• Foreign banks can now apply for licenses to operate in Ethiopia

• New law allows foreign stakes in local banks, capped at 49%

• Reform is part of wider liberalization under Prime Minister Abiy Ahmed

Foreign banks and international investors can now apply for banking licenses in Ethiopia, the National Bank of Ethiopia (NBE) announced on Wednesday, June 25.

“The Ethiopian banking sector is now officially open to foreign participation, and the National Bank of Ethiopia will begin accepting applications from foreign banks and investors effective immediately,” the central bank said in a statement.

Foreign investors will be allowed to set up subsidiaries, branches, or representative offices, in line with the “Banking Business Proclamation” passed by Parliament in December 2024. The law also permits foreign investors to acquire shares in local banks.

However, safeguards have been introduced to protect national interests. Foreign ownership in local banks is limited to a maximum of 49%, with at least 51% of shares required to remain under Ethiopian control.

The NBE expects that opening the banking sector to foreign players will “attract more capital, improve service quality, and enhance the efficiency and inclusiveness of the sector.” Ethiopia’s banking industry currently includes 32 institutions, dominated by the state-owned Commercial Bank of Ethiopia (CBE), which holds about 22% market share.

Five private banks, including Awash, Abyssinia, and Dashen, are considered medium-sized lenders. The remaining 26 banks are classified as small credit institutions.

The decision to open the banking sector forms part of a broader economic liberalization program launched by Prime Minister Abiy Ahmed in 2018. His reforms include currency exchange liberalization, the creation of a stock exchange, full removal of foreign exchange restrictions in special economic zones, and the liberalization of the telecommunications sector.

The removal of barriers for foreign banks has been awaited for several years by major African banks, including Standard Bank of South Africa, Commercial International Bank of Egypt, and Kenya Commercial Bank. Ethiopia is the second most populous country in sub-Saharan Africa, with a population of 120 million.