Foreign Lenders Keen to Enter Ethiopian Banking Sector

The Council of Ministers of Ethiopia, which is one of the fastest growing markets in Sub Saharan Africa, has cleared a legislation liberalising its banking sector to allow foreign banks to enter the country and the proposed Banking Business Proclamation Bill has been sent to the Parliament for its ratification.

“The Council of Ministers has approved the draft National Bank of Ethiopia (NBE) Proclamation and Banking Business Proclamation. The draft proclamations will shortly be referred to the House of Peoples Representatives for review, comment and final ratification,” said NBE in a statement in June.

Subsequently, Ethiopia’s Capital Market Authority announced that it will accept applications for investment banking licenses, signalling a pivotal moment for foreign financial institutions seeking entry into the Ethiopian market.

Taking advantage of the government’s decision, banks from the UAE, South Africa, Morocco, Kenya and others are eyeing to enter the Ethiopian market as the country is largest and most untapped banking markets in the continent.

A report published in Ethiopia’s English daily Capital said that only 45% of the 120 million+ people, the second largest in Africa after Nigeria, have access to traditional banking services and Ethiopia’s untapped market for digital financial solutions is vast.

The rise of fintech innovations, mobile money platforms, and partnerships with telecom operators like Ethio Telecom promises to bridge these gaps, bringing digital services to the masses, the report said.

According to World Bank’s Findex report, Ethiopia’s financial inclusion rate has steadily climbed, reaching 46% in 2022 with over 150 million transaction accounts, including 60 million mobile money accounts.

Though this progress can be described as a significant milestone, Ethiopia still lags behind the global average of 76% financial inclusion. However, the National Bank of Ethiopia has set ambitious goals to close this gap, aiming for 70% adult account ownership by 2025. It’s an ambitious target, but with the right policies, partnerships, and innovations, it is within reach.

Foreign Banks’ Ambitions

South Africa’s Standard Bank has announced in June this year that it was planning to enter the Ethiopian banking market. Standard Bank’s decision to apply for an investment banking license in Ethiopia reflects its recognition of the country’s potential as one of the largest untapped markets in Africa.

The lenders from the UAE, Kenya and Morocco too have evinced interest in Ethiopian banking sector for their own reasons.

The UAE, which is a major global financial centre, aims to strengthen trade and investment ties in Africa and the Emirates-based banks and financial institutions are well-capitalised, bringing global experience and financial innovation to Ethiopia.

In fact, Ethiopia is a considered as a critical partner to the UAE and the Arab nation wants to explore investments in various sectors such as agriculture, banking, logistics, and infrastructure. The UAE’s entrance into Ethiopia’s banking sector signals a broader investment strategy, fostering economic cooperation between the Middle East and Africa.

The decision to liberalise Ethiopian banking sector has cleared decks for Kenya’s lenders such as KCB Group, Equity Bank and Co-operative Bank of Kenya to establish full operations in the country for the first time. The Kenyan banks are expected to leverage their expertise to tap into Ethiopia’s vast unbanked population.

Morocco, which has been steadily expanding its banking footprint across sub-Saharan Africa, and its financial institutions such as Attijariwafa Bank and Banque Centrale Populaire, have already made their presence felt globally and Ethiopia is another destination for them.

According to the Capital report, by establishing a presence in Ethiopia, Moroccan lenders can deepen their influence in East Africa, contributing to greater financial inclusion and regional economic cooperation. For Morocco, Ethiopia presents both a market opportunity and a strategic gateway to broader East African expansion.

As part of its broader financial reforms, Ethiopia recently repealed a surrender provision that required banks to deposit 70% of foreign currency inflows with the central bank, which was revised to 50% subsequently.

This change has unlocked greater flexibility for banks, enhancing their ability to support trade and investment. The NBE’s foreign exchange reserves have surged by 152%, and remittances through the Commercial Bank of Ethiopia have increased by 60% y-o-y.