(Ecofin Agency) - The liberalization of Ethiopia’s banking sector, promised in early 2022 by Prime Minister Abiy Ahmed, is eagerly awaited by many African banks, including South Africa's Standard Bank and Kenya's KBC Group.

Ethiopia will grant three to five banking licenses to foreign investors over the next five years as part of a program to open up the financial services sector to foreign competition, the central bank announced on Wednesday, May 3.

“We will give three to five licenses within five years,” Solomon Desta, vice governor of the National Bank of Ethiopia, told reporters.  

He added that foreign investors would have many options to enter the sector, including forming joint ventures with domestic players or setting up local subsidiaries.

Apart from the licenses, foreign banks will be allowed to acquire up to 30% stake in Ethiopian banks, according to an official document on the new Ethiopian banking sector liberalization policy adopted by the Council of Ministers in September 2022.

With an additional 5% stake allowed for foreign individuals and a similar additional stake allowed for foreign non-bank, the maximum stake that local banks can cede to foreign investors is capped at 40%, according to the same document. 

The liberalization will become effective after Parliament passes the new Banking Business Proclamation, which is expected to be passed by the end of 2023.

In February 2022, Prime Minister Abiy Ahmed (photo) announced that Ethiopia would allow foreign investors to acquire stakes in local banks.  "...The government is now preparing [...] an amendment to the banking policy that allows foreign investors to take shares in banks. Once the preconditions are met and the banks are prepared, we will implement it," he said.

Many African banks have been expecting that liberalization for years. In anticipation, Standard Bank (South Africa), Commercial International Bank (Egypt) (CIB), and Kenya Commercial Bank (KBC) have even opened representative offices in the country. 

With a population of about 114 million, Ethiopia has 29 commercial banks, but the market is dominated by the state-owned Commercial Bank of Ethiopia, which claims 16 million clients and has total assets of 948.1 billion birr (about $17.7 billion).