Ethiopia will allow foreign banks to enter the country’s financial market by establishing subsidiaries, branches, or representative offices.
Just days before the Ethiopian monetary policy committee meeting approved the policy, National Bank of Ethiopia (NBE) Governor Mamo Mihretu assured participants at the African Financial Summit (AFIS 2024) that the country has completed the process.
Speaking at the event held in Casablanca, Morocco, Mihretu called on foreign banks to seize the opportunity that would allow them to enter the largest economic region of 120 million people.
According to Ethiopian journalists, several foreign banks, including Kenya’s KCB Bank and Standard Bank, have expressed interest following the government’s announcement that it would grant five banking licenses to foreign investors within five years from June 2023.
According to the new policy, investors can own up to 30 per cent of the bank’s total capital, while foreigners can own up to 5 per cent. The foreign share can also be up to 10 percent. Total foreign participation in domestic banks cannot exceed 40 per cent.
Also, it foreign banks to hire foreigners as senior managers but requires Ethiopians to serve as directors. The law also prohibits foreign banks from making wholesale deposits or engaging in non-deposit activities. These banks’ investments will be in foreign currency to encourage foreign direct investment (FDI) in the country.
There are more than 30 local banks in Ethiopia with a total capital of US$2.4 billion. The State Bank of Ethiopia (CBE) is the only major bank with 21.5% of the total capital. Despite being the largest economy in East Africa, Ethiopia’s banking system is still relatively new and inadequate. This stifles competition and reduces the quality of customer service.
The banking sector has been closed to foreigners since the communist government took over the country in 1975, with the start of the nationalization process. This new law strengthens the country’s commitment to trade liberalization. It promises to attract new capital and innovation in finance, which will benefit investors and citizens.
