Ethiopia’s newly proposed directive on banking licensing and renewal reinstates a three-year-old policy framework governing the re-entry of foreign banks into the country. However, financial experts caution that the mandated capital requirements may deter potential investors from entering the Ethiopian market.
The draft directive, issued this week for public consultation, states that foreign bank subsidiaries and branches seeking to operate in Ethiopia must meet the same minimum paid-up capital threshold set by the National Bank of Ethiopia (NBE) for domestic banks.
This requirement aligns with the “Policies and Strategies: Investment of Foreign Nationals in the Ethiopian Banking Sector,” a document approved by the Council of Ministers nearly three years ago, which signals the government’s intent to reopen the financial sector to international players after decades of restrictions.
Under this policy, foreign entrants must provide a foreign currency equivalent of at least five billion birr, the current minimum capital requirement for domestic banks.
The document explicitly states: “Initially, the minimum capital requirement for a subsidiary of a foreign bank shall not be less than the current minimum capital requirement for a domestic bank.”
While this amount was anticipated, analysts argue that it could discourage potential investors, particularly from economies comparable to Ethiopia’s.
One expert noted, “The NBE’s proposed capital requirement is substantial, and it may dissuade foreign banks, especially those from peer economies, from entering the market.”
The draft directive also revises shareholding limits, increasing the maximum allowable stakes for different investor categories: natural persons and juridical persons can hold up to 7% and 10%, respectively, up from the previous 5%.
Strategic investors, defined as foreign banks or institutional entities, may hold up to 40%, with aggregate foreign ownership capped at 49%.
A strategic investor is characterized as a foreign bank or banking group with a strong reputation, a government-owned bank, an international development finance institution, or a private equity fund meeting the NBE’s vetting criteria.
Additionally, the directive implements further restrictions: natural persons (individually or collectively) may hold a maximum of 15% of a bank’s total shares, while juridical persons can hold up to 20%. The combined holdings of natural and juridical persons cannot exceed 20%.
Foreign banks seeking to invest in Ethiopia must also possess a favorable credit rating from internationally recognized agencies, ensuring that only well-established institutions enter the market.
This directive represents a significant step in modernizing Ethiopia’s banking regulations, aiming to balance openness to foreign investment with safeguards for financial stability and domestic control. However, its success will depend on clear communication, consistent enforcement, and ongoing engagement with industry stakeholders.
While the policy seeks to attract reputable global players, the high capital threshold remains a contentious issue, potentially limiting the pool of foreign banks willing—or able—to enter Ethiopia’s financial sector.
