NBE Directive39 45

7/28/2019 NBE Directive39 45

1/51

1

LICENSING AND SUPERVISION OFBANKING BUSINESS

Amendment for New Bank Licensing and Approval of Directors and CEO

Directives No. SBB/39/ 2006

1. Issuing Authority

These directives are issued by the National Bank of Ethiopia pursuant tothe authority vested in it by article 41 of the Monetary and BankingProclamation No. 83/1994 and by article 36 of the Licensing andSupervision of Banking Business Proclamation No. 84/1994.

2. Definitions

In these Directives:

2.1 The Bank shall mean National Bank of Ethiopia.

2.2 "Business continuity plan" shall mean the process by which banksensure the resumption of operations, including services tocustomers, interrupted as a consequence of adverse events such

as natural disasters, technological failures, human error, orterrorism.

2.3 Financial Institution shall mean insurance companies, banks,microfinance institutions and such other institutions as determinedby the Bank.


2/51

2

= wN?^ vNATIONAL BANK OF ETHIOPIA

2.4 Related Party of a bank shall mean, on the one hand, a

shareholder, a director or a principal officer of that bank and/or thespouse or relation in the first degree of consanguinity or affinity ofsuch shareholder, director or principal officer; and on the other, apartnership, a private limited company, a share company, a jointventure, or any other business in which the shareholder, director orprincipal officer of the bank and/or the spouse or relation in the firstdegree of consanguinity or affinity of such shareholder, director orprincipal officer has a business interest as shareholder, director,principal officer, owner or partner. For the purpose of theseDirectives, a person holding five percent or more of paid up capitalof a bank, a partnership, a private limited company, a share

company, a joint venture, or any other business shall be consideredas a related party.

3. Information Required From Applicants For License

In addition to information required under article 5 of Proclamation Number84/1994, applicants for new banking business license shall submit to theBank the following:

3.1. Evidence for paid up capital which includes certificate of deposit in a

blocked subscription account maintained with a commercial bank forthis purpose and evidence for valuation of contribution in kind;

3.2. Names, addresses and occupation (including dates and addressesof employment covering the latest ten years) of the founders;

3.3. A feasibility study of the future operations and development of thebusiness for a minimum period of three years from the date of thecommencement of operation, including:

3.3.1. Proposed organizational chart of the bank, and brief

description of the functions of the main organizational units;

3.3.2. A schedule of all preliminary expenses including costs oforganization, share-selling and brokerage and commission;

3.3.3. Projections of balance sheet, cash flow statement and profitand loss accounts, with the following breakdowns whereapplicable:


3/51

3


i. deposit mobilization and interest payable statingseparately the proposed major sources and types ofdeposits;

ii. loans and advances to be made and interestreceivable, stating intended lending by sector;

iii. investments to be made and earnings thereof;iv. operating expenses including rents, salaries,

employee benefits, directors remuneration;v. liquid and reserve assets;vi. capital structure;vii. provision for bad and doubtful debts;viii. fixed assets, including business premises;ix. other income, including commissions, fees/charges;

andx. net operating profit/loss.

3.3.4. Interest rate sensitivity analysis of the projections submittedor other similar analyses of the extent to which the forecastswill change when interest rates vary (the assumptionsunderlying the projections and the sensitivity analysis shouldbe stated);

3.3.5. Statistical and other data which may have been collected inrespect of the area in which the applicant intends to operateincluding population of the area, business located in thearea, etc. and existing banking facilities;

3.4. Disclosure of the identity of shareholders who have acquired five ormore percent of the capital stock, indicating their names, nationality,number and value of shares held;

3.5. Authenticated ownership certificate and/or lease agreement for itemslisted under Section 11.1 of Banking Business License ApplicationForm attached with these Directives;

3.6. Descriptions of actual purchases made or proposed purchases ofgoods and services, or lease of real estate by the bank from relatedparties;


4/51

4


3.7. Curriculum vitae of the proposed chief executive officer and directorsincluding their age, marital status, education, employment history forthe past ten years, their experience in business and financial affairs,their involvement in civic, social and charitable activities includingany leadership position held;

3.8. Completed Propriety questionnaire attached with these directivesas annex I for directors and nominated chief executive officer;

3.9. Duly completed application form and enclosures thereto asprescribed by the Bank;

4. Selection Criteria andAppointment of Chief Executive Officer

4.1 Board of directors of a bank shall appoint a chief executive officerwho demonstrates his/her competence and ability to understandthe technical requirements of banking business, inherent risks andmanagement processes required to conduct banking operationseffectively, with due regard to the interests of all stakeholders.

4.2 In determining competence, and capability of the chief executiveofficer, the board of directors shall take into account all relevantconsiderations, at a minimum including, but not limited to:

4.2.1 whether the person has a sound knowledge of the business andresponsibilities he will be called upon to shoulder;

4.2.2 whether the person has demonstrated, through his qualificationsand experience, the capacity to successfully undertake theresponsibilities of the position, including the establishment ofeffective internal control and risk management regime;

4.2.3 whether the person has ever been:

i. fined, suspended, removed, or his/her professional licenserevoked by a professional, trade or regulatory body becauseof incompetence, fraud, negligence, or violation of laws,rules, regulations and professional code of conduct; or

ii. fined, demoted, dismissed or requested to resign from anyposition or office for incompetence or mismanagement byhis/her employer; and


5/51

5


4.2.4 whether the person has ever been diagnosed as being mentallyill or unstable.

4.3 Chief executive officer of a bank shall hold a minimum of firstdegree or equivalent from a recognized higher institution oflearning.

4.4 Chief executive officer shall have a minimum of 10 yearsexperience in banking, of which, at a minimum, five years shall bein senior managerial position.

4.5 Board of directors of a bank shall appoint a person with highhonesty, integrity, reputation and diligence as chief executive officerfor the bank.

4.6 In determining a persons honesty, integrity, reputation anddiligence, the board of directors shall consider all appropriatefactors (but not limited to) indicated in Annex I of these directives.

4.7 Chief executive officer of a bank shall be at least 30 years old.

4.8 Chief executive officer of a bank shall preferably be married orresponsible to a family.

4.9 Appointment of chief executive officer for a bank (be it for new orexisting bank) by board of directors shall be subject to approval bythe Bank.

4.10 To obtain approval, the bank shall file with the Bank written request

along with relevant documents showing that the board has takeninto account all relevant considerations set in these directives.

4.11 The Bank shall give written response for the request to approve achief executive officer submitted under Article 4.10 herein abovewithin one month from the date of receipt of such request.


6/51

6


5. Appointment of Board of Directors and Selection Criteria

5.1 Selection Criteria

5.1.1 Education

At least seventy five percent of a bank's board members shall hold aminimum of first degree or equivalent from recognized higher learninginstitution; and the remaining board members should, at a minimumcomplete general secondary school.

5.1.2 Employment

Members of Board of Directors shall have adequate managerialexperience, preferably in banking business, and/or should takeadequate training in banking business management afterholding a seat on the board.

5.1.3 Propriety

i. A board member shall be a person with honesty,integrity, diligence and reputation to the satisfaction ofthe Bank.

ii. In determining propriety, the Bank shall take into accountall the information (but not limited to) given in Annex I ofthese directives.

5.1.4 Prohibition

i. A board member of a bank shall not, at the same time,serve as a board member of any other financialinstitution;

ii. Chairperson of board of directors of a bank shall not bechief executive officer of the same bank.


7/51

7


5.1.5 Rotation

i. A director shall not serve on a board of a bank for morethan six consecutive years; however, he/she may be re-elected after a lapse of six years.

ii. Notwithstanding provisions of article 5.1.5(i) hereinabove, if the shareholders of a bank wish to maintaincontinuity in the board and re-elect some of the existingboard members, they may re-elect such board membersfor only one more term. The number of board membersso re-elected shall, however, be limited to a maximum ofone-third (1/3) of the outgoing board members.

5.1.6 Financial Soundness

A director shall not sit on the board of a bank if he /she or abusiness entity in which he/she served or is serving as directoror chief executive officer:

i. has filed for bankruptcy, been adjudged bankrupt, hadassets sequestrated, or been involved in courtproceedings relating to any default on credit (bank orotherwise) repayments or tax payment;

ii. carries non-performing loans as defined in the Banksrelevant directives from any bank;

5.2 Age

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

5.3 Appointment

5.3.1 Appointment of members of board of directors for a bank(be it for a new or existing bank) shall be subject to approvalby the Bank.


8/51

8


5.3.2 Banks shall submit to the Bank written request for suchapproval along with completed PROPRIETY TESTQUESTIONNAIRE (which is annexed with these directives)and other relevant documents necessary to process theapproval.

5.3.3 The Bank shall give written response for the request toapprove appointment of board members submitted underarticle 5.3.2 herein above within one month from the date ofreceipt of such request.

6. Fees

6.1 A company applying to undertake banking business shall payinvestigation fee of Birr750 (Birr seven hundred and fifty only) thatis to be paid at the time of lodging an application.

6.2. A company licensed to undertake banking business shall paylicense fee of Birr5,550 (Birr five thousand five hundred fifty only).

6.3. A bank shall renew its banking business license every year betweenJuly 1 and September 30 and pay annual license renewal fee ofBirr5,550 (Birr five thousand five hundred fifty only).

7. Application Submission

All application documents for banking business license dulycompleted shall be submitted to the Banking SupervisionDepartment, National Bank of Ethiopia, Addis Ababa.

8 Financial Year

For the purpose of reporting to the Bank, financial year for all banksoperating in Ethiopia shall be from July 1 of the current year to June30 of the following year.


9/51

9


9 Commencement of Operation

A licensed bank shall fulfill the following before it commencesoperation:

9.1 Put in place comprehensive risk management policies andoperating manuals including, but not limited to:

9.1.1 Credit,9.1.2 Recruitment and manpower development,9.1.3 Investment,9.1.4 Domestic and foreign banking,9.1.5 Liquidity management,9.1.6 Audit and inspection,9.1.7 Management information systems,9.1.8 Planning and budgeting,9.1.9 Accounting; and9.1.10 Business continuity Plan

9.2 Hire, train and place adequate and appropriate staff;

9.3 Ensure that the banking hall and staff operating area aresuitable for the type of business to be undertaken in thepremises housing the bank including but not limited to:

9.3.1 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;9.3.5 Cashier'still which is restricted to authorized persons;

9.4 Have a strong room with a minimum carrying capacity of 224cubic meters.

9.5 Cash loading and unloading area shall be suitable andprotected from public view and access.

9.6 Place fire extinguishers at appropriate places,

9.7 Have insurance policy for the following at a minimum:


10/51

10


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,

9.8 Outer doors of the building housing the bank shall be of heavyduty metal;

9.9 All windows and glass walls of the building housing the bankshall be reinforced with metal grills;

10. Transition Period for Existing Banks

The provisions of these directives shall apply on banks operating inEthiopia prior to the effective date of these directives starting from 1st ofJuly 2007.

11. Repeal

Directives No. SBB/1/1994 are hereby repealed and replaced by these

Directives.

12 Effective Date

These Directives shall enter into force as of 1st day of May 2006.


11/51

11

Strictly Confidential

ANNEX I

NATIONAL BANK OF ETHIOPIAPROPRIETY TEST QUESTIONAIRE

(To be completed by elected board member and nominated chief executiveofficer of a bank)

Please give yes or no answers for the following questions; if youranswer is "yes" please give further explanation on separate paper.

Position: Board member/Chief Executive Officer (underline the applicableposition)

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

a. Have you been convicted of any criminal offence, particularly anoffence relating to dishonesty, fraud, financial crime or othercriminal acts or been involved in any acts of misfeasance orserious misconduct?

b. Haveyou been the subject of any proceedings of a disciplinary orcriminal nature, or have you been notified of any impendingproceedings or of any investigation, which might lead to suchproceedings?

c. Has any business in which you have equity capital participation offive percent and above or in which you served as a director or aschief executive officer been fined, suspended or disciplined in otherway or investigated or criticized by a government regulator orprofessional body?

d. Have you been associated, in ownership or management capacity,with a company, partnership or other business association that hasbeen refused registration, authorization, membership or a licenseto conduct trade, business or profession, or has had thatregistration, authorization, membership or license revoked,withdrawn or terminated?


12/51

12

e. Have you, as a result of the removal of the license, registration orother authority mentioned under d above been refused the rightto carry on trade, business or profession requiring a license,registration or other authorization?

f. Have you been a director, chief executive officer, or otherwiseinvolved in the management of a business that has gone intoreceivership, insolvency, or liquidation?

g. Have you been dismissed, asked to resign or resigned fromemployment or from a position because of questions or doubtsabout your honesty and integrity?

h. Have you ever been disqualified, under any law or regulation, fromacting as a director or serving in a managerial capacity?

I certify that the information given above is complete and accurate to the best ofmy knowledge.

Signature________________________________________

Date ____________________________________________

AMENDMENT OF BRANCH OPENINGDirectives Number SBB/40/ 2006


These Directives are issued by the National Bank of Ethiopia pursuant tothe authority vested in it by Article 41 of the Monetary and BankingProclamation No. 83/1994 and Article 5(4) of the Licensing andSupervision of Banking Business Proclamation No. 84/1994.

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 arereceived or cheques are paid out or money is lent and other


13/51

13

banking business as defined in article 2(2) of Proclamation number84/1994 is solicited.

3. Requirement

3.1 A bank shall obtain prior authorization from the Bank to open abranch office.

3.2 A bank planning to open a branch shall submit a duly completedapplication attached to these directives together with a coveringletter to the Bank and shall pay the fee indicated under article 6 ofthese directives.

3.3 A bank authorized to open a branch shall open the said branch andcommence operation within 6(six) months from the date of the grantof authorization.

3.4 A bank authorized to open a branch shall notify the Bank the date itplans to commence operation in the new branch 15 (fifteen) daysbefore the planned date of commencement of operation.

3.5 Before commencing operation a bank authorized to open a branchshall fulfill the following:

3.5.1 Ensure that the banks relevant policy and proceduremanuals, and NBE directives are distributed to appropriatestaff members of the branch to be opened;

3.5.2 Ensure that the branch is adequately guarded;

3.5.3 Display in a visible area of the branch working hours, copy ofthe bank's license and branch authorization;

3.5.4 Ensure that the banking hall and staff operating area aresuitable for the type of business to be undertaken in thepremises housing the branch including but not limited to:

i. Proper ventilation and circulation of fresh air;ii. Suitable and clean sanitary service;iii. Sufficient and suitable lighting;

iv. Cashiers' Till, access to which is restricted toauthorized persons.

3.5.5 Ensure that the branch has appropriate strong room orsafe/vault;

3.5.6 Place fire extinguishers in appropriate area;


14/51

14

3.5.7 Have insurance policy at least for the following:i. Fire and other perils,ii. Burglary and theft,iii. Fidelity,iv. Cash and valuable in premises and transit,

3.5.8 Ensure that outer doors of the building housing the branchare of heavy duty metal;

3.5.9 Ensure that all windows and glass walls of the buildinghousing the branch are reinforced with metal grills;

4 Obligation of the Bank

The Bank shall give a written response within five working days from thedate of receipt of the application.

5. Scope of Application

5.1 Requirements set under sub-article 3.5 herein above shall beapplicable on new branches as well as branches opened before theeffective date of these Directives.

5.2 Branches opened before the effective date of these Directives shallfulfill requirements under sub-article 3.5 herein above latest byJune 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 bythe Bank.

8. Repeal

Directives No. SBB/22/1996 are hereby repealed and replaced by thesedirectives.

9. Effective Date


15/51

15

These Directives shall enter into force as of the 8th day of May 2006.

Directives to Transfer Duties and Responsibilities Related to

Establishment and Operation of Export Credit Guarantee Scheme from theNational Bank of Ethiopia to Development Bank of Ethiopia

Directives No. SBB/ 41/2007

Whereas, national exporters need to compete on an equal footing with otherexporters in increasingly competitive foreign markets and satisfy foreign buyers'requirements;

Whereas, it is necessary that exporters with bona-fide export orders should notlose the export opportunity due to inability to get bank credit;

Whereas, operation of enhanced export credit guarantee schemes has beenfound to be supportive of the export sector by availing the necessary financialresources from banks for pre and post-shipment of exports;

Whereas, export credit guarantee schemes have proved to be necessaryvehicles 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 andoperation of export credit guarantee scheme from National Bank of Ethiopia toDevelopment Bank of Ethiopia;

Now, therefore, in accordance with Articles 6 and 61 of the Monetary andBanking Proclamation No. 83/1994, the National Bank of Ethiopia hereby issuesthese directives.


Article 1

Definitions

For the purpose of these directives, unless the context provides otherwise:

1.1 The Bank shall mean National Bank of Ethiopia;


16/51

16

1.2 "Guarantor" shall mean Development Bank of Ethiopia;

1.3 "Financing Banks" are licensed commercial banks (excludingDevelopment Bank of Ethiopia) in Ethiopia;

1.4 Bankable Export Project shall mean a project appraised by financingbanks in line with their applicable credit policy and procedures and foundwithin acceptable risk level by the Guarantor;

1.5 "Export" is non-coffee export;

1.6 "Export Credit Guarantee" shall mean a guarantee provided by theGuarantor to safeguard export financing banks against losses resultingfrom the export transactions they finance;

1.7 "Exporter" is a person engaged in non-coffee exports;

1.8 Existing Exporters shall mean exporters who have been engaged inexport business for at least 12 months prior to the date of application forexport loan under export credit guarantee scheme who can produceevidence of receipt of export proceeds over those months;

1.9 New Exporters shall mean exporters who have been engaged in exportbusiness for less than 12 months at the time of applying for export loanunder export credit guarantee scheme;

1.10 Fund" is a special fund created by the Guarantor for financing guaranteesettlements under Export Credit Guarantee Scheme;

1.11 "Outstanding Active Export Credit Guarantees" shall mean guarantees issued bythe 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;

1.12 "Outstanding Inactive Export Credit Guarantees" shall mean export creditguarantees issued by the Bank before the effective date of thesedirectives which have been (i) claimed by financing banks, or (ii) claimedby financing banks and disputed, or (iii) settled by the Bank and underlitigation or transferred to Legal Services Department of the Bank forlitigation;


1.13 Perishable Export Commodities shall mean export commoditiessubject to significant deterioration in quality or spoilage or decay, such as


17/51

17

fruits, vegetables, molasses, unpreserved meat, flowers, live animals andother commodities as determined by the Bank;

1.14 "Pre-Shipment Export Credit Guarantee" is a guarantee provided by theGuarantor 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 theGuarantor up to a maximum of 180 days to financing banks to cover post-shipment export loan extended to exporters.

Article 2Eligibility Criteria

2.1 Exporters shall satisfy all of the following in order to be considered eligiblefor export credit guarantee:

2.1.1 The export project to be financed under the export credit guaranteescheme shall be bankable;

2.1.2 Exporters shall not carry loss category loans, as defined in the Bank'sDirectives on Provisioning, owed to any bank in Ethiopia;

2.1.3 Exporters shall present a bona-fide order from a foreign buyer;

2.1.4 Exporters shall produce evidence of a valid investment certificate and/ortrade license;

2.1.5 New exporters shall:

i. produce property or other collateral equivalent to atleast 40% for producer exporters and 50% for other exporters of theamount of the loan requested;

ii. produce evidence that all proceeds from non-perishable goods to be exported shall be paid through irrevocableletter of credit; however, no letter of credit shall be required forperishable export commodities;



18/51

18

2.1.6 Existing exporters shall produce from local banks documentary evidenceabout receipt of export proceeds in the 12 months preceding the date ofapplication for export loan under export credit guarantee scheme;

2.1.7 Exporters shall submit all documents required by financing banks to

conduct their normal credit risk analysis.

2.2 Financing banks may approve pre-shipment or post-shipment credit toexporters upon fulfillment of the above eligibility criteria.

Article 3Issuance 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 tothe Guarantor.

Article 4The Guarantee Amount

The Guarantor may issue export credit guarantee to:

4.1 Existing exporters, who fulfill eligibility criteria set under article 2.1hereinabove, up to 100% of export proceeds actually received through financingbanks from non-coffee exports in the 12 months preceding the date ofapplication for export loan under export credit guarantee scheme;

4.2 New producer exporters, who fulfill eligibility criteria set under article2.1 above, up to two point five (2.5) times the estimated value of thepledged collateral;

4.3 Other new exporters, who fulfill eligibility criteria set under articles 2.1 above,up to two (2) times the value of the pledged collateral;


Article 5


19/51

19

Obligations of Financing Banks

5.1 Financing banks shall:

5.1.1 critically evaluate credit worthiness of the

exporter who applies for a loan and shall ensure that the exportproject to be financed is bankable;5.1.2 finance only bankable export projects;

5.1.3 Collect credit information from all banks inEthiopia to ensure that an exporter applying for export loan doesnot carry loss category loans owed to any bank;

5.1.4 exercise all reasonable and usual careregarding operations of export financing and act with utmost goodfaith;

5.1.5 Channel to the exporter's loan account, insettlement of the loan, all export proceeds collected from anexporter after the disbursement of the loan covered by the exportcredit guarantee.

5.1.6 promptly notify the Guarantor within 15days of the occurrence of any event or development likely to causea loss or default;

5.1.7 collect on behalf of the Guarantor interestdue to it on loans covered by export credit guarantee; and

5.1.8 act as the agent of the Guarantor to recover the due amount fromthe defaulting exporter and report to the Guarantor actions taken onsuch borrowers promptly.

5.2 Where the exporter defaults, the financing bank, subject to prior writtenagreement of the Guarantor, may:

5.2.1 extend the due date of pre or post shipment export creditcovered by export credit guarantee for a maximum of 180 days if itdetermines that the financial position of the borrower is sound andthe loan repayment problem is temporary; or

5.2.2 provide additional loan that may not exceed 50 percent ofthe existing outstanding loan covered by export credit guaranteeand extend the due date of both the new and the existing loans fora maximum of 180 days if it determines that the borrower will be


20/51

20

rehabilitated and settle the loans out of the cash flow to begenerated.


5.3 Financing banks shall submit to the Guarantor:

5.3.1 Relevant credit risk analysis report and all other documentsnecessary to ensure the export project to be financed is bankable;and

5.3.2 Monthly export credit performance report in accordance with thetable attached with these Directives or any other format developedby the Guarantor. Such report shall be filed within twenty days afterthe end of the reporting month.

Article 6

Revolving Credit

Financing banks may, during the life of the export credit guarantee, repeatedlydisburse loan to a borrower for export purposes equivalent to the amount of thepartial or full loan settlement referred to under sub-article 5.1.5, so long as theoutstanding balance of the loan does not exceed the export credit guaranteeissued to cover it.

Article 7Obligation 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 loanrepayment status;

7.2 Exercise due care so as to ensure that the advances are used for thepurposes they are earmarked for;

7.3 Repay the entire amount of the outstanding loan and interest thereof tothe financing bank on or before due date of the loan;

7.4 In case of difficulties experienced in manufacture or shipment of goods orrealization of export proceeds from foreign buyers, they should discuss theproblem and the proposed course of action with their financing banks.


21/51

21


Article 8Risk Coverage

8.1 The Guarantor shall cover 80 percent of the risk, which may result fromdefault of repayment;

8.2 The financing bank shall bear the remaining portion (20percent) of default risk.

Article 9The Guarantee Fund and Fee

9.1 The Guarantor shall create a Guarantee Fund Account for funding theExport Credit Guarantee Scheme;

9.2 Financing banks shall pay, out of the interest rate stated under article10.1 hereunder, 2 (two) percent of the outstanding loan balance coveredby export credit guarantee per annum to the Guarantor calculated in linewith interest income accrual or collection policy and procedure of therespective financing bank. They shall pay such interest to the Guarantoron quarterly basis;

9.3 Interest income collected in line with article 9.2 above shallbe 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 fromsuch investments to its Income Statement.

9.5 Guarantee fund created by the Bank in line with provisions of article 9 ofthe Bank's Directives No. SBB/38/2006 shall be used to settle claimsagainst export credit guarantee filed with the Bank before the effectivedate of these directives;

9.6 The closure of the Guarantee fund account with the Bank shall be decidedby the Bank .

Article 10Rate of Interest


22/51

22

10.1 Financing banks shall charge their respective prevailing lowest lendinginterest rateon pre- or post-shipment loans covered by the export creditguarantee 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. Inthe case of proven mis-use of funds, the financing bank may demand theimmediate repayment of the loan.


Article 11Collateral

11.1 The Export Credit Guarantee of the Guarantor serves as part of thecollateral when exporters apply for financing;

11.2 When applying for post-shipment credit, the exporter shallhand over to the financing bank all the necessary shippingand other documents relating to the goods shipped forexport. Also, the exporter shall authorize the financing bankto collect or receive payment from the foreign buyer, on thebasis of which the post-shipment credit is sanctioned to theexporter. Goods in possession of the financing bank areconsidered as additional collateral providing the necessarysecurity for the financing bank;

11.3 In case a borrower defaults, the Guarantor and financingbank shall share the cash collateral, or any proceeds fromliquidation of any property pledged as collateral, or anyproceeds from liquidation of collateral secured through courtruling, in proportion to the risk they took in lending to thedefaulting borrower, that is, the Guarantor shall be entitled tocollect 80%, leaving the balance (20%) to the financingbank.

Article 125 Repayment

12.1 Without prejudice to article 5.2 above, repayment period for pre-shipmentcredit shall not exceed 365 days. Pre-shipment advances shall be repaidby handing over the shipping documents to the financing bank within 10


23/51

23

days after the goods have been shipped for export. The date of shipmentis 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-shipmentcredit obtained against the documents or by payment in an acceptedmanner;

12.2 Exporters, adjusting the pre-shipment credit, shall have thepossibility of extending the credit into the post-shipment period.Exporters willing to use this facility shall have to apply well inadvance to their financing bank for a post-shipment credit to avoidpossible delays, after the goods have been shipped. Any non-compliance with the above stipulation may result in rejection of theexporter's post-shipment credit application and immediaterepayment 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 willbe adjusted by the financing bank out of payments received from theforeign importer to enable it to automatically settle the outstanding debt ofits exporter-borrower, after payment from the foreign buyer has beencollected.

Article 13Settlement of Guaranteed Portion to Financing Bank

13.1 In case an export credit goes on default, the Guarantor shall pay theguaranteed portion of the loan amount lent to the exporter within sevendays after the complete set of necessary documents have been presentedto it. The Guarantor, however, shall not pay any interest on the exportcredit during the seven days following submission of complete set ofdocuments by financing banks;

13.2 When repayment of the full or partial amount of defaultedloan is effected by the defaulting exporter to the financingbank after the settlement of the guaranteed portion, thefinancing bank shall transfer the money to the Guarantorwithin 7 days;

Article 14Expiry of Guarantee


24/51

24

14.1 Export Credit Guarantee shall be issued for a specific period of time thatshall 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 guaranteefor a maximum of 180 days from its expiry date. At the last day of the

guarantee period, unless extended in writing by the Guarantor, theGuarantee shall be null and void;

14.2 Under normal circumstances, the last day of the Guarantee shall be thatindicated on the "Export Credit Guarantee Letter" as ending date of theGuarantee.


Article 15Default and Non-compliance

15.1 Where an exporter defaults and cannot qualify for loan rescheduling orrestructuring stipulated under article 5.2 above, he/she shall besuspended from all types of bank credit from the entire banking systemuntil he/she fully settles the outstanding loan including interest andcharges;

15.2 To facilitate the suspension, the Guarantor shall circulate the names of alldefaulters under the export credit guarantee scheme to all banks.Moreover, the Guarantor shall publish the names of such defaulters inwidely circulating newspapers;

15.3 Upon receipt of defaulters list stipulated under sub-article 15.2 above, allbanks shall deny provision of new bank credit service(s) and shall notrenew all existing overdraft or other credit facilities to any one exporter inthe list until the Guarantor notifies them that the exporter has fully settledhis/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, inextreme cases, to suspend new coverage for a period of four years.

Article 16


25/51

25

Inspection

The Bank may undertake an inspection of any bank, including the Guarantor, toverify 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 exportcredit guarantees issued before the effective date of thesedirectives in line with the terms and conditions of theguarantees set at the time of their issuance.


17.2 The Bank shall transfer all files and documents in itspossession related to outstanding active export creditguarantees to the Guarantor.

Article 18

Administration of outstanding Inactive Export Credit Guarantees

The Bank shall administer outstanding inactive export credit guarantees that areoutstanding as of the effective date of these Directives until their full settlement orresolution.

Article 19Repeal

The Establishment and Operation of Export Credit Guarantee Scheme DirectivesNumber SBB/38/2006 is hereby repealed and replaced by these Directives.

Article 20


26/51

26

Effective Date

These directives shall come into force as of the 1st day of February 2007.

RESERVE REQUIREMENT(3rd REPLACEMENT)

DIRECTIVES No. SBB/42/2007

Whereas, the National Bank of Ethiopia is vested with powers, duties andresponsibilities of monetary management and regulation and supervisionof banks;

Whereas, statutory reserve requirement, which obliges banks to hold aproportion of their deposit balance with the National Bank of Ethiopia, isone of the important monetary policy instruments and prudential regulationtools;

Whereas, liquidity in the banking system remained relatively high;

Whereas, commercial banks have strong incentive to enhance profitability

through credit extension;

Whereas, it has been found necessary to check monetary growth so as toavoid risk of high inflation and ensure a stable macroeconomicenvironment for a healthy economic growth;

Now, therefore, the National Bank of Ethiopia has issued these directivespursuant to the authorities vested in it by Article 41 of Monetary andBanking Proclamation No. 83/1994 and article 16 of Licensing andSupervision of Banking Business Proclamation No. 84/1994.NATIONAL BANK OF ETHIOPIA= wN?^ v

1. Short Title

These Directives may be cited as Reserve Requirement 3rd Replacement Directives No. SBB/42/ 2007.

2. Opening Accounts with the National Bank of Ethiopia


27/51

27

Banks operating in Ethiopia shall open two separate Birr accounts with theNational Bank of Ethiopia to be used as follows:

2.1 Reserve Account

a) A reserve account shall exclusively be used to maintain thereserve balance stated under article 3 of these directives;

b) No bank shall withdraw any money from its reserve accountwithout prior approval of the Banking Supervision Department ofthe National Bank of Ethiopia.

2.2 Payments and Settlement Account

A payments and settlement account shall be used to carry out all

day-to-day transactions of banks through the National Bank ofEthiopia.

3. Requirement

Any bank operating in Ethiopia shall at all times maintain in its Reserve Accountstated under sub-article 2.1 of these directives 10% (ten percent) of all Birr andforeign currency deposit liabilities held in the form of demand (current) deposits,saving deposits and time deposits.

4. Computation of Reserve

4.1 Cash items in process of collection, if included under deposits, shall bededucted there from in computing the balance of total deposits for reservepurposes;

4.2 Cash items in process of collection through the National Bank of Ethiopiashall not be acceptable as reserve until credited to the reserve account;

NATIONAL BANK OF ETHIOPIA= wN?^ v

4.3 The reserve required shall be computed on the net deposit balance, i.e.excluding cash items in process of collection, shown at the end of eachreporting week.

5. Reserve Deficiencies


28/51

28

5.1 Deficiencies in reserve balance are subject to a penalty;

5.2 The penalty shall be assessed at a rate twice the current averagerate of interest on loans and advances charged by banks computedon the amount of the deficiency in reserve and multiplied by the

number of days over which the reserve account remained deficient;

5.3 The National Bank of Ethiopia may waive the penalty stated hereinabove on grounds it considers acceptable.

6. Reports

For the purpose of determining strict compliance with the reserve requirementstated under article 3 of these Directives, properly checked and signed reports,showing balances as of each Wednesday, shall be submitted to the Banking

Supervision Department of the National Bank of Ethiopia. The reports shall besubmitted not later than Tuesday of the following week and shall show thebalance of each type of deposit under article 3 herein above, reserve balancewith National Bank of Ethiopia and the excess/shortfall in reserves.

7. Repeal

Directive No. SBB/37/2004 is hereby repealed and replaced by theseDirectives.

8. Effective Date

These Directives shall enter into force as of20th

day of July 2007.

Directive No. SBB/43/2007

ASSET CLASSIFICATION AND PROVISIONING(4th REPLACEMENT)


These directives are issued by the National Bank of Ethiopia pursuant to the authorityvested in it by Article 41 of the Monetary and Banking Proclamation No. 83/1994 and byArticles 15(1) and 36 of the Licensing and Supervision of Banking BusinessProclamation No. 84/1994.


29/51

29

2. Short Title

These Directives may be cited as Asset classification and Provisioning

Directives No. SBB/43/2007.

3. Purpose of Directive

The purpose of these directives is to provide uniform guidelines to banks toassure that:

3.1 Loans or advances are regularly reviewed andclassified in a manner consistent with regulatory standards;

3.2 Loans or advances which are not performing inaccordance with contractual repayment terms are recognized andreported as past due in a manner consistent with regulatory standards;

3.3 Accrued but uncollected interest on loans oradvances is accounted for in accordance with international accountingand regulatory standards; and= wN?^ v

NATIONAL BANK OF ETHIOPIA

3.4 Timely and adequate provisions are made to theProvisions for Loan Losses Account in order to accurately reflect the risk

inherent in lending activities and to ensure that disclosed capital andearnings performance are accurately reflected.

4. Definitions

4.1 Capitalized Interest means any accrued and uncollected interestthat has been added to the principal amount of loans or advances at apayment date or maturity; it also includes uncollected interest that isrolled-over into new loans or advances.

4.2 Cash Collateral means credit balances on accounts in the books ofthe lending bank over which customers have given the lending bank aformal letter of cession and which the bank at its discretion hastransferred from the customers account(s) to a specific or general cashcollateral account(s) or blocked.


30/51

30

4.3 Cash-substitutes include:

4.3.1 A security issued by the Federal Government ofEthiopia;

4.3.2 An unconditional obligation or guaranty issued in writing by the FederalGovernment of Ethiopia;

4.3.3 An unconditional obligation or guaranty issued in writing by a foreign bank withan A or above rating by Standard and Poor's Corporation and/or byMoody's Investor Services in their latest rating;

4.3.4 Export credit guarantee issued in writing by an institution or agency authorizedby Federal Government of Ethiopia; and

4.3.5 Other liquid and readily marketable securities approved in writing by theNational Bank of Ethiopia and which are held in the vaults of the lendingbank.

4.4 Current as used in reference to current written, or similar uses, meansinformation or documentation having an issuance date not more than 12(twelve) calendar months old.


4.5 In Process of Collection means that the collection of loans or advancesis proceeding in due course in a timely manner through enforcement of

judgments against the borrower that is reasonably assured to result in fullrepayment of the loan or advance (principal plus accrued interest) within360 (three-hundred-sixty) days from the date the loan or advance firstbecame past due.

4.6 Loans or Advances means any financial assets of a bank arisingfrom a direct or indirect advance (i.e. unplanned overdrafts, participation inloan syndication, the purchase of loans from another lender, etc.) orcommitment 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 specifieddate or dates or on demand, usually with interest. The term includes acontractual obligation of a bank to advance funds to or on behalf of aperson, claim evidenced by a lease financing transaction in which thebank is the lessor, and an overdraft facility to be funded by the bank onbehalf of a person. The term does not include accrued but uncollectedinterest or discounted interest.


31/51

31

4.7 Net Recoverable Value means the most probable value of a loan or anadvance which will be realized from the sale of collateral securing the loanor advance in a competitive and open market. For purposes of thesedirectives, the most probable value of a loan or an advance recoverablefrom the sale of collateral securing the loan or advance shall be the

outstanding principal balance of the loan or advance multiplied by theaverage recovery rate of a bank for loans or advances secured bycollateral, provided that such average recovery rate shall not be 15(fifteen) percentage points greater than industry average recovery rate. Ifa bank has no information on aggregate net cash receipts or total netmarket value of acquired properties to compute its own average recoveryrate, it shall use industry average recovery rate to determine the mostprobable value of a loan or an advance.

4.7.1 The term average recovery rate means aggregate net cashreceipts from sale of collateral plus total net market value of

acquired properties, divided by the aggregate outstanding principalbalance of the loans or advances backed by the collateral sold orotherwise acquired by a bank calculated over the period of 18consecutive months preceding the date of computing minimumprovision requirement as laid down in these directives. In case aloan or an advance is secured by more than one collateral, suchloan or advance and the collateral securing it shall be excluded fromcomputation of average recovery rate unless all properties backingthe loan or advance are sold or otherwise acquired by the bank.


4.7.1 Aggregate net cash receipts means net cash collection(after deduction of any expenses associated with the sale of thecollateral which may have been necessary to place the collateral ina saleable condition), over 18 consecutive months preceding thedate of calculating minimum provision requirement, of a bank fromthe sale of collateral which have been seized or foreclosed by thebank in satisfaction of loans or advances previously granted.

4.7.2 The term total net market value of acquired properties asused in these directives shall mean the average of ask or reserveprice of acquired properties and the highest offer bid amountregistered at the last auction in the market that preceded theacquisition by a bank for properties which previously were offered byborrowers as collateral against loans or advances. The highest offerbid amount for auctioned property in absence of a bidder at the lastauction shall be zero.


32/51

32

4.7.3 Ask or reserve price shall mean minimum price at which

the lending bank is willing to sell foreclosed assets.

4.7.4 The term industry average recovery rate means aggregatenet cash receipts plus total net market value of acquired properties,divided by the aggregate outstanding principal balance of the loansor advances backed by the collateral at the time the collateral wasseized, foreclosed, repossessed or otherwise acquired by all banksoperating in Ethiopia calculated over the period of 18 consecutivemonths preceding the date of determining minimum provisionrequirement. In case a loan or an advance is secured by more thanone collateral, such loan or advance and the collateral backing itshall be excluded from computation of industry average recoveryrate unless all properties held as collateral against the loan or

advance are sold or otherwise acquired by banks. The NationalBank of Ethiopia shall compute such industry average recovery rateevery calendar quarter and distribute to all banks operating inEthiopia.

4.7.5 In determining the average recovery rate as set out under4.7.1 herein above, the net market value of acquired property and/orthe net cash receipt from the sale of collateral shall not exceed100% of each outstanding non-performing loan backed by thecollateral and used in the calculation of the average recovery rate.


4.8Non-accrual Status means that a loan or advance has been placed on acash basis for financial reporting purposes. Interest on such loans oradvances accrued on the books of the bank, or for which a specific reserve(such as a suspended interest account) has been established by the bankto offset the full amount of interest being accrued, shall not be taken intoincome unless as otherwise provided in these directives.

4.9Non-performing means loans or advances whose credit quality hasdeteriorated such that full collection of principal and/or interest inaccordance with the contractual repayment terms of the loan or advance isin question.


33/51

33

4.9.1 For purposes of these directives, loans or advances with pre-established repayment programs are non-performing whenprincipal and/or interest is due and uncollected for 90 (ninety)consecutive days or more beyond the scheduled payment date ormaturity.

4.9.2 For purposes of these directives, overdrafts and loans or advancesthat do not have a pre-established repayment program shall benon-performing when:

a) The debt remains outstanding for 90 (ninety)consecutive days or more beyond the scheduled payment dateor maturity;

b) The debt exceeds the borrowers approved limit for 90(ninety) consecutive days or more;

c) Interest is due and uncollected for 90 (ninety)consecutive days or more; or

d) For overdrafts, (i) the account has been inactive for90 (ninety) consecutive days or (ii) deposits are insufficient tocover the interest capitalized during 90 (ninety) consecutivedays or (iii) the account fails to show the following debit balanceat least once over 360 days preceding the date of loan review:

i. 20% of approved limit or less latest by June 30, 2008;ii. 5% or less effective from June 30, 2009.

4.9.3 For purposes of these directives, the entire principal balance ofloans or advances outstanding exhibiting the characteristicsdescribed under 4.9.1 and 4.9.2 shall be considered as non-performing.= wN?^ v


4.10 Overdraft means a deposit account on the books of the bank with a

debit balance.

4.11 Person shall mean any judicial and natural person.

4.12 Provisions for Loan Losses Account means a balance sheetvaluation account established through charges to provision expense inthe income statement in respect of possible losses in the loans oradvances portfolio.


34/51

34

4.13 Renegotiated Loans or Advances means loans or advances, which

have been refinanced, rescheduled, rolled-over, or otherwise modified atfavorable terms and conditions for the borrower because of weaknessesin the borrowers financial condition and/or ability to repay.

4.14 Short or medium term loans means loans or advances with originalrepayment or maturity period of 5 (five) years or less.

4.15 Suspended Interest Account means an account where previouslyaccrued but uncollected interest on loans or advances required to beplaced on non-accrual status is reserved out of the income of the bank.

4.16 Total capital shall mean the paid up capital, legal reserve and anyother unencumbered reserve acceptable to the National Bank of Ethiopiaheld by a bank.

4.17 Well-Secured means that a loan or advance is secured by cashcollateral or cash-substitutes sufficient to repay the full debt (principalplus accrued interest); for purposes of these directives, sufficiency shallinclude proper legal documentation evidencing the banks claim on thecollateral.

5. Responsibility for Loan Review and Specific Requirements

5.1 The board of directors of each bank is responsible for establishing a loanreview system which:

5.1.1 recognizes accurately and timely problem of deteriorating loans oradvances.

5.1.2 assures the adequacy of the Provisions for Loan Losses Account.


5.1.3 assures that accrued but uncollected interest reflected on the books ofthe bank are in accordance with the requirements laid out in thesedirectives.

5.1.4 ensures that overdraft facilities are properly used by borrowers onlyfor the purpose specified in the loan contract they entered with the


35/51

35

bank, and in case such loans are diverted from the intended purposeenables to take timely, prompt and appropriate correction actions.

5.2 The board of directors of each bank shall assure that a review is made of thequality of the banks loans or advances portfolio on a regular basis, but no

less than once each calendar quarter. At the end of each calendar quarter,or more frequently if warranted, the board of directors shall require theexecutive officer(s) of the bank to take appropriate measures in response tothe findings of the loan review function to:

5.2.1 Accurately reflect earnings by assuring thatall loans or advances categorized as non-performing inaccordance with the requirements laid out in these directives areplaced on non-accrual status and accrued but uncollected interesthas been reversed out of the banks income;

5.2.2 Assure that the Provisions for Loan LossesAccount is adequate to absorb potential losses in accordance withthe requirements laid out in these directives; and

5.2.3 Correct problems, either in individual loans oradvances, loan underwriting practices, compliance with prudentlending standards and the board-approved lending policy, or othercredit administration weaknesses as may be identified by the loanreview function, within a specified time frame.

5.3 The board of directors of each bank shall maintain adequate recordssupporting its evaluation of potential losses in the loans or advances

portfolio and the entries made to reflect earnings and the adequacy of theProvisions for Loan Losses Account; such records shall be made availableto 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 withprudent written lending standards as approved and adopted by theboard of directors;


5.4.2 The borrowers are using overdraft facilitiesfor the purpose they negotiated with the bank; and incase of diversion


36/51

36

from the intended purpose that timely measures are taken to correctthe problem.

5.4.3 The board of directors is adequately informedof the risks and potential loss exposure in outstanding loans or

advances;

5.4.4 Problem or deteriorating loans or advancesare properly and timely identified, classified, and placed on non-accrualstatus in accordance with the requirements laid out in these directives;

5.4.5 Appropriate provisions are made to theProvisions for Loan Losses Account for loans or advances classified inaccordance with the requirements laid out in these directives; and

5.4.6 Uncollectible non-performing loans or

advances are written off as appropriate.

5.5 The loan review function shall regularly and on an ongoing basis review allloans or advances which exceed 5% (five percent) of a banks total capitalto a single borrower, calculated in accordance with the Single BorrowerLoan Limit, all loans or advances required to be placed on non-accrualstatus in accordance with the requirements laid out in these directives, anda sampling of the remaining loans or advances portfolio to determine that:

5.5.1 loans or advances reflected as performing onthe books of the bank are in fact performing pursuant to therequirements and definitions laid out in these directives, and

5.5.2 overdraft facilities are used by borrowers for the intended purpose.

5.6 The loan review function shall be performed by the board of directors ofeach bank or a group of individuals to be designated by the board ofdirectors, who are knowledgeable in credit analysis methodologies and whoare not involved in the lending activities of the bank. In the latter case, thegroup shall on a regular basis, but not less than once each calendar quarter,report its findings directly to the board of directors in writing.



37/51

37

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

6.1 All non-performing loans shall be placed on non-accrualstatus, unless the loans or advances are (i) well-secured and (ii) in

process of collection.

6.2 Accrued but uncollected interest being carried on the booksfor loans or advances which are required to be placed on non-accrualstatus in accordance with the requirements laid out in these directivesshall be eliminated by the end of the calendar quarter in which the loansor advances are required to be placed on non-accrual status, but in noevent later than the fiscal year-end date of the bank, whichever issooner.

6.3 A non-performing loan or advance placed on non-accrualstatus may 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 or advances, where all past dueinterest is paid by the borrower in cash at the time of renegotiationand the loan or advance is not classified as substandard inaccordance with 7.1.6. of these directives.

6.4 Banks shall report to the National Bank of Ethiopia on a quarterly basisloans or advances which exceed 5% (five percent) of the bank's capitalthat have been restored from non-accrual to accrual status.

6.5 If a bank has multiple loans outstanding to a single borrower ascalculated in accordance with the Single Borrower Loan Limit, and oneloan or advance meets the criteria for non-accrual status, then the bankshall prepare a current written evaluation of the borrowerscreditworthiness evidencing that repayment prospects for the otherloans or advances are reasonably assured; should such writtencreditworthiness evaluation suggest that repayment prospects for theother loans or advances are in question or otherwise uncertain, then allsuch loans or advances to the borrower shall be placed on non-accrualstatus regardless of any requirements laid out in these directives.


38/51

38


7. Classification of Loans or Advances

7.1 For purposes of these directives, banks shall classify all loans andadvances, whether such loans or advances have pre-establishedrepayment programs or not, into the following five classification categoriesusing the criteria described below:

7.1.1 Pass

Loans or advances in this category are fully protected by the currentfinancial and paying capacity of the borrower and are not subject tocriticism. 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 orother adverse credit factors.

7.1.2 Special Mention

The following loans and advance at a minimum shall be classified specialmention:

a) loans or advances with pre-established repayment programspast due 30 (thirty) days or more, but less than 90 (ninety)

days;

b) overdrafts and loans or advances that do not have a pre-established repayment program, if :

i. The debt remains outstanding for 30 (thirty) consecutivedays or more beyond the scheduled payment date or

maturity, but less than 90 (ninety) days; or

ii. The debt exceeds the borrowers approved limit for 30(thirty) consecutive days or more, but less than 90

(ninety) days; or

iii. Interest is due and uncollected for 30 (thirty)consecutive days or more; but less than 90 (ninety) days

; or

iv. For overdrafts, the account has been inactive for 30(thirty) consecutive days or more, but less than 90

(ninety) days or the account fails to show the following


39/51

39

debit balance at least once over 360 days preceding thedate of loan review:

1) ten to nineteen percent of the approved limit latest byJune 30, 2008;


2) one to four percent of the approved limit effective fromJune 30, 2009.

7.1.3 Substandard

The following non-performing loans and advances at a minimumshall be classified substandard:

a. loans or advances with pre-established repayment programspast due 90 (ninety) days or more, but less than 180 (one-hundred-eighty) days;

b. overdrafts and loans or advances that do not have a pre-established repayment program, if:

i. The debt remains outstanding for 90 (ninety)consecutive days or more beyond the scheduledpayment date or maturity, but less than 180 (one-

hundred-eighty) days; or

ii. The debt exceeds the borrowers approved limit for90 (ninety) consecutive days or more, but less than 180

(one-hundred-eighty) days; or

iii. Interest is due and uncollected for 90 (ninety) days ormore, but less than 180 (one-hundred-eighty) days; or

iv. For overdrafts, the account has been inactive for 90(ninety) consecutive days or more, but less than 180

(one-hundred-eighty) days; or the account fails to showthe following debit balance at least once over 360 days

preceding the date of loan review:

1) twenty to thirty-nine percent of the approved limitlatest by June 30, 2008;


40/51

40

2) five to nineteen percent of the approved limiteffective from June 30, 2009.

7.1.4 Doubtful

The following non-performing loans and advances at a minimum shall beclassified doubtful:

a. loans or advances with pre-established repayment programs: pastdue 180 (one-hundred-eighty) days or more, but less than 360 (three-hundred-sixty) days;= wN?^ v


b. overdrafts and loans or advances that do not have a pre-establishedrepayment program, if :

i. the debt remains outstanding for 180 (one-hundred-eighty)consecutive days or more beyond the scheduled payment date ormaturity, but less than 360 (three-hundred-sixty) days; or

ii. the debt exceeds the borrowers approved limit for 180 (one-hundred-eighty) consecutive days or more, but less than 360(three-hundred-sixty) days; or

iii. interest is due and uncollected for 180 (one-hundred-eighty) daysor more, but less than 360 (three-hundred-sixty) days; or

iv. for overdrafts, the account has been inactive for 180 (one-hundred-eighty) consecutive days or more, but less than 360(three-hundred-sixty) days; or the account fails to show thefollowing debit balance at least once over 360 days preceding thedate of loan review:

1) forty to sixty-nine percent of the approved limit latestby June 30, 2008;

2) twenty to forty-nine percent of the approved limiteffective from June 30, 2009.

7.1.5 Loss

The following non-performing loans and advances at aminimum shall be classified loss:


41/51

41

a) None performing loans or advances with pre-establishedrepayment programs past due 360 (three-hundred-sixty)

days or more;

b) overdrafts and loans or advances that do not have a pre-

established repayment program, if :

i. The debt remains outstanding for 360 (three-hundred-sixty) consecutive days or more beyond the

scheduled payment date or maturity; or


ii. The debt exceeds the borrowers approved limitfor 360 (three-hundred-sixty) days or more; or

iii. Interest is due and uncollected for 360 (three-hundred-sixty) days or more; or

iv. For overdrafts, the account has been inactive for360 (three-hundred-sixty) consecutive days or more,

or the account fails to show the following debitbalance at least once over 360 days preceding the

date of loan review:

1) seventy percent and above of the approved limitlatest by June 30, 2008;

2) fifty percent and above of the approved limiteffective from June 30, 2009.

7.1.6 Without prejudice to the classification criteria used for the Sub-Standard category set out under 7.1.3 herein above, the followingnon-performing loans and advances shall be categorized assubstandard:

a) Renegotiated term loans unless equivalent of all past dueinterest is paid by the borrower in cash at the time ofrenegotiation and the following payments are made by theborrower on a consistent and timely basis in accordance withthe restructured terms of the loan or advance:


42/51

42

i. in the case of term loans with monthly or quarterlyinstallment repayments, at least 3 (three) consecutiverepayments;

ii. in the case of loans with semi-annual installment

repayments, at least 2 (two) consecutive repayments;

iii. in the case of loans with annual installment repayments,at least one repayment;

b) Renegotiated non-performing overdraft facilities unlessequivalent of all past due interest is paid by the borrower in cashat the time of renegotiation and the account shows at aminimum:

i. a nil balance at least once; or

ii. a turnover rate of once the approved limit.


c) Renegotiated non-performing merchandize loans unlessphysical inventory of the merchandize taken by the bank at thetime of renegotiation shows that the outstanding principal loanand interest thereof are fully covered and the safety margindetermined following the inventory is at least not lower thanthe margin stated in the loan contract entered into by the bank

and the borrower at the time of initial extension of the loan.

7.1.7 If a bank has multiple loans outstanding to a single borrower ascalculated in accordance with the Single Borrower Loan Limit,and one loan or advance meets the criteria for non performing,then the bank shall prepare a current written evaluation of theborrowers creditworthiness evidencing that repaymentprospects for the other loans or advances are reasonablyassured; should such written creditworthiness evaluationsuggest that repayment prospects for the other loans oradvances are in question or otherwise uncertain, then all suchloans or advances to the borrower shall at a minimum beclassified substandard regardless of any requirements laid outin these directives.

7.1.8 A bank shall not reschedule, restructure or renegotiate short ormedium term loan to a borrower for more than three iterations.Before rescheduling, restructuring or renegotiating a short or a


43/51

43

medium term loan, a bank shall collect in cash full amount ofinterest in arrears thereof and the following principal amounts:

a. a minimum of 25% of outstanding principal balance incase of rescheduling, restructuring or renegotiating for

the second time.

b. a minimum of 50% of outstanding principal balance incase of rescheduling, restructuring or renegotiating forthe third time.

7.2 Notwithstanding the classification criteria laid out under 7.1 hereinabove, loans or advances may be subject to more severeclassification by examiners of the National Bank of Ethiopia if theactual 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 ofrepayment; (ii) repayment terms which are too liberal or inconsistentwith the purpose and nature of the loan or advance and/or collateralheld; (iii) delinquencies which have been technically cured bymodifying the repayment terms, refinancing or renewing the loan oradvance, or


advancing additional funds for the purpose of meeting repaymentrequirements on an existing loan or advance.

8. Provisioning Requirements for Loans or Advances

8.1 All banks shall maintain a Provisions for Loan Losses Account which shallbe created by charges to provision expense in the income statement andshall be maintained at a level adequate to absorb potential losses in theloans or advances portfolio. In determining the adequacy of the Provisionsfor Loan Losses Account, provisions may be attributed to individual loansor advances or groups of loans or advances.

8.2 The Provisions for Loan Losses Account shall always have a creditbalance. Additions to or reductions of the Provisions for Loan Losses

Account shall be made only through charges to provisions in the incomestatement at least every calendar quarter.

8.3 Banks shall maintain the following minimum provision percentages againstthe outstanding principal amount of each loan or advance classified in


44/51

44

accordance with the criteria for the classification of loans or advances aslaid out under article 7 herein above:

Classification Category Minimum Provision

8.3.1 Pass 1%8.3.2 Special Mention 3%8.3.3 Substandard 20%8.3.4 Doubtful 50%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 timelinessand accuracy in the loan review function, suggests that losses are likely tobe more than the above minimum provision percentages, banks may berequired to maintain larger provisions.

8.5 The minimum provision requirements for each classification category herein above shall be applied against the total outstanding principal balance,not against the amount of past due payments, for each loan or advance, orportion thereof, classified regardless of whether the loan or advance isanalyzed and provided for individually or as part of a group.= wN?^ v


8.6 Before applying the minimum provision percentages laid out under 8.3.3,8.3.4 and 8.3.5 herein above, banks may deductfrom the outstanding non-performing loans or advances:

8.6.1 any accrued but uncollected interest held in a suspended interestaccount (by debiting this account); and

8.6.2 in the case of loans secured by physical collateral net recoverablevalue, or estimated collateral value backing the non performing

loan; whichever is lower.

8.7 Not withstanding deductions stipulated under 8.6 herein above, minimumprovision percentage maintained by a bank for each loan or advanceclassified as 'non performing' shall not be less than 3 percent of theoutstanding loan or advance.


45/51

45

9. Portfolio Composition and Review of Financial Statements of Borrowers

9.1 The share of overdraft loans (excluding those secured by cashcollateral) in total loans or advances portfolio of a bank shall notexceed at any time:

9.1.1 30 percent by June 30, 2008;9.1.2 25 percent starting from June 30, 2009.

9.2 Banks shall review financial statements for the latest financial year of aborrower, who has been in business for a year or above, audited byexternal auditors before granting loans or advances of:

9.2.1 Birr 10 million or above starting from June 30, 2008;9.2.2 Birr 5 million or above starting from June 30, 2009.

10. Examiner Review

10.1 Each bank shall maintain adequate records in support of its evaluation ofpotential loss exposure in the loans or advances portfolio and of theentries made to ensure an adequate Provisions for Loan Losses Accountwhich shall be made available to examining personnel of the NationalBank of Ethiopia upon request to assess the reasonableness of thebanks loss estimation procedures, the reliability of the information onwhich estimates are based, and the adequacy of the Provisions for LoanLosses Account.


10.2 Should examining personnel in applying the requirements of thesedirectives and after discussions with the executive officer(s) of the bankfind the Provisions for Loan Losses Account to be inadequate by morethan 10% (ten percent) when compared to the findings of an on-siteexamination, the board of directors shall within 30 (thirty) days of suchnotice by the National Bank of Ethiopia of any deficiency in the Provisionsfor Loan Losses Account require the executive officer(s) to record the

appropriate entries to increase the balance of the Provisions for LoanLosses Account to a level which is within 10% (ten percent) of theestimated amount of the Provisions for Loan Losses Account determinedby examining personnel of the National Bank of Ethiopia.

10.3 In the event of material disagreements between examining personnel ofthe National Bank of Ethiopia and the executive officer(s) of the bankregarding the appropriateness of additional provisions needed to the


46/51

46

Provisions for Loan Losses Account, the board of directors may appeal tothe National Bank of Ethiopia. Notwithstanding this appeal, it isincumbent on the executive officer(s) of the bank to attend all loandiscussions and meetings during on-site inspections in order to be fullyapprised of examiner concerns with respect to all classified loans or

advances.

11. Other Provisioning Requirements

11.1 Provision for depreciation of fixed assets shall be made out of the annualincome of a bank in accordance with the law.

11.2 Operating and accumulated losses shall be provided for from the annualnet profit until such losses are fully covered.

11.3 The value of any assets lodged or pledged to secure a liability, asindicated under Article 15(1)(d) of Proclamation No. 84/1994, shall befully provided for upon the lodging or pledging of any asset.

11.4 Preliminary expenses representing expenses relating to organization orextension or the purchase of business or good will and including share-underwriting commission shall be fully provided for within 5 (five) years.

11.5 Any uncollectible claims, other than loans or advances, shall beclassified and provided for in the same manner and method laid down inthese directives for term loans with monthly repayment program orotherwise written off as other operating expense of the bank as they areidentified.= wN?^ v


12. Interpretation of the Directives

All loans or advances held by a bank must be accounted for andcategorized in accordance with the requirements laid out in thesedirectives. No interpretation of these directives shall be permitted unlessconfirmed in writing by the National Bank of Ethiopia. In recording a loan

or advance not covered in principle by the requirements laid out in thesedirectives, a bank shall make a written request to the National Bank ofEthiopia to confirm the proper application of the requirements laid out inthese directives.

13. Reporting


47/51

47

Banks shall submit to the Banking Supervision Department of the NationalBank of Ethiopia a quarterly report on loan classification and provisioningin accordance with the table attached with these directives, which shall bepart of the Directive.

14. Repeal

Directive No. SBB/32/2002 is hereby repealed and replaced by thesedirectives.

15. Effective Date

These directives shall enter into force as of the 1stday of January2008.

6 LIQUIDITY REQUIREMENT(3rd replacement)

Directives No. SBB/44/08


This directives are issued by the National Bank of Ethiopia pursuant tothe authority vested in it by Article 41 of the Monetary and BankingProclamation No. 83/1994 and by Article 16 of the Licensing andSupervision 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 bybanks of OECD countries and in such other currencies as may be

approved by the National Bank of Ethiopia as well as securities issued by

OECD countries denominated in currencies of such countries with

tenures as indicated under article 16 (2)(b) of Licensing and Supervision

of Banking Business Proclamation No. 84/1994.


48/51

48

2.2 "Current liabilities" shall mean the sum of demand (current)

deposits, savings deposits and time deposits and similar liabilities

with less than one-month maturity period.

1 of 2


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.


49/51

49

RESERVE REQUIREMENT(4th Replacement)

DIRECTIVE NO. SBB/45/2008

Whereas, the National Bank of Ethiopia is vested with powers, duties andresponsibilities of monetary management and regulation and supervisionof banks;

Whereas, statutory reserve requirement, which obliges banks to hold aproportion of their deposit balance with the National Bank of Ethiopia, isone of the important monetary policy instruments and prudential regulationtools;

Whereas, liquidity in the banking system remained relatively high;

Whereas, commercial banks have strong incentive to enhance profitabilitythrough credit extension;

Whereas, it has been found necessary to check monetary growth so as toavoid risk of high inflation and ensure a stable macroeconomicenvironment for a healthy economic growth;

Now, therefore, the National Bank of Ethiopia has issued these directivespursuant to the authorities vested in it by Article 41 of Monetary and

Banking Proclamation No. 83/1994 and article 16 of Licensing andSupervision of Banking Business Proclamation No. 84/1994.


1. Short Title

These Directives may be cited as " Reserve Requirement - 4 thReplacement " Directives No. SBB/45/2008.

2. Opening Accounts with the National Bank of Ethiopia

Banks operating in Ethiopia shall open two separate Birr accountswith the National Bank of Ethiopia to be used as follows:

2.1. Reserve Account


50/51

50

c) A reserve account shall exclusively be used to maintain thereserve balance stated under article 2 of these directives;

d) No bank shall withdraw any money from its reserve accountwithout prior approval of the Supervision Department of the

National Bank of Ethiopia.

2.2 Payments and Settlement Account

A payments and settlement account shall be used to carry out allday-to-day transactions of banks through the National Bank ofEthiopia.

3. Requirement

Any bank operating in Ethiopia shall at all times maintain in its ReserveAccount stated under article 2.1 of these directives 15% (fifteen percent)of all Birr and foreign currency deposit liabilities held in the form ofdemand (current) deposits, saving deposits and time deposits.

4. Computation of Reserve

4.1 Cash items in process of collection, if included under deposits, shall bededucted therefrom in computing the balance of total deposits for reservepurposes;

4.2 Cash items in process of collection through the National Bank ofEthiopia shall not be acceptable as reserve until credited to thereserve account;


4.3 The reserve required shall be computed on the net deposit balance,i.e. excluding cash items in process of collection, shown at the endof each reporting week.

5. Reserve Deficiencies

5.1 Deficiencies in reserve balance are subject to a penalty;

5.2 The penalty shall be assessed at a rate twice the current averagerate of interest on loans and advances charged by banks computedon the amount of the deficiency in reserve and multiplied by thenumber of days over which the reserve account remained deficient;


51/51

5.3 The National Bank of Ethiopia may waive the penalty stated herein

above on grounds it considers acceptable.

6. Reports

For the purpose of determining strict compliance with the reserverequirement stated under article 2 of these Directives, properlychecked and signed reports, showing balances as of eachWednesday, shall be submitted to the Supervision Department ofthe National Bank of Ethiopia. The reports shall be submitted notlater than Tuesday of the following week and shall show thebalance of each type of deposit under article 2 herein above,reserve balance with National Bank of Ethiopia and theexcess/shortfall in reserves.

7. Repeal

Directives No. SBB/42/2007 is hereby repealed and replaced by theseDirectives.

8. Effective Date

These Directives shall enter into force as of the 7th day of April 2008.

Documents

NBE Directive39 45