Navigating NBE’s New Frontier: An Article-by-Article Guide to the Risk-Based Capital Adequacy Directive (SBB/95/2025) and How We Can Help

Navigating NBE’s New Frontier: An Article-by-Article Guide to the Risk-Based Capital Adequacy Directive (SBB/95/2025) and How We Can Help

By: Sultan Kassim, Deputy Managing Partner at Faana Law Firm.

January 6, 2026. 

The National Bank of Ethiopia (NBE) has ushered in a transformative era for the nation's banking sector with the issuance of the Risk-Based Capital Adequacy Requirements for Banks Directive No. SBB/95/2025. This landmark directive moves Ethiopia away from a simple capital model to a sophisticated, risk-sensitive framework aligned with international standards like Basel II and Basel III.

For banks, this means a fundamental shift in how capital is managed, measured, and reported. The deadline for full compliance is set for December 31, 2026, requiring immediate and strategic action.

At Faanal Law Firm, we understand that navigating complex regulatory changes is paramount to your success. This article provides a clear, article-by-article breakdown of the key compliance requirements within Directive SBB/95/2025 and highlights the specific areas where our legal expertise can ensure your institution achieves seamless compliance and strategic advantage.

Part One: General Provisions (Articles 1-4)

This section lays the foundation of the directive, outlining its scope, applicability, and key definitions.

• Compliance Requirement: The directive applies to all licensed banks in Ethiopia, both on a standalone and a consolidated group basis.[1] Banks must understand the definitions of new terms such as "Common Equity Tier 1 (CET1)," "Additional Tier 1 (AT1)," "Risk-Weighted Assets (RWA)," and what constitutes a "Bank Group" to apply the rules correctly.

• How Faanal LLP Can Assist:
  • Legal Interpretation: We provide definitive legal opinions on the scope and application of the directive to your specific corporate structure, including guidance on consolidation requirements for subsidiaries.

  • Regulatory Scoping: Our team will help you map out the directive's requirements against your current operations to identify immediate compliance gaps.

Part Two: Capital Adequacy Requirements (Articles 5-10)

This is the core of the directive, establishing the new minimum capital ratios and defining the components of regulatory capital.

• Compliance Requirement: Banks must, at all times, maintain the following minimum capital adequacy ratios:

  • Common Equity Tier 1 (CET1) to RWA Ratio: 7%
  • Tier 1 Capital to RWA Ratio: 9%
  • Total Capital (Tier 1 + Tier 2) to RWA Ratio: 11%
    Banks are required to understand the stringent criteria for instruments to qualify as CET1 (e.g., common shares, retained earnings, statutory reserves) and Tier 2 capital.
• How Faanal LLP Can Assist:
  • Capital Structuring Advisory: We advise on the legal mechanics of optimizing your capital structure, including the issuance of compliant CET1 and Additional Tier 1 (AT1) capital instruments.
  • Corporate Finance & Restructuring: Our team can provide legal support for capital-raising activities such as rights issues, private placements, or corporate restructuring needed to meet the new thresholds.

  • Transactional Support: For banks considering mergers or acquisitions to bolster their capital base, we offer comprehensive legal due diligence, transaction advisory, and regulatory approval support.

Part Three: Calculation of Risk-Weighted Assets (RWAs) (Articles 11-45)

This extensive section details the methodologies for calculating RWAs for credit, market, and operational risks—a significant expansion in risk measurement.

• Compliance Requirement:

  • Credit Risk: Banks must apply specific risk weights to different asset classes (e.g., government bonds, corporate loans, retail mortgages) to calculate credit RWA.
  • Market Risk: For the first time, banks must hold capital for market risks, including foreign exchange (FX) and equity position risks.
  • Operational Risk: Banks are required to calculate capital for operational risk. Institutions with at least five years of internal loss data can use the Standardised Measurement Approach; others must use the Business Indicator Component (BIC) and immediately begin collecting loss data.
• How Faanal LLP Can Assist:
  • Policy and Procedure Review: We assist in drafting and reviewing internal policies for risk weighting assets to ensure they are legally sound and fully compliant with the directive's methodologies.
  • Data Governance Frameworks: We can help develop the legal framework for internal data collection, particularly for operational risk loss data, ensuring it meets the NBE's quality requirements.

  • Contractual Risk Mitigation: Our team can advise on structuring and drafting contracts, especially for credit and derivative instruments, to ensure they qualify for credit risk mitigation under the directive.

Part Four: Governance and Supervisory Review (Articles 46-50)

This part elevates the role of the board and senior management, linking capital adequacy directly to governance and strategy.

• Compliance Requirement:

  • The Board of Directors is explicitly responsible for ensuring the bank complies with the minimum capital ratios at all times.
  • Boards must prepare and submit a comprehensive one- to three-year Capital Management Strategy to the NBE for review and approval.
  • Banks must establish robust internal processes for assessing their overall capital adequacy in relation to their risk profile (Internal Capital Adequacy Assessment Process - ICAAP).
• How Faanal LLP Can Assist:
  • Corporate Governance Advisory: We provide counsel to boards on their enhanced duties and liabilities under the new directive and assist in revising board charters and committee terms of reference.
  • Strategic Document Drafting: Our legal experts can assist in drafting and reviewing your Capital Management Strategy and ICAAP documents to ensure they are comprehensive, legally robust, and aligned with NBE expectations.

  • Board Training: We offer tailored training sessions for directors and senior executives on the legal and governance implications of the risk-based capital framework.

Part Five & Six: Reporting Requirements and Penalties (Articles 51-55)

These final sections outline the new reporting obligations and the stringent penalties for non-compliance.

• Compliance Requirement:

  • Starting from the quarter ending March 31, 2026, all banks must submit quarterly electronic reports to the NBE detailing their capital ratios and risk exposures.
  • The directive imposes significant financial penalties for breaches, including daily fines for failing to meet minimum ratios or for late reporting.
• How Faanal LLP Can Assist:
  • Regulatory Reporting Guidance: We help establish internal legal checklists and review processes to ensure the accuracy and timeliness of all regulatory submissions to the NBE.
  • Liaison with Regulators: In the event of a potential breach or query from the NBE, our firm can act as your legal representative, managing communications and preparing necessary responses.

  • Appeals and Dispute Resolution: Should penalties be imposed, we are equipped to advise on the merits of an appeal and represent your institution throughout the dispute resolution process.

Your Partner in a New Regulatory Landscape

Directive SBB/95/2025 is more than a new set of rules; it is a catalyst for strengthening the resilience and sophistication of Ethiopia's banking industry. Proactive and strategic legal guidance is no longer optional—it is essential for a successful transition.

The team at Faanal Law Firm is ready to partner with you. Contact us today to schedule a consultation and learn how we can help you turn these new compliance challenges into a competitive advantage.

Google Search Suggestions

Display of Search Suggestions is required when using Grounding with Google Search. Learn more

• NBE Directive SBB/95

• /2025 Risk-Based Capital Adequacy Requirements for Banks full text

• Article by article analysis of Ethiopia's NBE Directive SBB/95/2025
• Compliance requirements for banks under NBE Directive SBB/95/2025

• Legal services for banks related to NBE capital adequacy directives Ethiopia