Ethiopia has announced plans to permit foreign banks from friendly nations to invest in its financial sector, representing a significant shift in the country’s banking policy. However, the highly anticipated bill, revised two months ago, has yet to be officially published.
Under the newly adopted banking business proclamation, international banks will be allowed to re-enter the Ethiopian market through various operating schemes.
This proclamation, ratified by parliament in mid-December 2023, includes key provisions aimed at enhancing the financial sector.
The law will only take effect once it is published in the Negarit Gazeta, the official decree gazette, and detailed directives are issued.
According to Mamo Esmelealem Mihretu, Governor of the National Bank of Ethiopia (NBE), this process could take anywhere from three months to a year.
In an interview with Zemen Economy, a state-owned media outlet, Governor Mamo emphasized the importance of international banking investors having a solid reputation.
He also highlighted that the countries of origin must maintain positive diplomatic relations and cooperate with Ethiopia. “The countries’ authorities should have readiness to collaborate with the NBE,” he added.
The 2022 policy framework outlines specific requirements for foreign banks wishing to establish a presence in Ethiopia. For example, a foreign bank seeking to set up a subsidiary must obtain formal approval from its home country’s regulatory authority for supervisory cooperation. Similarly, a foreign bank planning to open a branch must secure written authorization from its home country’s supervisor.
The amended proclamation, dated December 17, 2023, also emphasizes cross-border cooperation. It allows the NBE to enter into agreements with domestic or international regulatory bodies to coordinate supervision, share information, and manage financial crises.
Additionally, the proclamation stipulates that the NBE must maintain confidentiality regarding information received from foreign authorities unless disclosure is legally required or necessary to protect the NBE’s interests in legal proceedings.
This policy shift marks a key milestone in Ethiopia’s strategy to integrate its banking sector into the global financial system. The government has announced its intention to grant up to five banking licenses to foreign investors over the next five years.
Foreign banks will have four modes of entry: establishing a subsidiary, opening a branch, setting up a representative office, or acquiring shares in new or existing domestic banks.
As Ethiopia awaits the final directive, this move is expected to attract significant interest from international investors.
According to Mamo, several international banks are expressing interest in investing in the Ethiopian banking industry.
This shift comes nearly five decades after foreign banks were last permitted to operate in the country, prior to the rise of a communist-led government in 1974.
