• Ethiopia to open banking sector to foreign investors, allowing up to 49% ownership while maintaining domestic control.
• New NBE directive sets strict limits: 7% for individuals, 10% for firms, and up to 40% for strategic investors.
• Investments must be in hard currency, with strict reporting and KYC rules to ensure transparency and financial stability.

The National Bank of Ethiopia (NBE) has published a draft directive titled “Equity Investment by Foreign Nationals and Foreign-Owned Ethiopian Organizations in Banks”, setting out the conditions under which foreign participation will be permitted for foreign investors in local Bank.

The move follows the adoption of the Banking Business Proclamation No. 1360/2025, which formally authorized foreign equity participation in the country’s banking sector. The draft directive, released in October 2025, provides the detailed framework that will govern the entry of international investors once it becomes effective later this year.

According to the proposed rules, foreign ownership in any Ethiopian bank will be capped at 49 percent of total subscribed capital. This ceiling is intended to ensure that control of domestic banks remains in Ethiopian hands. Within that limit, an individual foreign investor will be allowed to own up to 7 percent, while a foreign company may hold a maximum of 10 percent. Strategic investors — defined as reputable international banks, state-owned financial institutions, or development finance entities — will be allowed to acquire up to 40 percent of a bank’s shares. The directive also limits aggregate holdings by multiple foreign investors to ensure the 49 percent threshold is not exceeded.

All foreign investments must be made in acceptable foreign currencies, specifically the US dollar, euro, or British pound, and all payments must pass through the formal banking system. Profits, dividends and proceeds from share sales may be repatriated abroad in accordance with Ethiopia’s foreign exchange regulations. However, the directive prohibits the use of informal payment methods, such as undeclared cash or untraceable transfers, to prevent money laundering and ensure transparency.

The directive distinguishes between foreign nationals and foreign nationals of Ethiopian origin. Members of the Ethiopian diaspora who hold the official identification card provided under Proclamation No. 270/2002 may choose to be treated as domestic investors if they make their investments in Ethiopian birr. In such cases, they are not subject to the 49 percent foreign ownership limit, but their profits cannot be repatriated in foreign currency. This provision is intended to encourage diaspora investment while maintaining foreign exchange reserves within the country.

Any foreign acquisition that results in “significant ownership” — defined as a stake of two percent or more — must receive prior approval from the NBE. Smaller transactions that do not reach that threshold must still be reported quarterly. The directive also includes strict rules governing the transfer of shares, prohibiting donations of bank shares to foreign nationals and requiring all sales to be conducted at a price not below par value. Share transfers through inheritance are permitted under regulated conditions.

The NBE will require all banks to conduct Know Your Customer (KYC) checks on foreign investors and to submit detailed quarterly reports on foreign equity participation. These measures are designed to enhance transparency and ensure that ownership structures are traceable and compliant with the law.

The proposed directive replaces the 2020 regulation, which allowed only foreign nationals of Ethiopian origin to hold shares in local banks. By expanding eligibility to all foreign nationals, the new framework marks a significant liberalization step, albeit one tempered by tight controls on ownership, payment methods, and reporting obligations.

This cautious approach reflects Ethiopia’s broader economic reform strategy, which seeks to attract foreign investment without compromising domestic control of key sectors. The government expects that allowing foreign equity participation will help strengthen the capital base of local banks, bring in modern technology, and improve governance practices. However, by maintaining the 49 percent ceiling and strict supervisory powers, the NBE aims to safeguard the stability and sovereignty of the national financial system.

Idriss Linge