In a historic move that marks a turning point in Ethiopia’s economic trajectory, the country’s central bank has issued a long-anticipated directive allowing foreign banks and investors to formally enter its financial sector. This development is a cornerstone of Ethiopia’s broader economic liberalization agenda and follows the ratification of a new banking law by parliament in December 2024.
This is the first time Ethiopia has opened its banking system to foreign financial institutions since the sector was nationalized under the Derg regime in 1974. Despite being the most populous country in East Africa—with over 128 million people—and boasting the region’s largest economy by GDP, Ethiopia has long maintained a closed and tightly regulated banking environment. Analysts believe this reform could unlock significant capital inflows, enhance competition, and catalyze the modernization of a sector still dominated by the state-owned Commercial Bank of Ethiopia.
The National Bank of Ethiopia (NBE) published the new licensing directive on Wednesday, June 25, providing a clear regulatory framework for foreign participation. Under the new rules, foreign banks can now:
- Establish fully owned subsidiaries,
- Open local branches,
- Set up representative offices, and
- Acquire equity stakes in existing Ethiopian banks.
Ownership limits have been set to ensure balanced participation: individual foreign investors may hold up to 30% in a local bank, while total foreign ownership is capped at 40%. The NBE emphasized that this reform is part of a carefully sequenced strategy aimed at expanding financial inclusion and attracting global expertise to a market with immense untapped potential.
The central bank stated in its directive:
The Ethiopian banking sector is hereby open for foreign participation, and applications by foreign banks and investors can be submitted to NBE from today onwards.
A notable change in the directive is the formal regulation of representative offices, which will now fall under the direct licensing and supervisory authority of the NBE for the first time. This announcement follows months of anticipation and public statements from senior officials, including NBE Governor Mamo Mihretu, who recently indicated that foreign banks could begin operations in Ethiopia before the end of 2025.
Several international banks, including Kenya’s KCB Group and South Africa’s Standard Bank, have previously expressed interest in entering the Ethiopian market once the regulatory environment permitted. The NBE has stated that it will issue a limited number of licenses—up to five over the next five years—to ensure a measured and sustainable integration of foreign players.
This reform aligns with Ethiopia’s broader economic overhaul, which includes ongoing debt restructuring negotiations and a $3.4 billion agreement with the International Monetary Fund (IMF). Together, these efforts signal a strong commitment to revitalizing the country’s economy and integrating more deeply into the global financial system.
