In my previous articles for The Weekly Capital, I’ve explored various branding and business topics, including ‘The Misconceptions About Branding,’ ‘The Basics of Successful Branding,’ ‘Why Brands Matter,’ ‘Can Anything Be Branded?,’ ‘How to Choose the Right Logo for Your Business,’ ‘Amplifying Brands: The Power of the Right Brand Ambassador,’ ‘The Hospitality Culture of Ethiopia and Its Potential for Business Success,’ ‘The Power of Personal Branding in Driving Success,’ and ‘Ethiopia’s Digital Banking Revolution and South Africa’s ATM Decline.’​
Building upon my ongoing exploration of banking issues, this article delves into the current and pressing topic of mergers and acquisitions (M&A) in Ethiopia’s banking sector, titled ‘The Impact of Mergers and Acquisitions on Ethiopia’s Banking Sector.’
The Impact of Mergers and Acquisitions on Ethiopia’s Banking Sector
In Ethiopia’s dynamic banking sector, the National Bank of Ethiopia (NBE) has set a goal for all banks to increase their paid-up capital to 5 billion Birr by the end of June 2026. This aims to strengthen Ethiopia’s banking system and ensure its stability and competitiveness. For the 32 banks currently operating in Ethiopia, this capital requirement will likely lead to a wave of mergers and acquisitions (M&A), especially among smaller banks that are unable to meet the capital target.
Merger and Acquisition (M&A): A Catalyst for Transformation
Before diving into the impact of this regulatory change, let’s first understand what mergers and acquisitions (M&A) are, as well as the forms and types of M&A that are commonly applied in the banking sector.
What is a Merger?
A merger is a process in which two or more companies of similar size combine to form a new, single entity. The aim is typically to create synergy, reduce costs, increase market share, and enhance competitive positioning. In a merger, both companies agree to join their resources, and the resulting organization may adopt a new name or retain the identity of one of the companies involved.
What is an Acquisition?
An acquisition occurs when one company buys another, usually by purchasing its shares or assets. The acquiring company assumes control of the target company, which may continue to operate under its original name or be absorbed into the acquirer’s brand. Unlike mergers, acquisitions often involve a larger company taking control of a smaller one.
Forms and Types of Mergers and Acquisitions (M&A)
The main types of M&A include:
Horizontal Merger: Companies in the same industry and at the same production stage combine. This type aims to increase market share, reduce competition, and gain economies of scale. Example in banking: Two similar-sized banks merge to increase their customer base and market power.
Vertical Merger: Involves companies at different stages of production within the same industry. This could help secure supply chains or enhance distribution channels. Example in banking: A bank acquiring a technology company to improve its digital capabilities.
Conglomerate Merger: Companies in different industries merge to diversify their operations, which reduces risk. Example: A bank merging with a real estate company to offer a wider range of financial products.
Congeneric Merger: This type occurs between companies that operate in the same industry but do not offer identical services. It creates synergies by combining complementary resources. Example: A bank merging with an investment firm to enhance its service offerings.
Mergers and Acquisitions in the Banking Sector
In the banking sector, M&A is often driven by regulatory requirements, the need to increase capital, and the pursuit of market dominance. The types of M&A most widely applied in banking are horizontal mergers and acquisitions, with larger institutions acquiring smaller ones or merging to increase their competitiveness and efficiency.
In Ethiopia, banks must raise their paid-up capital to 5 billion Birr by June 2026. This capital increase is aimed at consolidating the sector, ensuring financial stability, and improving the banking system’s resilience. However, many smaller banks are currently unable to meet this target, which is expected to drive a significant wave of mergers and acquisitions within the Ethiopian banking industry.
Recent Examples of M&A in Ethiopia:
Ethiopian Housing and Construction Bank and Commercial Bank of Ethiopia:
About 10 years ago, the Ethiopian Housing and Construction Bank (EHCB) merged with the Commercial Bank of Ethiopia (CBE). This was a strategic move aimed at consolidating resources and increasing the market presence of the merged entity.
Walta Media and Communication Corporate S.C. and Fana Broadcasting Corporation:
Recently, Walta Media merged with Fana Broadcasting Corporation. This merger led to Walta losing its identity and adopting the name “Fana,” a move aimed at strengthening the media company’s market position.
Stakeholders in the Banking Sector
In any M&A, various stakeholders play a critical role. The primary stakeholders in the banking sector include:
Shareholders: Shareholders own the bank and are directly impacted by the performance of the bank. They have voting rights and benefit from dividends and capital gains when the bank performs well.
Employees: Employees are essential to the daily operations of the bank. M&As can affect their job security, career growth, and the organizational culture they work in.
Customers: Customers rely on banks for financial products and services. M&As can result in improved services or cause temporary disruptions during the integration process.
Regulatory Bodies (such as NBE): Regulatory bodies ensure that the merger or acquisition complies with national regulations and that financial stability is maintained.
Suppliers and Partners: Suppliers provide the necessary goods and services for the bank to operate. Partners, like technology providers, may also be affected by the changes brought about by M&As.
Benefits and Challenges of M&A for Various Stakeholders
| Stakeholder | Benefits | Challenges |
| Shareholders | Increased Value: Shareholders may benefit from the merger’s success, seeing an increase in the value of their shares as the newly merged bank becomes stronger and more competitive. Diversification: Shareholders of both companies might benefit from a more diversified product offering and market base. | Integration Risks: Mergers come with the risk of short-term disruptions, which may affect profits and the stock price initially. Loss of Identity: Smaller entities might lose their brand identity, which can be a significant issue for their shareholders. |
| Employees | Career Growth: Employees can experience career advancement opportunities in a larger, more robust organization. Job Security: Merged banks tend to be more financially stable, which can enhance job security in the long term. | Job Losses: M&As can lead to redundancies, especially where departments overlap, causing layoffs and restructuring. Organizational Culture Clash: Different organization cultures can result in challenges in integrating employees from both banks, leading to lower morale or internal conflict. |
| Customers | Improved Services: Customers can benefit from a broader range of services, better technology, and a larger network of branches or digital services. Competitive Pricing: Economies of scale from a merger may allow for better pricing and lower fees for customers. | Service Disruption: The transition period in a merger can result in temporary disruptions in customer services or changes in policies that may inconvenience clients. Uncertainty: Customers may be uncertain about changes in fees, services, or even branch closures, causing dissatisfaction. |
| Regulatory Bodies (NBE) | Stability and Growth: Regulatory bodies will see improved financial stability and capital strength in the banking sector, contributing to overall economic growth. | Complex Oversight: The NBE must ensure that each merger adheres to the regulatory framework, maintaining competition and preventing monopolistic practices in the sector. |
| Suppliers/Partners | Stronger Relationships: Suppliers may benefit from an increase in demand as the merged bank expands its operations. Negotiation Power: Larger banks may have more bargaining power, resulting in better deals for suppliers. | Contract Renegotiations: Suppliers may face renegotiation of their contracts, leading to uncertainty, especially if the merged entity chooses to work with different partners. |
M&A in the Context of Ethiopia’s Banking Sector
The NBE’s Banking Business Proclamation No. 1360/2025 has introduced a new regulatory framework aimed at consolidating Ethiopia’s banking sector. The requirement for banks to increase their paid-up capital to 5 billion Birr by June 2026 is a key driver of the M&A process. Smaller banks, unable to meet this new capital requirement, are likely to face mergers or acquisitions by larger, more financially stable institutions. This consolidation aims to create a more resilient and competitive banking system in Ethiopia.
Currently, Ethiopia has 32 banks, but many of them are smaller institutions struggling to meet the new capital threshold. As a result, mergers and acquisitions will play a crucial role in reducing the number of smaller banks, enabling the remaining entities to offer better services and compete more effectively in the market.
The Way Forward
As Ethiopia’s banking sector undergoes this wave of mergers and acquisitions, all stakeholders need to prepare for the challenges and opportunities that lie ahead:
Strategic Integration: Banks should focus on smooth integration, ensuring that operational efficiencies are realized without losing sight of organization culture compatibility and customer service.
Employee Support: Clear communication, retraining programs, and job transition assistance will be essential to mitigate the effects of job losses or restructuring due to M&A.
Customer-Centric Approach: Customers should be kept informed throughout the M&A process, ensuring they are not negatively impacted by disruptions in services or changes to products.
Regulatory Oversight: As usual, the NBE must ensure that the consolidation process maintains a healthy level of competition while safeguarding the stability of the banking system.
As the NBE continues to drive this transformation, the successful execution of these mergers and acquisitions will ultimately determine the future of Ethiopia’s banking industry, contributing to economic growth and creating a more competitive, efficient, and resilient financial system.
