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They cannot collect deposits and make loans
Investment banks, in which both foreign and local investors can invest, will not be able to collect deposits or make loans under the new capital market proclamation project. The reporter has learned.
Last week, the Standing Committees on Revenue, Budget and Finance, together with Commerce and Industry, discussed the new draft capital market law with senior officials from the National Bank of Ethiopia (NBE). This comes a month after Members of Parliament sent the draft proclamation to the Committee for further review.
During the meeting, members of the Committee asked for clarification on what characteristics investment banks will have under the bill and how they will get involved in the financial sector. MPs also raised concerns about why foreigners were given the right to open investment banks under the bill, contrary to existing law that only allows locals and diaspora to invest in the financial sector.
Responding to inquiries, adviser to the Prime Minister and the National Bank of Ethiopia (NBE), Melesse Minale explained that investment banks are not like existing conventional banks.
“Investment banks will not be allowed to collect deposits and make loans. They prefer to act as an entity that provides advisory services and connects buyers and sellers of stocks, ”Melesse said.
According to the draft proclamation, an investment bank means a non-deposit financial institution that facilitates the creation of capital for other companies, governments and other entities through subscription. It also acts as an intermediary between a securities issuer and the investing public, while acting as a broker or financial advisor for institutional clients, the bill adds.
“They will also facilitate mergers and acquisitions,” added Melesse.
MPs asked senior NBE officials, including Central Bank Governor Yinager Dessie (PhD), about why foreigners were allowed to open investment banks under the proclamation bill.
“We have few professionals specialized in these areas. Therefore, it is essential to allow foreigners to open investment banks or participate in similar activities to expand the skills of our professionals in the area through the transfer of knowledge, “said Yinager.
The Ethiopian stock market is expected to drive economic growth and be instituted in less than a year, once the bill is passed, which will pave the way towards the establishment of the Ethiopian Stock Exchange.
ESX will be established through the partnership of the public and private sector, including foreign investors. While the government and state entities will have a 25 percent stake in the exchange, private entities will have the opportunity to own 75 percent of the capital.
While ESX will be based in Addis Ababa, the bill will also allow the establishment of other exchange markets in other cities.
“Dire Dawa or other cities can have their own stock exchanges as long as they meet the requirement,” Melesse said.
