Liberalization of Ethiopia’s Banking Sector to Foreign Investment
Ethiopia has recently ratified Banking Business Proclamation No. 1360//2025 (“New Proclamation”, replacing the previous Banking Business Proclamation No. 592/2008. Further, in June 2025, the National Bank of Ethiopia (NBE) issued a Directive on Requirements for Licensing and Renewal of Banking Business and Representative Office No. SBB/94/2025 (“Licensing Directive”). It is to be recalled that Ethiopia had partly opened the financial service sector to foreign investors by allowing Safaricom M-Pesa to engage in mobile money services in 2023. The enactment of the New Proclamation has 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.
This legal update discusses the New Banking Proclamation and Licensing Directive, focusing on liberalization of the banking business to foreign investors.
Foreign Investment in the Banking Sector
The New 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 also acquire shares in domestic banks, subject to 7 per cent and 11 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.
As has previously been the case, the New 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 now required to get re-licensed by the NBE within six months from 25 June 2025. 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 parts, 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, the 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 a minimum capital of 5 billion Ethiopian Birr 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 personal data and any other transaction data within Ethiopia. That said, the Licensing Directive provides that data with no personal identification detail of a customer may be transferred to another jurisdiction upon obtaining a prior written approval from the NBE. These requirements should be read along with other regulations on personal data, including the Personal Data Protection Proclamation No. 1321/2024.
Concluding Remarks
The enactment of the New 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 New Proclamation and the New 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 pro-actively engage with relevant authorities at the NBE to clearly demonstrate their institutional reputation and capacity to contribute to Ethiopia’s financial ecosystem.