Ethiopia has set up plans to liberalize its banking sector, opening up the space for Kenya’s KCB and Equity Group- the two lenders on an aggressive regional expansion campaign.
A Committee picked to liberalise Ethiopia’s banking sector has already hit the ground running to amend the country’s moribund financial code that has been in place for the past half a century.
A new code guiding the country’s banking sector will allow the opening up of the financial industry, the head of the committee was quoted saying.
This Committee’s work plan states the first draft of the financial services code must be ready by December 2022.
Led by Alemante Agidew, Legal and Justice Service Division State Minister at the Ethiopian Ministry of Justice, the committee convened at Hyatt Regency Hotel on March 17, 2022, in Addis.
“The new code is necessitated to cope with the new direction the economy is going in. This includes a capital market and opening up the economy to foreign players,” said Alemante in an interview with one Ethiopian media.
The new Financial Service Code will determine engagement modalities of foreign banks in Ethiopia’s financial industry.
Equity Group and KCB Group, which have expressed ambitions to run fully-fledged operations in Ethiopia, are among lenders that are excited by the latest development in Addis Ababa.
Ethiopia allowed the establishment of private banks and insurance companies in 1994 but does not yet permit foreign ownership in this sector.
The Ethiopian banking sector currently comprises a central bank (The National Bank of Ethiopia or NBE), one state-owned development bank, a government-owned commercial bank and sixteen private banks.
Kenyan banks have been salivating at the 110 million Ethiopian solid population, the second-largest in Africa and low penetration of banking services, immense opportunities yet to be exploited.
Available figures indicate that a paltry 15% of Ethiopians have a bank account.
Ethiopia has allowed a few foreign banks to set up open liaison offices in Addis Ababa but can only facilitate credit to companies from their countries of origin.
The list of Chinese, German, Kenyan, Turkish, and South African banks have opened liaison offices in Ethiopia.
State-owned Commercial Bank of Ethiopia (CBE) is the most dominant in terms of branch network, balance sheet size and deposits, and the workforce.
Development Bank of Ethiopia (DBE), another state-owned entity, gives short, medium and long term credit to investors engaged in development projects, including industrial and agricultural.
But DBE has been crippled for years by huge non-performing loans, inefficiency and state-sponsored theft.
The institution has thus become a target of Ethiopian Prime Minister Abiy Ahmed Ali and is now undergoing an extensive restructuring process.