Ethiopia’s central bank has issued a new rule allowing foreign banks to enter its financial sector for the first time in 50 years as part of its economic reform program.
This change follows the new banking law ratified in December 2024. Ethiopia, which has kept a closed banking system since 1974, hopes to attract new capital and increase competition in its banking sector.
Ethiopia, East Africa’s largest economy with a population exceeding 128 million, has historically restricted its banking sector. Opening the sector is expected to attract new capital, increase competition, and spur growth in a market currently dominated by the state-owned Commercial Bank of Ethiopia.
The new rules, published on June 25, allow foreign banks to set up operations in Ethiopia and enable foreign investors to acquire shares in local banks, with limits on ownership.
The National Bank of Ethiopia (NBE) announced on Wednesday that it is now accepting applications from foreign banks and investors, opening the Ethiopian banking sector to foreign participation.
The central bank’s directive emphasizes the goal of enhancing financial access and drawing in global investors to a promising market. Regulation of representative offices has been updated as well, now under the central bank’s supervision.
The governor of the central bank mentioned that foreign banks could start operating in Ethiopia before the end of 2025, and several foreign banks have shown interest in entering once the rules are in place.
The central bank plans to issue up to five licenses for foreign banks over the next five years, supporting Ethiopia’s broader reform agenda, including ongoing talks for debt restructuring and an agreement with the IMF.
Ethiopia liberalized its telecoms sector in 2022, with a Safaricom-led consortium from Kenya launching the first foreign network.
The state-owned Commercial Bank of Ethiopia is the largest bank in the country by assets and deposits, dominating the banking sector.
Opening Ethiopia’s banking sector is a necessity driven by economic hardship. Since 2018, foreign direct investment has plummeted due to conflict, policy instability, and mismanagement, fueling inflation.
The July 2024 devaluation of the birr, part of an IMF reform program, resulted in a 30% decline against the dollar, leading to increased import costs and poverty. Compounded by ongoing debt restructuring negotiations on an $8.4 billion external debt, the banking sector opening offers a critical lifeline.
Foreign banks offer capital, expertise, technology, and enhanced confidence. Ethiopia hopes their entry will attract investment and restore investor trust.
