Executive Summary
Ethiopia has enacted the Banking Business Proclamation No. 1360/2025 and Directive No. SBB/95/2025, opening its banking sector to foreign investors for the first time in over 50 years. Well-established foreign banks may now operate through subsidiaries, branches, or equity stakes in domestic banks, subject to capital, governance, and licensing requirements set by the National Bank of Ethiopia. The reforms present major opportunities in a large, untapped market and are expected to increase competitive pressure on local banks. Their success will depend on effective implementation, the NBE's regulatory capacity, and future directives that will guide the sector's liberalization.
From Closed Market to Targeted Liberalization
Historically, Ethiopian investment policy and laws have reserved all financial services, including banking, insurance, and microfinance, for domestic investors only. The new Proclamation lifts this restriction for banking business only, while insurance and microfinance remain closed to foreign ownership.
Foreign Participation Modalities
The Proclamation provides that well-established, reputable, and financially sound foreign banks will be eligible to invest in Ethiopia's banking sector. A "foreign bank" includes a bank or banking group incorporated under the laws of a jurisdiction other than Ethiopia, which holds a valid banking license issued by its home country's regulatory authority and conducts banking operations either domestically or internationally.
Under the laws, there are three primary modalities for foreign bank investment:
- Establishing a wholly or partially owned subsidiary.
- Operating a branch office; or
- Acquiring shares in existing domestic banks.
Furthermore, the Proclamation distinguishes foreign investors based on their classification as either "strategic" or "non-strategic." Strategic investors are permitted to establish subsidiaries or branches, while non-strategic investors are restricted to share acquisition in existing banks only. A foreign bank qualifies as a "strategic investor" if it is a reputable banking institution or banking group in its country of incorporation, is government-owned, or falls within recognized categories such as international development finance institutions, private equity funds, or similar entities.
Foreign Bank Subsidiaries
Foreign banks may now establish subsidiaries in Ethiopia through partial or full ownership. Such subsidiaries may be constituted in various corporate forms recognized under Ethiopian law, including share companies or private limited companies. Crucially, the Proclamation mandates that these subsidiaries must be controlled by a "Strategic Investor" and incorporated within Ethiopia.
Foreign Bank Branches
Foreign banks can also open branches, either deposit-taking or non-deposit-taking, but not both. As branches do not possess a separate legal personality under Ethiopian law, the parent foreign bank remains liable for all branch obligations. A senior country officer must be appointed to manage the branch, liaise with the NBE, and oversee compliance and operations. The NBE will issue further directives detailing permissible activities for branches.
Share Acquisition in Domestic Banks
In addition to the option of setting up a subsidiary or branch, foreign banks may enter the Ethiopian market through the acquisition of shares of domestic banks, with certain limitations. As such:
- Strategic investors may acquire up to forty per cent (40%) of the total subscribed shares of an existing or a new domestic bank.
- In exceptional circumstances, the NBE may authorize partial or full acquisition
Additionally:
- Foreign nationals may acquire up to 7%,
- Foreign-owned Ethiopian organizations up to 10%,
- Combined aggregate cap for foreign nationals and foreign-owned Ethiopian organizations is 49%.
Investment must be made in foreign currency, and dividend earnings may be repatriated in foreign currency or reinvested in birr within the shareholding limits.
Representative Offices
Foreign banks were previously permitted to operate representative offices with licensing by the Ministry of Trade. The Proclamation now vests exclusive regulatory authority over representative offices in the NBE. All existing offices must re-register with the NBE.
Representative offices may:
- Promote parent company services,
- Conduct marketing, research, and liaison activities.
They may not:
- Engage in trading or banking services.
Capital and Currency Requirements
The Directive sets minimum capital requirements to set up banks in Ethiopia.
- Minimum capital: ETB 5 billion (~USD 36 million).
- Foreign subsidiaries and branches: Must remit the full amount in foreign currency into a blocked non-interest-bearing account at the NBE.
- Foreign bank branches: Assigned capital must be inwardly remitted and converted to ETB.
Representative offices must demonstrate annual operational funds of USD 100,000.
Licensing and Renewal Requirements and Procedures
For Subsidiaries and Branches:
The Directive outlines a three-stage licensing process:
- Pre-application Phase:
- Appoint project managers.
- Obtain trade name and no-objection letter from home regulator.
- Submit parent company documents, audited reports, and business plan.
- Pay investigation fee of USD 2,500.
- Application Phase:
- Submit detailed application.
- Remit minimum capital of ETB 5 billion (~USD 36 million).
- Sign MoU between NBE and the home supervisor.
- Provide governance structure, compliance systems, and insurance coverage.
- Pay licensing fee of USD 150,000.
- Operational Phase:
- Launch operations within 12 months.
- Show readiness across premises, staffing, systems, and internal controls.
The NBE must decide on an application for a license within 90 days of receiving a completed application. The Directive requires that licenses issued by the NBE be renewed annually between July 1 and September 30. Unlike the initial licensing process, banks are not required to undergo the full approval procedures during renewal. The renewal fee is set at ETB 200,000 (~ USD 1,439) for both foreign bank subsidiaries and foreign bank branches.
Licensing Additional Branches
Foreign banks may establish additional branches upon:
- Obtaining a no-objection letter from their home regulator, and
- Paying a non-refundable licensing fee (amount not specified for domestic branches).
Licensing Representative Offices
To open a representative office, a foreign bank must submit:
- Application form,
- Board resolution and corporate documents,
- No-objection letter from home supervisor,
- Business proposal and staffing plan,
- USD 500 investigation fee and USD 1,500 licensing fee,
- Proof of annual operational expense deposit of USD 100,000,
- Letter of comfort and written undertaking not to engage in banking.
Annual renewal requires:
- Proof of continued USD 100,000 deposit,
- Tax clearance,
- Renewal fee of Birr 75,000 (~USD 540).
Appeals, Suspension, and Revocation
The Proclamation sets out the conditions under which a banking license may be suspended or revoked. These include:
- failure to commence operations within twelve months of licensing,
- ceasing operations for more than thirty consecutive days without prior approval from the NBE, or
- insolvency, or engagement in unsafe or unsound practices.
In cases of urgency or where the public interest is at stake, the NBE may also take immediate action without prior notice. The Directive grants applicants the right to appeal to the Governor of the NBE within 30 days of receiving a license rejection. Additionally, NBE may, at its discretion, impose a moratorium on the issuance of business licenses to new banks.
Conclusion
The Proclamation and its implementing Directive represent a landmark shift in Ethiopia's investment policy, establishing a robust foundational framework for the participation of foreign banking institutions. These reforms open the door for well-established foreign investors to enter a large and largely untapped market, bringing with them capital, expertise, and innovation. Their entry is also likely to create competitive pressure on domestic banks, prompting improvements in efficiency, service quality, and product offerings.
However, much will depend on how the new laws are implemented in practice and on the NBE's regulatory capacity to oversee and supervise a more diverse banking landscape. As these reforms take root, future directives and regulatory guidance will play a decisive role in shaping market dynamics, building investor confidence, and determining the long-term impact of this liberalization.
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