1. Introduction: The Dawn of a New Era for Ethiopian Banking

The Ethiopian financial landscape is on the cusp of a transformative era with the establishment of a formal capital market. This pivotal development, driven by progressive legislative reforms, presents unprecedented opportunities for financial institutions, particularly banks, to access new avenues for capital formation, enhance transparency, and solidify their market positions. For banks considering a public listing, navigating this evolving regulatory environment requires a meticulous understanding of the intricate legal framework. Makkobilli Law Firm LLP, with its profound expertise in Ethiopian corporate law, capital markets, and financial regulation, is uniquely positioned to guide institutions through this complex yet rewarding journey.

This blog post provides a comprehensive analysis of the key legal instruments governing the listing of banks on the Ethiopian Capital Market. We will explore the foundational proclamations and directives, explore the critical role of National Bank of Ethiopia (NBE) directives, and highlight other pertinent legal considerations that are essential for a successful public offering.

2. The Foundational Pillars: Key Legislation for Bank Listing

The framework for Ethiopia's capital market is primarily anchored in two significant pieces of legislation: The Ethiopian Capital Market Proclamation No. 1248/2021, and The Public Offering and Trading of Securities Directive No. 1030/2024. Complementing these are the Revised Ethiopian Commercial Code (Proclamation No. 1243/2021), particularly its provisions concerning share companies, and NBE Directives.

2.1. Ethiopian Capital Market Proclamation No. 1248/2021

Enacted to foster economic development by mobilizing capital, promoting financial innovation, and distributing investment risks, the Capital Market Proclamation [1] lays the groundwork for a regulated and efficient capital market. For banks aspiring to list, several key provisions are of paramount importance:

Establishment and Mandate of the Ethiopian Capital Market Authority (ECMA): The Proclamation establishes the ECMA as the central regulatory body, endowed with extensive powers to regulate and supervise the capital market. Its mandate includes ensuring market fairness, integrity, and efficiency, alongside robust investor protection. Any bank seeking to list will fall under the direct oversight of the ECMA, necessitating strict adherence to its directives and requirements throughout the listing process and as a publicly traded entity.

Framework for Securities Exchanges and Trading Platforms: The Proclamation provides for the establishment and regulation of securities exchanges, such as the Ethiopian Securities Exchange. These platforms will serve as the primary venues for the trading of listed securities, including the shares of banks. A thorough understanding of the rules governing these exchanges is crucial for both the initial listing and subsequent trading activities.

Regulation of Securities Depository and Clearing Companies: The legislation mandates the licensing and oversight of entities responsible for the custody, registration, clearing, and settlement of securities. Once listed, a bank's shares will be managed and transferred through such a system, requiring compliance with its operational protocols and standards.

Licensing of Capital Market Service Providers: The Proclamation delineates the requirements for various market participants, including those indispensable to a bank's listing, such as transaction advisors, underwriters, and legal counsel. Makkobilli Law Firm LLP ensures that all parties involved in the listing process meet the requisite licensing and conduct standards, thereby safeguarding the integrity of the transaction.

Public Offering and Trading of Securities Principles: This section of the Proclamation sets forth the overarching principles for public offerings, which are further elaborated in the subsequent Directive. It covers fundamental aspects such as the registration of securities, prospectus requirements, and ongoing disclosure obligations. Crucially, it also addresses prohibited trading practices, underscoring the market's commitment to integrity and fair play.

2.2. Public Offering and Trading Of Securities Directive No. 1030/2024

Serving as the procedural blueprint for public offerings and trading, this Directive [2] provides the detailed operational requirements that complement the Capital Market Proclamation. For banks, this Directive is particularly critical as it outlines the step-by-step process for a public listing:

Comprehensive Registration Requirements: The Directive meticulously details the eligibility criteria for issuers, the application procedures, and the extensive requirements for the registration statement. For a bank, this translates into a demand for exhaustive disclosures concerning its financial health, operational frameworks, and corporate governance practices. The Directive also specifies unique requirements for various types of offerings, including preferred right of subscription, and notably, for share companies under formation, directly referencing Article 258 of the Commercial Code. It also addresses debt securities, including credit rating prerequisites, and provisions for shelf registration.

The Offer Process and Prospectus Content: This section provides a granular roadmap for the offering of securities. It mandates the appointment of a transaction advisor and sets forth the comprehensive requirements for the prospectus, covering its form, content, the identification of responsible parties, expert statements, and procedures for amendments and omissions. The Directive also specifies other essential documents, such as financial reports, equity valuation reports, and external independent legal opinions. The entire registration statement review process, from initial submission to approval, is detailed, alongside the practicalities of the offer process itself, including access to documents, publication, advertisement, underwriting, offer period management, handling of material changes, withdrawal rights, and the management of under-subscription and over-subscription. Furthermore, it outlines the intricacies of book building and the principles governing the allotment of securities.

Ongoing Information Disclosure Obligations: A cornerstone of investor protection and market transparency, this Directive imposes continuous disclosure requirements on listed entities. Banks will be obligated to provide current and periodic filings, including semi-annual and annual audited financial statements, annual reports, and earnings forecasts. This ensures that investors have access to timely and relevant information, fostering an informed market.

Exemptions and Trading Regulations: The Directive also specifies conditions under which certain offerings may be exempt from full registration, such as private placements, offerings to qualified investors, and small offerings. Additionally, it regulates trading activities on licensed markets and outlines provisions for the suspension and delisting of securities, along with penalties for non-compliance.

2.3. Revised Ethiopian Commercial Code (Proclamation No. 1243/2021) – Book II, Title Six (Articles 245-464)

The Revised Ethiopian Commercial Code [3] provides the overarching legal framework for business organizations in Ethiopia. Book II, Title Six, specifically dedicated to "Share Company" forms, is particularly relevant for banks, which typically operate as share companies. This section governs the corporate structure, governance, and the rights and duties of shareholders, all of which are fundamental to a public listing:

Definition and Formation of Share Companies: This part defines a share company and outlines the legal prerequisites for its formation, including minimum capital requirements, par value of shares, and the roles and liabilities of promoters. Article 258, as highlighted in the Public Offering Directive, is central to the formation of a company by public subscription, directly impacting the Bank’s listing process.

Shares and Shareholder Rights: The Code elaborates on the various types of shares, their issuance, transferability, and the comprehensive rights and obligations of shareholders. This includes provisions on share certificates, pledges, restrictions on transfer, and the company’s ability to deal with its own shares. A thorough understanding of these provisions is essential for structuring the public offering and managing shareholder relations effectively post-listing.

Corporate Governance and Management: The Code establishes the foundational framework for the Board of Directors and, where applicable, the Supervisory Board, detailing their appointment, qualifications, powers, duties, and liabilities. It also defines the roles and responsibilities of the General Manager and Secretary. These provisions are crucial for ensuring that the Bank’s corporate governance aligns with the heightened standards expected of a publicly listed entity.

Audit and Investigation: The Code sets forth the requirements for the appointment, duties, and liabilities of external auditors, and outlines procedures for investigations by relevant government authorities. This reinforces the critical importance of robust financial oversight and transparency, which are paramount for building and maintaining investor confidence.

Shareholders’ Meetings: The Code meticulously details the rules governing shareholders’ meetings, including calling procedures, notice requirements, agenda setting, proxy voting, and, significantly, the protection of minority shareholder rights. These provisions will dictate how the Bank interacts with its shareholders and makes key corporate decisions in a public environment.

2.4. NBE Directives

As the central bank and primary regulator of financial institutions, the National Bank of Ethiopia (NBE) issues a comprehensive set of directives that profoundly influence the operations of banks. For a bank seeking to list on the capital market, compliance with these directives is not merely a legal obligation but a fundamental prerequisite for demonstrating financial soundness, robust governance, and operational integrity. Our analysis highlights the most pertinent NBE directives:

Bank Corporate Governance Directive No. SBB/91/2024: This directive [4] establishes stringent standards for the corporate governance of banks, encompassing the structure, responsibilities, and conduct of the board of directors and senior management. It places a strong emphasis on transparency, accountability, and effective risk management – all indispensable attributes for a publicly listed entity. The directive meticulously defines key terms such as "Independent Director," "Influential Shareholder," and "Related Party Transaction," and elaborates on the duties of directors, board composition, and the cultivation of a sound corporate culture and values. Adherence to these principles is a cornerstone of a bank’s readiness for public listing, as it directly impacts investor confidence and regulatory approval.

Limitations on Investment of Banks Directive No. SBB/92/2024: This crucial directive [5] regulates the types and limits of investments that banks can undertake. Its primary objectives are to ensure sound risk management practices and to encourage prudent participation in the nascent capital market while maintaining a clear focus on core banking operations. The directive sets specific equity shareholding limits in various entities, including insurance companies, capital market service providers, and other non-banking businesses. It also explicitly prohibits certain direct engagements and imposes an aggregate investment limit on non-bank businesses. For a bank considering listing, this directive will directly influence its investment portfolio strategy and its permissible scope of activities post-listing.

Asset Classification and Provisioning Directive (SBB/90/2024): This directive [6] outlines the precise methodology for classifying assets and making adequate provisions for potential losses. Its provisions directly impact a bank’s financial statements and its perceived stability. Accurate and compliant asset classification is paramount for transparent financial reporting, which is a critical element for attracting and retaining potential investors.

Requirements for Persons with Significant Influence in a Bank Directive (SBB/89/2024): This directive [7] is vital for understanding the ownership structure and control mechanisms within a bank. It provides crucial information for investors regarding key stakeholders and ensures that individuals with significant influence meet prescribed fit and proper criteria, thereby safeguarding the institution’s integrity.

Related Party Transaction Directive (SBB/88/2024): This directive [8] governs transactions between a bank and its related parties, aiming to ensure fairness, prevent conflicts of interest, and promote market integrity. Transparency in related party transactions is a significant concern for investors in publicly listed companies, and strict adherence to this directive is essential.

Large Exposures Directive (SBB/87/2024): This directive [9] sets prudential limits on a bank’s exposure to single borrowers or groups of connected borrowers, thereby mitigating concentration risk. This is a critical regulation that directly impacts a bank’s risk profile and overall financial health, both of which are closely scrutinized during the listing process.

Appointment of External Auditor of a Bank Directive (SBB/86/2023): This directive [10] ensures the independence and credibility of a bank’s financial audits. It provides assurance to investors regarding the accuracy and reliability of financial disclosures, a cornerstone of investor confidence.

Licensing, Credit Information and Examination Fees on Banks Directive (SBB/85/2022): This directive [11] covers the fees and ongoing requirements for licensing and supervision. These aspects represent part of the operational costs and regulatory burden that a bank must manage, and understanding them is crucial for financial planning related to the listing.

Recovery Plan of Banks Directive (SBB/93/2025): This directive [12] outlines a bank’s plan for recovery in the event of financial distress. The existence of a robust recovery plan provides an important layer of assurance to potential investors regarding the bank’s resilience and its ability to navigate adverse economic conditions.

3. Beyond Capital Markets: Other Critical Legal Considerations

While the capital market and banking-specific regulations form the core of the listing process, a successful public offering also necessitates meticulous compliance with a broader spectrum of Ethiopian laws. These legal domains, though not directly related to securities trading, significantly impact a bank’s operational stability, financial health, and overall attractiveness to investors.

Ethiopian Tax Laws: A bank undertaking a public listing will be subject to various tax obligations, which directly influence its profitability and dividend distribution capacity. Key tax laws include the Income Tax Proclamation (e.g., Federal Income Tax Proclamation No. 979/2016), which governs corporate income tax (currently 30%). Additionally, the Value Added Tax (VAT) Proclamation applies if the bank’s services are subject to VAT, and regulations related to withholding tax on dividends are crucial for both domestic and foreign investors. Capital gains tax implications for sellers of existing shares and stamp duty on share transfers also need careful consideration. Comprehensive tax due diligence is an integral part of the listing process to ensure compliance and accurate financial disclosures.

Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Laws: Given the inherent nature of banking operations, strict adherence to AML/CFT laws is paramount. This includes the Prevention and Suppression of Money Laundering and the Financing of Terrorism Proclamation No. 780/2013 [13], which establishes the legal framework for combating illicit financial activities, outlining obligations for financial institutions such as customer due diligence (CDD), record-keeping, and reporting of suspicious transactions. Furthermore, Proclamation No. 1176/2020 [14] and related directives aim to align Ethiopia’s Know Your Customer (KYC) and AML regulations with international standards. Robust compliance in this area is not only a legal imperative but also a critical factor in maintaining a bank’s reputation and fostering investor confidence.

Labor Laws: While not directly financial, compliance with labor laws significantly impacts a company’s reputation, operational stability, and potential liabilities. The Labor Proclamation No. 1156/2019 [15] is the primary legislation governing employer-employee relationships in Ethiopia, covering aspects such as employment contracts, working hours, wages, benefits, occupational safety and health, trade unions, collective bargaining, and dispute resolution. For a bank seeking to list, adherence to these labor laws demonstrates good corporate citizenship and mitigates risks associated with labor disputes, which can disrupt operations and negatively influence investor perception. A stable and well-managed workforce, underpinned by legal compliance, is an asset to any company.

Makkobilli Law Firm LLP

Navigating the complex legal and regulatory landscape of a bank listing on the Ethiopian Capital Market demands specialized expertise and a nuanced understanding of both financial and corporate law. Makkobilli Law Firm LLP offers unparalleled experience in guiding financial institutions through such transformative processes. Our team of seasoned legal professionals provides comprehensive, strategic, and practical advice, ensuring that your institution not only meets all regulatory requirements but also achieves its strategic objectives.

We are committed to providing tailored legal solutions that address the unique challenges and opportunities presented by a public listing. Our services encompass every stage of the process, from initial due diligence and corporate restructuring to prospectus drafting, regulatory filings, and ongoing compliance advisory. Partner with Makkobilli Law Firm LLP to unlock the full potential of the Ethiopian Capital Market for your institution.

Disclaimer: This blog post is intended for general informational purposes only and does not constitute legal advice. The information provided herein may not be applicable to your specific situation and is subject to change. While we strive to ensure the accuracy and completeness of the information, Makkobilli Law Firm LLP makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the information contained in this blog post for any purpose. Any reliance you place on such information is therefore strictly at your own risk. For specific legal advice regarding your circumstances, please consult with a qualified legal professional.