BY MBONO MDLULI
MBABANE – In an effort to improve the country’s banking sector, the Central Bank of Eswatini (CBE) wants to bring more banks to operate in the country.
According to information from the CBE, the banks include many forms of the financial institutions, which include Islamic, digital, commercial, investment banks, among others. Prospects of onboarding new service providers in the banking sector remain in sharp focus, particularly with the advent of various technological advancements that have changed how people interact with banking institutions. Similarly, the Central Bank is refreshing its policies and regulations relating to the licensing of banks to cast the net wide in attracting qualifying and credible institutions.
Some of the critical banking services include accepting deposits and withdrawals, granting loans, ‘creating money’ within the approved ‘minimum capital ratio,’ and transmitting monetary policies, facilitating payments, currency exchange, forex trading, wealth management, among others.
The categories of banks that may be licensed in Eswatini cover various types of financial institutions, each tailored to specific business scopes and operational requirements. Here’s a detailed summary of each category:
Category A: Large Commercial and International Banks
Description: This category of banking license is issued for banking operations which are either domestically owned or majority foreign-owned subsidiary companies with significant international banking interests. To obtain the commercial banking license, the banking operators are to comply with all the prudential guidelines and regulations issued by CBE on the required level of capital adequacy, liquidity, and cash reserve.
Start-up Capital: E50 million, which must then be always maintained.
Permissible activities: Category A banks are permitted to engage in a wide range of banking activities, including international banking, maintaining accounts in major currencies, accepting deposits from non-residents, offering credit facilities, treasury products, lending, investment in financial securities, money transmission services, issuing means of payment, trading in money market instruments and securities, participating in securities issues, keeping and administering securities, safe custody of valuables, electronic banking, and other services determined by the Central Bank of Eswatini.
Category B: Medium Sized Commercial Banks
Description: A medium-sized commercial bank is either a domestically owned bank or a subsidiary of a foreign corporation with at least 10% of its common stock owned by Swati(s) individual(s) or Eswatini-owned enterprise. Foreign shareholding is limited to 90% of the common stock.
Start-up Capital: E 30 million, which must be always maintained.
Permissible Activities: Category B banks are allowed to engage in various banking activities, including accepting deposits, lending, investing in financial securities, providing money transmission services, issuing means of payment, and trading in money market instruments. They can also participate in securities issues, offer advice on capital structure and mergers, and provide electronic banking services. Additionally, they can offer services such as safe custody of valuables and any other services determined by the Central Bank of Eswatini.
Category C: Regional and Small Financial Institutions
Description: This type of banking license applies to deposit-taking institutions that were founded to promote financial inclusion by giving credit to small businesses, remote and small farmers, micro and small industries, and other small to medium-sized market segments, as well as by giving a vehicle for savings, mainly to underserved and unserved segments of the population.
Start-up capital: E8 million, which must then be always maintained.
Eligibility for promoters: The following shall be eligible promoters for Regional and Small financial institutions:
• Eswatini resident individuals with 10 years of experience in banking and finance and who can raise the capital required for this category.
• Companies and/or Associations owned and controlled by Eswatini residents will be eligible as promoters to set up small financial institutions; or
• Existing Non-Banking Financial Institution Companies (NBFCs), Micro Finance Institutions (MFIs) that are owned and controlled by Eswatini residents may convert into small financial institutions, subject to all legal and regulatory requirements of other applicable regulators having been met. If the Bank approves and issues a license to these entities then they may commence deposit-taking and banking business, in terms of the Act.
Permissible Activities: Category C banks will be allowed to engage in various banking activities, including accepting deposits of up to E500 000 per depositor, conducting foreign exchange with approval, lending microfinance loans, making remittances, providing payment services, and other activities determined by the Central Bank of Eswatini.
Category D: Restricted License Banks
In this category, the CBE allows the licensing of financial institutions and banks that do not intend to carry on full-scope “banking business” but only operate restricted banking activities as explained below;
a. Wholesale Banking: This business is a company or subsidiary whose common stock is majority owned by Swati(s) individual(s) or Eswatini- owned parent company, foreign shareholding is limited to 49 percent. Negotiable certificates of deposit and Eswatini bonds may be issued by a wholesale bank. In Eswatini, a wholesale bank may only have one location of operation.
Start-up Capital: E30 million, which must then be always maintained.
Permissible Activities: A wholesale bank can engage in banking business with approved financial institutions and individuals, but with certain limitations. It cannot offer savings accounts in Emalangeni currency without approval from the Bank. It can accept fixed deposits in Emalangeni currency, with a minimum initial deposit of E1 million and a requirement to always maintain this amount. It can operate Emalangeni-denominated current accounts, but resident individuals cannot earn interest without prior approval from the Bank.
b. Investment Banks (includes merchant banks): An Investment Bank is defined as any bank that is engaged in any or all the following activities: Public/Private offerings, Issuer transactions, Advisory and International Finance.
i. Public/Private Offerings: Offering advice or assisting in the private placement or public offering of debt or equity securities.
ii. Issuer Transactions: Advising on or assisting with financial restructurings, asset sales, divestitures, tender offers, company reorganizations, and other business combination activities.
iii. Advisory: Acting as a consultant, wealth management, manager or rendering corporate advisory services about (i) and (ii) above.
iv. International Finance: carrying out international financing and underwriting tasks, such as foreign corporate investment, foreign real estate investment, trade finance, international transaction facilitation, international fund transfers, letter of credit issuance, and trade and trading technology consulting.
Start-up capital: E50 million, which must be always maintained.
Permissible Activities: An investment bank license allows for the following banking activities: taking deposits from individuals and entities, providing finance and credit facilities to non-retail customers, dealing in foreign exchange and offering foreign exchange services, managing securities issuance, providing underwriting services for equity issuance, offering treasury management services, providing financial consultancy and advisory services, asset management services, proprietary trading, trading fixed income securities as a Primary Dealer/ Market Maker, participating in floatation, underwriting, buying, and selling of securities, investment portfolio management and advisory services, Unit Trust management and sales, advice on corporate reconstruction, takeovers, and mergers, management advisory services, arranging finance, syndicated loans, and acting as guarantors, financing or lending in institutional money markets, discounting of negotiable securities or money market instruments, dealing in gold and foreign exchange, and any other activities determined permissible by the Bank.
c. Digital Banks (also known as virtual banks, neobanks or online banks): A digital bank (DB) primarily delivers retail banking services through the internet or other forms of electronic channels, instead of physical branches. A DB must be incorporated in Eswatini and It will commence operations as a restricted DB before it is eligible to become a full-functioning DB.
A DB must commence business in the restricted scope or entry phase, focusing on building and testing its systems, while a Full-Scope DB is a mature, fully operational entity that meets higher regulatory and capital standards. The following table highlights the key differences between the two phases of a digital bank’s development.
Permissible Activities: DBs can engage in banking activities and must adhere to regulatory requirements. They should focus on managing IT and cyber risks, money laundering, and terrorism financing risks. Permissible activities include having one physical location, offering cashback services through EFTPOS terminals, and participating in the Shared ATM Network and other cash-out services.
d. Agents of foreign bank/ representative office: An agent of a foreign bank (also representative office of a foreign bank) refers to a foreign financial institution which cannot conduct banking business as a bank in Eswatini but may operate in Eswatini upon fulfilling certain prescribed conditions, when licensed to do so by the Bank in line with the requirements of Section 17 of the Financial Institutions Act, 2005.
Permissible activities: Permissible activities for an agent of a foreign bank are limited to acting as a liaison between the bank’s head office and customers in Eswatini. However, banking business cannot be conducted with these customers within Eswatini. The agent is prohibited from engaging in lending activities, accepting deposits or deposit-like liabilities, or engaging in any other banking activities in Eswatini. As a result, different licensing regulations apply to foreign bank agents. Additionally, the agent can only engage in financial transactions necessary for the maintenance of their Eswatini office.
e. Agent of a locally incorporated bank: Must apply for an agent banking license to conduct banking business on behalf of a licensed financial institution in Eswatini. An application shall be made in writing and as prescribed under the CBE Agent Banking Guidelines No. 6 of 2020.
Category E: Islamic Bank
Description: A sound Islamic bank shares the same hallmarks of a sound conventional bank, all of which are evaluated under the licensing criteria of this Policy.
Start-up capital: E8 million, which must then be always maintained.
Eligibility: Open to qualified foreign and local financial institutions.
Permissible Activities: Permissible Islamic business activities approved by CBE include accepting Shariah-compliant money placements/deposits, accepting money placements/deposits for safe-keeping without the need for security, offering Shariah-compliant financing products, entering into financing contracts based on Shariah contracts and principles, managing unrestricted and restricted Shariah profit-sharing investment accounts, dealing in Shariah-compliant financial instruments as principal or agent, managing Shariah-compliant financial instruments as an agent, safeguarding Shariah-compliant financial instruments, arranging deals in Shariah-compliant financial instruments, advising on Shariah-compliant financial instruments, providing money exchange and remittance services, and issuing/administering means of payment such as payment instruments and stored value.
Entering or arranging for another person to enter a contract to provide financing per Shariah contracts and principles such as Murabahah, Salam, Ijarah and Istisna. Additionally, the provision of wire transfers and other remittance services is allowed, as well as the issuance and administration of payment instruments like credit cards and travellers’ checks.
Each category of banking license is tailored to meet the needs of different market segments while ensuring regulatory compliance and financial stability. The CBE Policy on Licensing of Banking and Financial Institutions No. 1 of 2021 is available at the Central Bank of Eswatini website and contains comprehensive procedures and specifications pertaining to the various categories of banking licenses discussed above. The Central Bank continuously strives to create an enabling environment to promote an inclusive economy that leaves no one out of the formal financial sector. This not only promotes economic growth but also ensures financial integrity with all financial transactions conducted in line with international best practices.
