Ethiopia will allow foreign banks to tap into the country’s financial sector by setting up subsidiaries, branches or representative offices.
- The ratification of the law in the Ethiopian parliament comes days after the governor of the National Bank of Ethiopia (NBE), Mamo Mihretu, assured attendees of the Africa Financial Summit (AFIS 2024) that the country was finalizing the process.
- During the event, which was convened in Casablanca, Morocco – Mihretu urged foreign banks to seize the opportunity, which would give them market access to 120 million people in the region’s largest economy.
- According to the Reporter Ethiopia, after the government announced it would issue up to five banking licenses to foreign investors over a five-year period in June 2023, some foreign banks had already expressed interest including Kenya’s KCB Bank and Standard Bank.
The new proclamation will also allow foreign banks to buy and own shares in local banks. According to the legislation, strategic investors will be allowed to hold up to 30% of a bank’s total shares while foreign individuals can hold up to 5%. Moreover, foreign juridical persons will be permitted up to 10%. The total foreign shareholding in domestic banks is permitted up to 40%.
The proclamation allows foreign banks to employ foreign nationals as senior executives but mandates that resident Ethiopians must be included in their boards. The law also tethers foreign banks to either take deposits wholesale or operate as non-deposit-taking entities. Investments from these banks will be made in foreign currency to boost the country’s Foreign Direct Investment (FDI).
Ethiopia has over 30 local banks with a total capital of US$2.4 billion. The state-owned Commercial Bank of Ethiopia (CBE) is the only large bank, holding 21.5% of the combined capital. Despite being Eastern Africa’s largest economy, Ethiopia’s banking system remains less innovative and underdeveloped. This has stifled competition and stagnated the quality of services offered to customers.
Since 1975 when the Communist government took over the country, the banking sector was sealed off foreigners as the nationalization process began. The new law further cements the country’s commitment to liberalize its economy. It promises to attract new capital and innovation in the financial sector – proving advantageous to both investors and the citizens.
