The Ethiopian Capital Market Authority (ECMA) discloses that it is under discussion with the National Bank of Ethiopia (NBE) to explore avenues for current retail financial firms to step up as investment banks with a separate subsidiary in the upcoming capital market.
As per the current proclamation of the two regulatory bodies’, retail banks are not at liberty to have any form of involvement on the capital market business or investment banking activity. Reality on ground however signals that the retail financial firms have the potential star power at the inception of the new money market. As a result, considerations are being drawn ECMA disclosed, citing that the authority is under discussions with NBE to unlock the potential of retail banks to per take in the upcoming market as investment banks.
“We had carried out a study to know who would be a potential investment banks in Ethiopia and as per our evaluation the potential lies with our retail banks,” Sirak Solomon, Capital Market Legal Advisor at ECMA explained.
“As per the current laws of NBE, retail banks are not able to transition to investment banks at the securities exchange, thus, amendment on that front is crucial,” he said, adding, “We are working with NBE to find out how these banks can evolve to investment banks.”
The ECMA proclamation defines an investment bank as a non-deposit taking financial institution that facilitates the creation of capital for other companies, governments, and other entities through underwriting, acting as an intermediary between a securities issuer and the investing public, facilitating mergers and other corporate reorganizations and acting as a broker or financial adviser for institutional clients.
“It means that the retail banks are not allowed to register as a service provider at the upcoming securities exchange,” he explained in adherence to the proclamation.
Sirak, who has extensive financial experience stemming from northern America, showcased the experience of other countries citing that there are companies who operate as retail banks like Ethiopian financial firms who collect deposits and provide loans and advances, “and they may also have another subsidiary that is established as an investment banking system, with no direct relation to the retail wing.”
As he informs Capital, the plausible solution is to include retail banks in Ethiopia at the secondary market by allowing them to form a subsidiary.
The subsidiary will provide investment advice and will carry out underwriting service for share companies as investment banks.
The subsidiary that will be formed as a special company will be run independently and with a separate board and CEO but it may have the same owner at the retail bank level.
As experts indicate, the central bank may look deeper into its proclamation to amend the proclamation or directive that it issued in relation to the governing of banks, which are under its supervision.
During the discussion organized by Addis Ababa Chamber of Commerce and Sectoral Association, Brook Taye, the founding Director General of ECMA, said that the authority is undertaking the necessary preparations to issue licenses to capital market service providers.
He said that the authority has tabled 15 draft directives for the board of directors that is expected to approve for further consultation with stakeholders.
The proclamation indicated that the authority may issue eight licenses like credit rating, custodian, market makers, securities trading, securities issuance and investment advisory, and fund manager. However, since the proclamation gives a right under article 55 sub article I, the authority has added another seven licenses to be ratified through directives.
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