repayment schedule
Development finance institutions shall base periodic loan collections

from their borrowers on cash generating capacity of the business
financed by the loan. Without limiting the generality of the statement
hereof, they shall collect medium and long term loans at least:
10.1 monthly from business that regularly generates cash daily;

10.2 quarterly from business that regularly generate cash in two to
30 days;
10.3 semi annually from business that regularly generate cash in 31

to 180 days;
10.4 annually from business that generate cash in 181 to 360 days;
and,
10.5 as shall be determined by board of directors of each institution

in all other cases.
11. Examiner Review
11.1. Each development finance institution shall maintain adequate

records in support of its evaluation of potential loss exposure in the
loans 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 institution’s loss
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estimation procedures, the reliability of the information on which

estimates are based, and the adequacy of the Provisions for Loan
Losses Account.
11.2. Should examining personnel in applying the requirements of these

Directives and after discussions with the executive officer(s) of the
institution 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.
11.3. In the event of material disagreements between examining

personnel of the National Bank of Ethiopia and the executive
officer(s) of the institution regarding the appropriateness of
additional provisions needed to the 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 institution 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.
12. Other Provisioning Requirements
12.1. Provision for depreciation of fixed assets shall be made out of

the annual income of a development finance institution in
accordance with the law.
12.2. Operating and accumulated losses shall be provided for from the
annual net profit until such losses are fully covered.
12.3. The value of any assets lodged or pledged to secure a liability,

as indicated under Article 21(1)(b) of Proclamation No.
592/2008, shall be fully provided for upon the lodging or pledging
of any asset.
12.4. Preliminary expenses representing expenses relating to

organization or extension or the purchase of business or good
will and including share underwriting commission shall be fully
provided for within a maximum of 5 (five) years.
12.5. Any uncollectible claims, other than loans, shall be classified and
provided for in the same manner and method laid down in these
Directives for loans with monthly repayment program or
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otherwise written off as other operating expense of the

institution as they are identified.
13. Interpretation of the Directives
All loans held by a development finance institution 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 development finance institution shall make a written request to
the National Bank of Ethiopia to confirm the proper application of the
requirements laid out in these Directives.
14. Reporting
Development finance institutions shall submit to the Banking Supervision

Directorate 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 thereof.
15. Effective Date
These Directives shall enter into force as of the 5th day of August 2010.
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LICENSING AND SUPERVISION

OF BANKING BUSINESS
Limits on Board Remuneration and

Number of Employees Who Sit on a Bank Board
WHEREAS, a sound corporate governance is vital for the health of individual banks and
the banking sector as a whole;
WHEREAS, excessive remunerations recently being paid by banks to directors have

become a threat to the health of the banking system;
WHEREAS, there is a need to separate board and executive functions, so as to ensure

proper checks and balances, in banks;
NOW, THEREFORE, in accordance with paragraphs “e” and “f” of sub-article 4 of

article 14 of Banking Business Proclamation No 592/2008, the National Bank of Ethiopia
hereby issues these directives.
1. Short Title
These Directives shall be cited as “Limits on Board Remuneration and Number of

Employees Who Sit on Bank Board Directives No. SBB/49/2011".
2. Definitions
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2.1 “bank” means a company licensed by the National Bank of Ethiopia to

undertake banking business or a bank owned by the Government;
2.2 “Board allowance” refers to an amount of money that is paid in kind or in

cash from any account of the bank to directors to cover incidental costs related
to their board membership;
2.3 “Board compensation” refers to any money other than board allowance that
is paid, in cash or otherwise, to a director from the bank’s net profit or from
any other sources;
2.4 “Director” means any member of the board of directors of a bank, by

whatever title he may be referred to;
2.5 “Employee” means a chief executive officer, a senior executive officer or any
other person who is appointed or hired by a bank to carry out its day-to-day
operational activities;
2.6 “Remuneration” includes board compensation and allowance paid to each

director;
3. Scope of the Directives
These directives shall apply to all banks operating in Ethiopia.
4. Remuneration of Directors
4.1 Annual board compensation to a director shall not exceed birr 50,000 (fifty
thousand birr).
4.2 Monthly allowance paid to a director shall not exceed birr 2,000 (two
thousand birr).
4.3 No bank shall pay any financial or otherwise remuneration or benefits other
than those stated under sub-articles “4.1” and “4.2” of this article in
whatsoever form to its directors any time.
5. Number of Employees Who Sit on Bank Board
No employee of a bank, be it permanent or contractual, shall sit on the board of

any bank.
6. Effective Date
These Directives shall enter into force as of 15th day of January 2011.
2
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TELEGRAPHIC ADRESS PLEASE ADDRESS ANY REPLY TO
N A T I O N B A N K P.O. BOX 5550
TELLEX 21020 ADDIS ABABA
CODES USED
BENTLEY'S 2nd PHRASE

Licensing and Supervision of Banking Business

Minimum Capital Requirement for Banks
WHEREAS, it has become necessary to raise the minimum capital required to establish
a new bank so that the newly established bank can compete successfully with existing
banks;
WHEREAS, it is known that as banks expand their business they must maintain a level
of capital commensurate with the volume of their business to withstand adverse
operational results;
NOW, THEREFORE, in accordance with Articles 18(1) and 59(2) of Proclamation No.
592/2008, the National Bank of Ethiopia has issued these directives.
1. Short Title
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These directives may be cited as “Minimum Capital Requirement for Banks No. SBB/ 50/2011”
2. Definitions
2.1 “existing banks” refers to banks licensed by the National Bank of Ethiopia before
the effective date of these directives;
2.2 “a bank under formation” means a banking share company under formation
which fulfills all of the following as of the effective date of these directives:
a) its capital has been fully subscribed,
b) collected in cash from its founding shareholders a minimum capital of
Birr75 million (Birr seventy five million) and deposited in an existing bank
in the name and to the account of the bank under formation,
c) held its founding shareholders general meeting which elected board of
directors and approved articles and memorandum of associations, and
d) submitted final application for banking business to the National Bank of
Ethiopia.
These directives shall be applicable to existing banks and applicants for new
banking business including those under formation.
4. Minimum Paid-up Capital

4.1 The minimum paid up capital required to obtain a banking business license shall
be Birr 500 million (birr five hundred million), which shall be fully paid in cash
and deposited in a bank in the name and to the account of the bank under
establishment.
4.2 Existing banks whose paid up capital is below Birr 500 million (birr five hundred
million) shall raise their paid-up capital to the said amount by June 30, 2016.
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Such banks are required to submit action plan for capital increase to the
National Bank of Ethiopia within 30 days after the effective date of these
directives.
4.3 Banks under formation are required to comply with sub article 1 of this article
within five years after commencement of banking operation.
4.4 Notwithstanding the provisions of sub-article 2 of this article, all licensed banks
shall at a minimum maintain capital to risk weighted assets ratio of 8% at all
times.
5. Sanctions
If a licensed bank fails to comply with the minimum paid up capital requirements
specified under article 4 of these directives, the National Bank of Ethiopia may:
5.1 Prohibit such bank from accepting new deposits, underwriting new loans and
conducting international banking business until the deficiency in capital is
corrected;
5.2 Require such bank to merge with another bank;
5.3 Close such bank; or
5.4 Take any other measures it considers fit.
6. Repeal
Minimum paid up capital to be maintained by banks Directives Number
SBB/24/99 is hereby repealed and replaced by these Directives.
7. Effective Date
These Directives shall enter into force as of 19th day of September 2011.
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TELEGRAPHIC PLEASE ADDRESS ANY REPLY TO

ADRESS P.O. BOX 5550
NATIONBANK ADDIS ABABA
TELLEX 21020
CODES USED
PETERSON 3rd & 4th
ED.
BENTLEY'S 2nd
PHRASE

Directives to Authorize the Business of
Interest Free Banking
Directives Number SBB/51/2011
WHEREAS there has been increasingly strong public demand for interest free banking
products in Ethiopia;
WHEREAS supply of such products by banks has to be carried out in a safe and
sound manner;
WHEREAS there has been lack of regulatory framework for interest free banking
business;
NOW, THEREFORE, in accordance with Article 22(2) of Banking Business

Proclamation Number 592/2008, the National Bank of Ethiopia hereby issues these
directives.
1. Short Title
These directives may be cited as “Directives to Authorize the Business of Interest Free
Banking No. SBB/ 51/2011”
2. Definitions
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2.1 “bank” means a company licensed by the National Bank to undertake banking
business or a bank owned by the Government;
2.2 “interest free banking business” refers to banking business in which mobilizing or
advancing funds is undertaken in a manner consistent with Islamic finance
principles and mode of operation that avoids receiving or paying interest;
2.3 “interest free banking window” refers to a unit within a conventional bank
exclusively offering interest free banking services; and
2.4 “National Bank” means the National Bank of Ethiopia.
3. Scope
Provisions of these directives shall apply to all banks in Ethiopia engaged in interest
free banking business.
4. Authorization
4.1 A bank shall obtain a written authorization from the National Bank to carry on
interest free banking business.
4.2 A bank which wishes to obtain an authorization to carry on interest free banking
business shall submit a duly completed application in the prescribed format
together with documents specified below:
a) a report on resource mobilization and use;
b) planned balance sheet structure for interest free window and the whole bank;
c) maximum share of planned interest free business in total consolidated balance

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

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

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

earnings capability, future earnings prospects, and current liquidity position
and forecast for the next 12 months;
h) track records of adherence to prudential regulations, credit discipline,

quality of customer services ;
i) a statement on the convenience as well as the needs of the population of the

area to be served by interest free banking services;
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j) methods of segregating the funds of interest free banking businesses from all
other business ; and
k) such other information as required by the National Bank while processing the
application.
4.3 The National Bank shall evaluate the application submitted by a bank in view of
risk management, Banking Business Proclamation, applicable directives issued
by it as well as other rules and regulations; and upon its satisfaction, may
authorize the applicant to open an interest free banking window.
5. Prohibition
5.1 Banks shall not alter maximum share of interest free banking business in their
consolidated balance sheet without prior approval of the National Bank.
5.2 Failure to comply with sub-article 1 of this article may result in the closure of
interest free banking window.
6. Maintenance of Accounts and Financial Statements
Banks engaged in interest free banking business shall:
6.1 keep separate books of accounts in respect of interest free banking operations and
ensure proper maintenance of records for all transactions for segregation of funds.
6.2 report their interest free banking business activities every month to the National Bank.
7. Compliance with Regulatory and Supervisory Requirement
7.1 In conducting interest free banking business, banks shall comply mutatis mutandis with all
regulatory and supervisory requirements except National Bank’s directives on interest
rate.
7.2 Equity participation in a project or a company shall be in strict compliance with “ limitation
on Investment of Banks Directives No. SBB/12/96’’.
8. Effective Date
These Directives shall enter into force as of the 1st day of October 2011.
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Licensing and Supervision of Banking Business Consolidated National Bank Directives

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Licensing and Supervision of Banking Business Consolidated National Bank Directives

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CONSOLIDATED NATIONAL BANK of ETHIOPIA DIRECTIVES

LICENSING AND SUPERVISION OF BANKING BUSINESS

Abrham Yohannes Hailu

Law Teacher at Haramaya University

Federal and Harari Courts

LICENSING AND SUPERVISION OF BANKING BUSINESS

LICENSING AND SUPERVISION OF

LICENSING AND SUPERVISION OF

LICENSING AND SUPERVISION OF

LICENSING AND SUPERVISION OF

LICENSING AND SUPERVISION OF

percent) of its equity capital.

LICENSING AND SUPERVISION OF

LCENSING AND SUPERVISION OF

shall enter into force as of 20th day of November 1996.

LICENSING AND SUPERVISION OF

LICENSING AND SUPERVISION OF

Establishment of Special Account for Effecting Payments for

These directives shall come into force as of 1 March 2001.

To: The Branch Manager

(Addis Ababa/Dire Dawa, as Applicable)

Coffee Auction Account of Mr./Mrs./M/S _____________ maintained with your

LICENSING AND SUPERVISION OF

ownership or control of entities that are shareholders in the same financial

of a person, revocable or irrevocable documentary letters of credit, standby

LICENSING AND SUPERVISION OF

institution or through similar arrangements.

sureties issued on behalf of a borrower.

4.2 The aggregate sum of loans extended or permitted to be outstanding directly

Reporting month ____________________

Directive No. SBB/31/2002

cover and is rejected by banks for this reason.

measures that shall be taken when there is misuse of cheque.

Federal Police Commission, indicating his/her intention and

¾›=ƒÄåÁ wN?^© v”¡

TELEGRAPHIC ADDRESS PLEASE ADDRESS ANY REPLY TO

Supervision of Banking Business Directives

Amendment to the Establishment and Operation SBB/34/2002

LICENSING AND SUPERVISION OF

3. Information Required From Applicants For License.

3.3. Feasibility study document.

3.9. Proposal of insurance coverage and extent of such coverage.

4. Criteria For Selection Of Chief Executive

A minimum of first degree or equivalent in relevant field having attended a

A minimum of 10 years of reputable managerial experience in a financial or related

4.4. Marital Status

Preferably married or responsible to a family

5. Criteria For Selection Of Members Of Board Of Directors

Members of Board of Directors shall have adequate managerial experience in

A minimum of 30 years of age

LICENSING AND SUPERVISION OF

Directive No. SBB/32/2002

3.1 “Affiliated Financial Institution” means a “company”:

3.4 “Cash-substitutes” include:

Provided, any loan or advance unconditionally guaranteed in writing by an affiliated

a) The debt remains outstanding for 90 (ninety) consecutive days or

3.16 “Well-Secured” means that a loan or advance is secured by:

4. Responsibility for Loan Review and Specific Requirements

4.2.3 Correct problems, either in individual loans or advances, loan underwriting

5. Placement of Loans or Advances on Non-accrual Status

6. Classification of Loans or Advances

6.1.2 Special Mention

b) Renegotiated non-performing overdraft facilities unless equivalent of all past