Liberalization Of Ethiopia's Banking Sector To Foreign Investment

The banking business sector in Ethiopia was exclusively reserved for domestic investors for a half century. The sector began to be opened to foreign investors since 2023. In 2023, the Ethiopian parliament promulgated the National Payment System Amendment Proclamation No. 1282/2023, which liberalized digital payment services (including mobile money and payment system operator services) to foreign investment. Following such liberalization, Safaricom M-Pesa Mobile Financial Service Plc became the first foreign investor to invest in mobile financial services. The National Payment System Amendment Proclamation only opened the digital financial services to foreign investment, leaving the broader banking sector closed to foreign investors.

However, in 2025, the business sector has been fully liberalized to foreign investment following the enactment of the Banking Business Proclamation No. 1360//2025 ("Banking Business Proclamation"). In June 2025, the National Bank of Ethiopia (NBE) also issued a Directive on Requirements for Licensing and Renewal of Banking Business and Representative Office No. SBB/94/2025 ("Licensing Directive"), which provides detailed guidelines in relation to the banking business licensing to domestic and foreign investments. The enactment of these laws heralded the opening of the banking business fully to foreign investors in a market that is considered the last frontier. This development presents a major investment opportunity to foreign banks, multilateral development institutions and individual investors eyeing the Ethiopian market.

Foreign Investment in the Banking Sector

The Banking Business Proclamation allows the entry of foreign banks and investors into the banking business through various forms, including via the establishment of a subsidiary, opening a branch, or acquiring shares in domestic banks. A foreign bank may also open a representative office in Ethiopia.

Foreign individuals and entities are also allowed to purchase shares in a local bank, albeit to a certain limit. Foreign banks and other strategic investors such as international development finance institutions and private equity funds can own up to 40 percent shares in domestic banks. A foreign natural person and a foreign juridical person i.e., non-strategic foreign investors, can acquire shares in domestic banks, subject to 7 per cent and 10 per cent shareholding limit, respectively. Nonetheless, the aggregate shareholding by foreign nationals and foreign owned Ethiopian companies is limited to 49 per cent. These requirements have implications on potential structuring related issues.

Despite these shareholding limits, the NBE may allow, in exceptional circumstances, a 'well established, reputable and financially sound' foreign bank to fully acquire an existing domestic bank with a view to attracting strategic investments and/or as a solution to resolving a distressed bank and preserve financial stability.

A foreign subsidiary is required to have a board of directors. According to the Licensing and Supervision of Banking Business Bank Corporate Governance Directive No. SBB/91/2024, a bank is required to have at least 9 directors. The Licensing Directive further requires that at least one third of the board of directors of a foreign bank subsidiary must be non-shareholder Ethiopian nationals.

Commercial Representative Office

As has previously been the case, the Licensing Directive maintains that foreign banks can open a commercial representative office (CRO). CROs which were previously licensed by the Ministry of Trade and Regional Integration are required to get re-licensed by the NBE. A CRO is not allowed to conduct banking business, and its activities are rather limited to promotion, liaison, market research and similar activities.

Licensing Process and Minimum Capital Requirements

The Licensing Directive outlines the procedures through which banks can be licensed. It treats the licensing process in two phases, i.e., the pre-application and the application phases and lists out the various criteria the NBE will use in determining whether to accept or reject an application. These criteria include governance and financial soundness, status of compliance with the requirements of the home regulator, degree of strategic value it brings to the Ethiopian financial system and minimum capital requirement, among others. As such, the NBE will conduct assessment before granting a banking business license to evaluate the fulfilment of financial and reputational criteria for new entrants.

Any entity looking to be licensed must first submit documents containing detailed information to help NBE asses the eligibility of the applicant. At the pre-application phase, an applicant is required to pay an investigation fee of USD 2,500 (two thousand five hundred). Once NBE has conducted its investigation and finds the shared information to be adequate, it notifies the applicant in writing to proceed to the application stage. At the application stage, proof of payment of a non-refundable licensing fee of USD 150,000 (one hundred fifty thousand) and proof that the foreign currency equivalent of 5 billion Ethiopian Birr (which is the minimum capital required to engage in banking business in Ethiopia) has been deposited are required. In addition, applicants are required to submit other documentation, including constitutive documents, insurance for premises occupied, details of fit and proper governance as well as a business plan. Once the NBE issues a license, a bank is required to commence operations with 12 months.

In respect of a CRO, applicant is required to pay an investigation fee of USD 1500, a licensing fee of USD 1500 and deposit of at least USD 100,000 to cover its annual expenditure in addition to other documentation requirements.

Data Related Requirements

All banks, including a foreign bank subsidiary and a branch of a foreign bank, are required to store and process customer data, account information, transaction records and data related to its core banking business system, within Ethiopia. That said, the Licensing Directive provides that these data may be transferred to another jurisdiction upon obtaining a prior written approval from the NBE provided that the transfer does not involve personally identifiable details of customers. Under Ethiopian law, personal data matters are generally governed by the Personal Data Protection Proclamation No. 1321/2024 ("PDP Proclamation") and as such compliance with personal data requirements in the banking business should also be analysed in light of the PDP Proclamation.

Concluding Remarks

The enactment of the Banking Business Proclamation and the Licensing Directive are likely to significantly reshape the Ethiopian banking sector landscape. Foreign banks should examine whether share acquisition in domestic banks, establishing subsidiary or opening branch would be the best feasible option to conduct banking business in Ethiopia. In particular, it is critical that foreign banks seeking to acquire shares in domestic banks assess other legal and regulatory requirements (including tax and competition clearances) in addition to the banking business regulations.

The processes and entry conditions for foreign investors outlined under the Banking Business Proclamation and the Licensing Directive suggest that the suitability of applicants will be assessed beyond the fulfilment of minimum capital requirements to include the applicant's reputation and potential contribution to Ethiopia's financial system. It is thus important that applicants seeking to obtain banking business license in Ethiopia pro-actively engage with relevant authorities at the NBE to clearly demonstrate their institutional reputation and capacity to contribute to Ethiopia's financial ecosystem.

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