Ethiopia Parliament gives nod for entry of foreign banks

Ethiopia’s Parliament has approved a bill allowing foreign banks to establish operations in the country, paving the way for the long-awaited expansion of regional lenders into East Africa’s most populous market.

The new law permits external lenders to open branches and subsidiaries in Ethiopia or acquire shares in existing local banks.

However, it caps the aggregate ownership stake of foreign nationals or foreign-owned Ethiopian organizations in local banks at 40 percent.

Ethiopia’s cabinet approved the banking bill in June as part of broader efforts to open the country’s economy to foreign investments.

In 2023, the government announced plans to issue up to five banking licenses to foreign investors over a five-year period.

Last week, Ethiopia’s central bank governor, Mamo Mihretu, told delegates at the Africa Financial Summit (AFIS 2024) in Casablanca, Morocco, that the regulator expected the new banking law to be approved by the end of the week.

Currently, 32 commercial banks operate in Ethiopia. According to the latest statistics from the National Bank of Ethiopia, the monetary regulator, these banks hold deposits worth Sh42.456 trillion and a loan book totaling Sh37.758 trillion.

Ethiopia’s market had largely been closed to external investors but began to ease restrictions in 2019 through an economic reform agenda, supported by the International Finance Corporation of the World Bank.

Since then, the government has allowed foreign participation in the telecommunications sector and implemented monetary reforms, including introducing a flexible exchange rate for its Birr currency earlier this year, as part of conditions for securing a loan from the International Monetary Fund (IMF).