Banking reforms are often loudly heralded, but slow to have any real impact. Yet the deregula- tion measures implemented in Ethiopia since 2018 are already helping to both attract foreign invest- ment in the sector and drive growth in established Ethiopian banks. As a result, six Ethiopian banks were included in the recent African Business Top 100 African Banks table, up from five last year and just two in 2022.

Three of the fastest-growing African banks are in Ethiopia, with Awash Inter- national Bank moving up 18 places in the Top 100 rankings to 50th place, Dashen Bank up 16 positions to 87th and the Bank of Abyssinia up 17 to 89 . However, the biggest Ethiopian bank remains Com- mercial Bank of Ethiopia, which comes in as the 29th biggest bank in Africa, still far lower down the table than the size of the country’s population and economy would justify.

Nevertheless, the growth of Ethiopi- an banks as a whole is helping to make Eastern Africa the fastest growing bank- ing region on the African continent when measured by Tier 1 capital.

Banking penetration rates in the coun- try are currently fairly low, with only 46% of Ethiopian adults holding a bank or mo- bile money account in 2022, compared with nearly 80% in Kenya, according to World Bank data. However, access is im- proving, including through some inter- esting innovations devised by Ethiopian banks.

The newest Ethiopian entry into the Top 100 Banks is Cooperative Bank of Oromia, which continues to focus on its core demographic of serving small and medium-sized farmers, plus other parts of the agricultural supply chain. Although just 20 years old, it now has 745 branches and is leveraging this network to promote digital banking.

Many of its customers live in areas without access to electricity and internet access, so it is providing access to both via its low-cost branch solutions. About half of its branches are converted containers, many of which are equipped with solar and wind power to provide customers with access and training on using digital bank services. Its customer base has grown rapidly, from 700,000 to 13.2m over the past nine years, allowing it to start to compete with the country’s biggest banks.

Banking sector opens up

In December, the Ethiopian parliament finally passed long-heralded legisla- tion to allow foreign banks to operate in the country. Foreign banks can now set up their own subsidiaries for the first time since they were banned in 1974 and can take stakes of up to 40% in established local banks.

The National Bank of Ethiopia (NBE) has also scrapped the previous require- ment for lenders to deposit 70% of their foreign exchange inflows with the central bank.

Protected sectors have gradually been opened up to greater foreign involvement and competition since Prime Minister Abiy Ahmed came to power in 2018, although progress has been stop-start since then. Foreign interests were allowed to invest in the telecoms sector from 2022, allowing a consortium led by Safaricom of Kenya to launch the first foreign mobile network.

However, economic and security chal- lenges have somewhat slowed the pace of reform. For instance, the government was forced to allow the national currency, the birr, to float in July 2024 in return for $3.4bn in IMF financing after defaulting on debt repayments and it is now seeking to restructure $8.4bn in debt in talks with creditors. The birr has thus far lost about a third of its value against the dollar but the IMF deal also triggered support from the World Bank. The December 2023 default was triggered by foreign exchange short- ages and high inflation following the civil war in Tigray, plus other internal conflicts in Amhara and Oromia.

Ethiopia now has a market-based for- eign exchange regime for the first time in 50 years, increasing the availability of foreign exchange and driving up the NBE’s foreign reserves. Wider financial reforms include the launch of the Ethiopian Se- curities Exchange in January. Although it still only has three listed companies, two of these are banks: Wegagen Bank and Gadaa Bank, with Ethio Telecom the third listing to date.

Foreign investment

Kenyan banks have been among the most interested in entering the Ethiopian mar- ket, including KCB Group, which has had a representative office in Addis Ababa since 2015 and which may buy an existing op- erator. Kenya’s Equity Bank also held talks with the Ethiopian Investment Commis- sion in September to discuss how it could enter the market.

Other foreign banks to have expressed an interest include the biggest bank in neighbouring Djibouti, Banque pour le Commerce et l’Industrie Mer Rouge (BCIMR) and South Africa’s Standard Bank, while banks from Morocco and the United Arab Emirates are also reported to be among those considering investing.

NBE officials have suggested that up to five licences will be issued to foreign banks over the next few years but it re- mains to be seen if this figure is set in stone and the precise terms of market entry will determine the level of foreign involvement.

The restriction on foreign investors taking majority stakes in Ethiopian banks could be a stumbling block, with some potential suitors believed to be interested in securing an exemption to allow them to take overall control. It will be interest- ing to see whether the entry of foreign players into the sector will prompt any consolidation of Ethiopian banks, given that there are currently 29 licensed lend- ers in the country.

Even within Eastern Africa, Equity Bank and KCB are both bigger than any Ethiopian banks and have more experience operating in more open, competitive mar-kets. Unlike their Ethiopian counterparts, they have also gained plenty of experience of operating in different countries.

There are obviously fears that Ethio- pian banks will not be able to compete with larger, foreign competitors moving into the country but Mamo Mihretu, who was governor of the NBE until Septem- ber, said that the reforms would actually strengthen local lenders.

The NBE announced in June 2025 that it was ready to start accepting applications for banking licences from foreign parties but Mihretu was replaced in September by Eyob Tekalign, who had been State Minister of Finance since 2018 and already sat on the NBE board.

Huge pull factors for investors

The Ethiopian economy has grown by an incredible average of 9% a year over the past two decades but tight state control over key parts of the econo- my, including the banking sector, has stymied investment and expansion. Yet it is hoped that the recent reforms will open the floodgates on potential growth in Ethiopia’s financial services sector.

Growth is expected to remain strong, with the IMF projecting an average annual increase in GDP of 7.4% between 2025 and 2030.

The NBE has sought to prioritise price stability, including by setting up a Mon- etary Policy Committee and implementing liquidity management mechanisms with commercial banks. In an interview in May with the IMF, Mihretu said: “After two decades of sustained economic growth, primarily driven by public investment, Ethiopia faced unsustainable macroeco- nomic imbalances. The state’s reliance on external creditors, the large public bank and NBE led to foreign exchange shortages, limited access to credit for the private sector, high inflation, financial stability risks, and debt vulnerabilities.” Inflation has fallen from a peak of 33.9% at the end of 2023 but still stood at 13.6% in August 2025.

Another attraction for both domestic and foreign banks is the sheer size of the country’s enormous potential market. The population has leapt from 30m in 1980 to 135m this year, making it Africa’s second- most populous country, and is forecast by the United Nations to exceed 225m by 2050 and 323m by 2100. Some strands of national infrastructure, including in the rail, power and water sectors, have been greatly upgraded in recent years, lifting the country’s long-term growth potential. 

© Copyright IC Publications 2022 Provided by SyndiGate Media Inc. (Syndigate.info).