Officials at the National Bank of Ethiopia (NBE) are drafting a new directive to set new requirements needed to establish a mortgage bank in Ethiopia.
It is a move taken following a plea by industry insiders, who have been calling for the introduction of separate rules for the establishment of specialized banks.
Since last year, the central bank has licensed five commercials banks, of which, two provide fully-fledged interest free banking service.
Goh Bank is the only self-proclaimed specialized financial institution that has joined the industry as “a mortgage bank” last year, though it is licensed as a conventional bank by the regulatory body.
Frezer Ayalew, Bank Supervision director, confirmed to The Reporter that a committee has been formed to draft the new directive to govern mortgage banks.
“It is going to address how we are going to incentivize those interested to join the financial sector as a specialized bank,” said Frezer.
The directive is expected to explicitly address requirements needed to form a mortgage bank. Officials believe it should be treated differently from the conventional ones, as its business model is distinct from others.
“A study is underway to decided how mortgage banks should operate,” said Solomon Desta, vice governor of the NBE.
Industry insiders welcomed the move by the central bank to separately license specialized banks.
“We have been pushing for the introduction of a new directive and the starting of the draft process is a step in a right direction,” said Mulugeta Asmare, founding president of Goh Bank, which joined the financial industry with a paid-up capital of 521 million birr.
Promotors who are in the process of involving in this line of business are also hopeful the new directive will ease the stringent rule, which requires a paid-up capital of five billion birr to establish a bank.
“A mortgage bank has a different business model and they provide long-term financing to clients, in contrary to how conventional banks operate,” said Zemedeneh Nigatu, an investment consultant and one of the promoters of Selam Bank.
According to Zemedeneh, incentivizing mortgage banks to flourish in Ethiopia will address the housing demand in Ethiopia.
“The major obstacle preventing individuals from buying a house is the lack of finance, which can be addressed if the new directive eases the business climate for mortgage banks,” Zemedeneh added.
The banking industry is tightly regulated by the central bank, which has increased the paid-up capital requirement to establish a bank from half a billion birr to five billion birr since last year.