Is Ethiopia Ready to Welcome Foreign Banks Before 2025 Ends?
Foreign Banks are Coming. Ethiopia’s history with foreign banks is longer than you think. As we open up once more in 2025, the big question remains, Is Ethiopia ready this time?
In a major shift for Ethiopia’s financial landscape, National Bank of Ethiopia (NBE) Governor Mamo Mihretu announced that foreign banks are expected to begin operations before the end of 2025. Speaking at the midweek Ethiopian Finance Forum, Mihretu described this as a key milestone in the country’s recent policy reforms aimed at liberalizing the financial sector.
While stopping short of naming the banks preparing to set foot on Ethiopian financial soil, Mihretu emphasized that the groundwork has already been laid. “Integrating foreign financial institutions is one of NBE’s top priorities,” he declared. Forum discussions also explored the potential implications for Ethiopia’s banking system from increased competition to heightened efficiency and innovation.
In 1905, the Bank of Abyssinia was established under a 50-year franchise agreement with the Anglo-Egyptian National Bank. It opened branches across the country and handled key government and trade financing operations.
By the 1910s and 1920s, more foreign banks such as Banque de l’Indochine and Compagnie de l’Afrique Orientale had entered the scene. However, due to growing criticism, the Ethiopian government nationalized the Bank of Abyssinia in 1931 and renamed it the Bank of Ethiopia, making it the first nationally owned bank in Africa.
During the Italian occupation (1936–1941), Italian banks flourished, only to be replaced briefly by British banks like Barclays during the post-liberation period. Later, the 1963 Monetary and Banking Proclamation limited foreign ownership in banks, and by 1974, the Derg regime nationalized the sector, closing it off to private ownership (both local and foreign) completely. Even after the 1990s reforms allowed private banks, foreign banks remained barred until now.
As Ethiopia seeks to modernize its economy, attract foreign direct investment, and build a more resilient financial system, the entry of foreign banks is seen as a necessary step. Globally, countries that have opened their financial sectors to foreign participation have seen stronger economic growth, better access to capital, and improved financial practices.
Pros:
- Improved Competition & Services: Local banks will be pushed to offer better customer service, digital banking solutions, and innovative products.
- Technology Transfer: Foreign banks often bring cutting-edge technology and digital banking platforms.
- Human Capital Development: With global expertise, these banks can train local professionals and raise industry standards.
- More Capital Inflows: Foreign banks can boost investor confidence and bring in much-needed capital for infrastructure and business expansion.
- Stronger Regulation & Transparency: Their presence may pressure regulators to adopt global best practices, improving overall governance.
Cons:
- Local Bank Struggles: Domestic banks may face stiff competition, potentially losing market share to their well-capitalized foreign counterparts.
- Profit Repatriation: A significant portion of profits could be sent abroad rather than reinvested locally.
- Uneven Access: Foreign banks might prioritize large clients and urban centers, sidelining rural and small-scale businesses.
- Regulatory Risks: Without strong oversight, foreign bank operations may lead to financial instability or risk mismanagement.
As Ethiopia approaches this transformative step, the big question remains: Are local banks and regulators truly ready for what’s coming? Or will this be another case of inviting guests before tidying up the house?
Only time (and maybe interest rates) will tell.