Ethiopia spent five decades keeping foreign banks out. In June 2025, it flipped the switch.
For the first time in half a century, foreign investor presence in the banking sector isn’t restricted to representative offices thanks to a landmark licensing directive. International lenders can now open branches, launch subsidiaries, and even acquire entire domestic banks under special circumstances.
Policymakers hoped the reforms would attract foreign capital and sharpen competition in one of Africa’s fastest-growing economies. A year on, that ambition is yet to materialise, despite burgeoning interest from some of the continent’s biggest banks.
At least seven major banking groups, from Kenya to Nigeria, have expressed intent to enter the East African nation since the reforms were launched. None have followed through.
The appetite is real. The execution remains cautious.
Understanding why requires looking past the headlines and into the fine print of Ethiopia’s own rulebook.
The reform, in numbers
Ethiopia’s banking opening began with a law.
On December 17, 2024, parliament passed the Banking Business Proclamation No. 1360/2024. Gazetted in March 2025, it ended a 50-year ban on foreign bank ownership and broke with one of the country’s oldest economic protections.
The proclamation set the principle. The operational rules came later. In June 2025, the National Bank of Ethiopia (NBE) issued Directive SBB/94/2025, governing the licensing and renewal of banking business and representative offices. With that directive in force, foreign investors could formally apply for licences and buy stakes in Ethiopian lenders.
This historic opening did not happen in isolation. It sits inside Prime Minister Abiy Ahmed’s Homegrown Economic Reform Agenda, a broader effort to move Ethiopia away from state control and towards market pricing and private capital.
Under the new rules, five routes exist for foreign banks to enter. They can set up a locally incorporated subsidiary, open a branch, establish a representative office, take a minority stake in an existing Ethiopian bank, or, in exceptional cases, acquire a distressed or strategically important lender.
Ownership, though, stays tightly capped. Total foreign ownership in any single bank cannot exceed 49%. A single strategic investor is limited to 40%. Foreign companies acting alone face a 10% ceiling, and foreign individuals just 7%.
Capital requirements add another hurdle. A foreign subsidiary or branch must bring in at least ETB 5 billion ($32 million at current market rates) in paid-up capital, delivered in foreign currency and paid in cash. Deferred payment is not allowed.
Those figures are the whole story in miniature. Ethiopia has opened its door, but built a narrow frame around it.
Who has raised their hand?
Still, interest has not been in short supply.
Africa’s biggest bank by assets, Standard Bank Group has maintained a representative office in Addis Ababa since 2015.
On November 28, 2025, it became the first foreign institution re-licensed under Ethiopia’s new framework. The move did not amount to a banking licence, but it signalled continued interest. Regional chief executive Joshua Oigara later said in June 2026 that the group was considering a wholly owned greenfield operation.
KCB Group, East Africa’s largest lender by assets, has also had a representative office since 2015 and is targeting a full entry by the end of 2026. Finance Director Lawrence Kimathi has, according to reports, confirmed the bank has shortlisted a target institution.
Also, the CEO Paul Russo told The Africa Report last August that KCB is weighing an application for an exemption to the 49% cap.
He added that KCB is still looking for a local partner before formally approaching the NBE.
In September 2025, Kenya’s most profitable lender, Equity Group Holdings, held talks with Ethiopia’s Investment Commission, with CEO James Mwangi meeting commission head Zeleke Temesgen directly.
Absa Group, another South Africa heavyweight, has taken the most publicly cautious stance. CEO Kenny Fihla told The EastAfrican that the reforms are encouraging but not yet sufficient: “We would like to see more opening of the regulatory environment insofar as it relates to banking in that market. When we are of the view that we have the necessary comfort at the threshold required for us to make a long-term decision, we will definitely consider entry.”
Djibouti’s largest bank, BCIMR, has made similar overtures. Among Nigerian lenders, Zenith Bank identified Ethiopia as a target market in 2025, pointing to opportunities in digital banking and project finance, while FirstBank confirmed in January 2025 that it was evaluating the country as part of its African expansion, according to deputy managing director Ini Ebong.
The pattern holds across all seven. Foreign banks are studying the market, holding talks with regulators, and maintaining local footholds. Yet no major foreign-bank acquisition, substantial capital injection or full-scale foreign banking operation has been announced.
Ownership, not appetite
The gap between interest and action appears to stem less from a lack of appetite than from the structure of Ethiopia’s ownership rules.
For banking groups that typically seek majority control when entering new markets, the 49% ceiling changes the economics of an acquisition. A minority holding limits influence over governance, strategy and capital allocation, precisely the areas large lenders usually want to shape when committing long-term capital.
This may be why the conversation among prospective entrants has shifted from “which bank do we buy” to “how do we structure around the cap.” Standard Bank is now leaning towards building a bank from scratch, precisely because a greenfield operation can be wholly owned from day one. KCB, by contrast, is still exploring an acquisition but has publicly discussed the possibility of seeking an exemption under the proclamation’s strategic-investment clause.
Absa’s position captures the standoff most plainly. The bank is not saying no. It is saying not yet, and specifically not until the ownership threshold moves.
Currency risk still hangs over the opening
Meanwhile, ownership caps may not be the only reason foreign banks are hesitating.
Ethiopia’s decision to float the birr in July 2024 was a necessary step towards opening the financial system. It did not remove concerns about profit repatriation, access to foreign currency or the pace of regulatory implementation.
The bigger problem is Ethiopia’s external position. The country has been in debt distress since defaulting on its $1 billion Eurobond in December 2023. Data from the International Monetary Fund estimates gross international reserves stood at about $4.4 billion at the end of the 2025 fiscal year, equivalent to less than two months of import cover. Thin reserves make it harder to guarantee timely access to foreign currency, which is exactly what foreign banks worry about when assessing whether profits can be repatriated.
The picture has improved somewhat. Ethiopia secured a $3.5 billion debt-relief package from official creditors, signed a bilateral restructuring deal with France in February 2026 and reached a debt resolution with China in April 2026.
Negotiations with Eurobond holders remain unresolved, however, and reserve constraints have not disappeared. For a foreign lender, that remains a more important signal than the existence of a new banking law.
Regulators are strengthening local banks first
Ethiopia’s regulatory approach may also have compounded the delay, though not necessarily by accident.
Rather than fast-tracking foreign licences, the National Bank of Ethiopia spent its first year of liberalisation pushing domestic bank consolidation. It raised the minimum paid-up capital requirement for all banks from ETB 500 million to ETB 5 billion by July 2026, forcing smaller lenders to raise fresh equity or merge.
Girum Yitagesu, a senior operations manager at Abay Bank, described it plainly: “There is relentless pressure by the National Bank of Ethiopia on banks, especially the smaller-sized banks, to merge. There is discussion among policymakers that this will save most banks before the entry of foreign banks.”
The strategy follows a familiar African regulatory playbook: strengthen domestic institutions first, then open the market more fully. The numbers reinforce this bet.
As of June 30, 2025, commercial banks’ total assets jumped by 45% to over ETB 4.7 trillion, up from ETB 3.3 trillion at the end of June 2024, according to the NBE’s latest Financial Stability Report
This rapid growth coincides with record industry earnings as profit after tax climbed 61.3% to ETB 93.4 billion during the reviewed period.
Analysts say those figures point to a sector gaining strength on its own terms, even before foreign capital arrives.
Capital markets are becoming a domestic buffer
The push to strengthen local banks is not happening through consolidation alone.
Ethiopia has also been building a capital market that can help banks raise fresh equity at home. The Ethiopian Securities Exchange, launched in January 2025, has become part of that effort. Wegagen Bank, Gadaa Bank, Awash Bank, Abay Bank and Bank of Abyssinia have all joined the exchange, making banks some of its earliest participants.
More capital raising is in the pipeline. In June 2026, the Ethiopian Capital Market Authority approved Bunna Bank’s securities registration, including nearly 2.6 million new shares, and registered Addis Bank’s existing share capital for trading. Dashen Bank and Zemen Bank have also registered shares with the regulator.
For banks facing the NBE’s higher capital requirements, the exchange offers another source of funding. Instead of relying entirely on existing shareholders, they can tap a broader pool of domestic investors.
The reform is also creating the infrastructure for a deeper financial system. In March 2025, the Ethiopian Capital Market Authority issued Ethiopia’s first investment-banking licences to CBE Capital and Wegagen Capital, opening the way for underwriting, advisory services and corporate capital raising.
That matters because it reduces one of the traditional arguments for rapid foreign-bank entry: the need for additional capital and financial-sector expertise. Ethiopia is trying to build more of that capacity internally before allowing foreign competition to play a larger role.
Foreign investors could eventually benefit as well. Shares in listed Ethiopian banks can already be bought through licensed local brokers, subject to the sector’s ownership limits. For now, however, the exchange looks less like a back door for foreign banks and more like a tool for strengthening domestic lenders before the market opens further.
The next test
The absence of a foreign banking licence does not mean the reform has failed. It suggests the process is moving more slowly than the initial headlines implied.
With major African banking groups actively circling Ethiopia’s banking sector, appetite is no longer in doubt. The unresolved question is whether East Africa’s second-largest economy is prepared to loosen the controls that still shape ownership, capital and access to foreign currency.
That question, more than the banking proclamation itself, may determine when the first foreign bank finally crosses the line from interest to operation.
