The action to scrub Ethiopian banks of Ethiopian natives with foreign nationality has commenced as private banks begin auctioning off shares that were returned by these nationals, in compliance with a November 2016 directive from the National Bank of Ethiopia (NBE).
This week, Awash Bank officially floated a tender for 21,052 shares, worth about 21 million Br for a public bid, which accounts almost one percent of its paid up capital. The bidding will open on February 16, 2016. Members of the public will be able to bid for the shares, with a par value of 1,000 Br, which usually drives prices up.
The shares will be auctioned and the proceeds over the par value will go to the national treasury.
Shackling financial institutions with tasks that have no benefits to them is pretty unfair, argued Abdulmenan Mohammed Hamza, a financial analyst who works at London Portobello, in his commentary to Fortune a month ago.
The average premium and dividend relinquishing shareholders of banks will lose to the treasury will about 65.5pc of the share prices. Shareholders of the biggest banks, like Awash, will lose as much as 136pc whereas shareholders of small banks will lose 11pc, according to Abdulmenan.
Nib Bank is also among the banks which are neutralizing the shares of foreign nationals. The par value of around eight thousand shares in Nib Bank, worth around eight million Br, was put aside in accounts for shareholders who did not return their share certificates before the deadline. The shares will then be put up for auction. The shareholders include companies, as well as individuals.
“The Bank is conducting its business completely in line with the National Bank’s regulations,” said a senior executive at Nib. “I’m sure it is something that has been well researched and thought out so we will enforce it.”
According to the banking business proclamation of 2009, foreign nationals or organizations fully or partially owned by foreign nationals are not allowed to own shares in Ethiopian banks. In November 2016, in a bid to more strictly enforce the law, the National Bank of Ethiopia issued a directive to all banks that all shareholders of foreign citizenship would be required to return their share certificates and collect the par value of their shares as well as dividends accrued until June 30, 2016. The directive was issued in time for the banks’ presentation of their annual reports to their shareholders.
However, not everyone is feeling positive about the change in the enforcement of the banking policy.
“It’s not fair,” said a shareholder in United Bank. “For those who have bought shares as a small group or as a couple, they are forced to return everything if some of their members are foreign. They will lose a lot of money.”
“There is no way of definitively telling how many shares are held by foreign shareholders until the entire process is complete,” said a National Bank official.
However, some banking industry insiders estimate that just under one percent of the total shares in the banking industry, worth an estimated 40 million Br are held by foreign nationals.
On average, shares of banks are worth 40pc more than their par values. Accordingly, if foreign nationals of Ethiopian origin hold one percent of the private banks share, the treasury will get about 65 million Br from the auction sales of the returned shares.
Awash is the first bank to issue a tender for the shares of foreign citizens of Ethiopian origin, although all banks will be required to do so once all the share certificates have been returned.
Besides returned shares, the canceled shares will also bring in tens of millions to the treasury.