After decades of closure, Ethiopia has formally opened its banking sector to foreign players, marking one of the most significant policy shifts in the country’s modern economic history. On Wednesday, the National Bank of Ethiopia (NBE) issued a long-anticipated directive that lays out the licensing framework for foreign banks and investors looking to tap into Africa’s second-most populous nation.
The announcement brings to life a reform first promised in 2018 under Prime Minister Abiy Ahmed’s administration, part of a broader agenda to liberalise Ethiopia’s tightly controlled economy. The new rules permit foreign banks to set up subsidiaries, branches, joint ventures, or representative offices — a landmark change in a market long dominated by state-owned and local private banks operating behind a regulatory wall.
Yet while the door is now open, Ethiopia has made sure it retains the keys.
A Carefully Choreographed Opening
The new directive follows a series of preparatory reforms, including the passage of a revised Banking Business Proclamation and extensive consultations with both domestic and international stakeholders. As of today, the central bank will begin accepting formal licence applications from foreign entities.
But this isn’t a free-for-all. The rules are exacting, and the costs of entry are deliberately high.
Under the NBE’s new framework, foreign banks must meet some of the steepest capital requirements on the continent. A subsidiary or branch will need a minimum paid-up capital of 5 billion birr (around $38.5 million), more than double the requirement in peer markets like Kenya ($20m) or Nigeria ($16m). Even representative offices — which cannot accept deposits or lend — must deposit $100,000 to the NBE as a form of security.
Beyond capital, banks must also pay licensing and investigation fees totalling over $6,000, and commit to ongoing annual fees. Operational requirements add further layers of complexity: vaults must meet specific volume criteria, disaster recovery sites must be located 40km from head offices, and customer data must be stored locally — a challenge for international firms reliant on global cloud infrastructure.
Board composition also matters. One-third of the directors in a foreign-owned bank must be Ethiopian nationals, underscoring the government’s intent to keep decision-making at least partially local.
The central bank has framed the reforms as a measured opening aimed at improving access to finance, boosting service delivery, and attracting long-term capital to modernise a sector that serves just a fraction of the population. According to the World Bank, nearly two-thirds of Ethiopians remain unbanked.
Still, the liberalisation effort comes with strong caveats.
Foreign ownership in domestic banks is capped at 49%, and no single entity can hold more than 10% of shares — unless designated a “strategic investor,” in which case the ceiling rises to 40%. Foreign bank branches are restricted from simultaneously operating deposit-taking and non-deposit operations.
“It’s clear that Ethiopia wants the capital, expertise and tech from foreign players,” says one Addis Ababa-based financial analyst, “but on terms that prevent foreign control and shield the local industry from being outcompeted too quickly.”
That protectionist instinct reflects longstanding fears of capital flight, regulatory arbitrage, and foreign dominance in a sector that still relies heavily on the state-owned Commercial Bank of Ethiopia.
High Interest, but Will Anyone Apply?
While no major international banks have yet confirmed formal applications, some have already expressed interest. Kenya’s KCB Group and South Africa’s Standard Bank have previously signalled intent, while institutions from Egypt and the UAE are seen as likely early entrants due to close diplomatic and commercial ties.
Still, the cost and complexity of compliance may deter all but the most determined players.
“The entry bar is high,” says an East Africa-focused banking consultant. “Unless you’re a top-tier global lender or a Gulf bank with strategic interest in Ethiopia, you’ll think twice.”
The NBE has promised a 90-day timeline for processing applications — a relatively quick turnaround by African standards. But observers will be watching how implementation plays out, especially in areas like foreign exchange controls, profit repatriation rules, and supervisory consistency.
The timing of the banking reform is also politically and economically significant. It comes amid a turbulent macroeconomic backdrop: Ethiopia is battling high inflation, persistent foreign exchange shortages, and ongoing negotiations with the International Monetary Fund.
In 2023, the government allowed the birr to float more freely, leading to sharp depreciation but narrowing the gap between the official and parallel market rates — a prerequisite for further IMF engagement. Privatisation plans for state-owned enterprises are also underway, including a stalled second attempt to sell a stake in Ethio Telecom.
Whether foreign bank entry can catalyse deeper capital markets and bring real competition to Ethiopia’s banking landscape remains to be seen.
The Bottom Line
Ethiopia’s banking sector is finally open — but the entry price is steep, and the conditions strict. While the reforms mark a significant break from the country’s closed past, they also reflect a clear strategy: control the pace and nature of foreign participation, while preserving domestic influence.
For global banks seeking long-term exposure to a fast-growing, underbanked market, the opportunity is real. But it’s not for the faint-hearted. Ethiopia is offering access on its own terms — and it’s now up to the market to decide if the game is worth the gamble.