The National Bank of Ethiopia (NBE) recently unveiled a new directive, Requirements for Licensing and Renewal of Banking Business and Representative Office Directive No. SBB/XX/2025. This directive replaces the 2013 regulations and lays the framework for opening up the country’s banking sector to foreign banks. 

The directive provides for three entry channels. Foreign banks can opt to have subsidiaries, branches, or representative offices in the country. Having subsidiaries means that the foreign banks would have to incorporate entities under Ethiopian company laws, and a third of the board must be composed of Ethiopian nationals. The capital requirements for opening a subsidiary are capped at ETB 5 billion ($38.5 million), which must be paid in advance, and a licensing fee of ETB 600,000. 

Opening branches means extending international banks without setting up entirely new entities. The capital requirements for opening one are capped at ETB 5 billion remitted in foreign currency and a licensing fee of ETB 600,000.  The branch must operate under the parent bank’s license and choose to either be a deposit-taking or non-deposit-taking institution.

The other option, having representative offices, means having non-transactional liaison offices limited to market research and promotion. These representative offices are not allowed to undertake any banking transactions. The operating capital requirements for opening one are capped at USD 100,000 for annual expenditure and a licensing fee of ETB150,000.  

To avoid dominance, ownership is capped at a maximum of 40% for strategic investors. Total foreign shareholding in a bank is capped at 49%. Individual ownership is capped at 7%, while that for institutions is capped at 10% unless they are pre-qualified.

Looking at this regionally, the NBE’s directive comes after the Central Bank of Kenya (CBK) mandated that all commercial banks operating in Kenya increase their core capital to KSh10 billion by 2029. This is with an initial target of KSh3 billion by the end of 2025. 

These measures are designed to strengthen financial stability, improve resilience, and align the respective banking sectors with global best practices. Larger capital reserves enable banks to absorb losses, fund large-scale projects, and compete more effectively regionally and internationally.

While the policies are well-intentioned, they risk creating an uneven playing field, favouring larger institutions. Smaller banks may find it challenging to raise the mandated capital requirements. These directives could push smaller banks to merge with larger entities or look for alternative sources of financing.

The directive may seem targeted at the larger banks operating globally and in the region. For context, Kenya requires $20 million for foreign bank subsidiaries, Nigeria and Rwanda mandate $16 million and $14 million, respectively. Ethiopia’s $38.5 million threshold consequently limits the number of entrants into the market. 

NBE’s new directive to open the country’s banking sector to foreign banks marks a historic and strategic inflection point. Ethiopia is sending a strong signal that it is ready to integrate with the global economy. However, this is on terms that safeguard its national interests. 

Only 45% of Ethiopia’s 128.7 million-plus population has access to bank accounts, and less than 30% of adults save with formal institutions. This has been attributed to the country’s underdeveloped capital infrastructure and risk-averse banking culture. More than half the country lacks access to formal banking institutions, making it an attractive market for foreign banks. 

Kenyan banks have been increasingly leveraging representative offices as a low-risk, strategic foothold to expand into the Ethiopian market. This recent regulatory shift provides a clear pathway for Kenyan banks already present to scale up their operations. 

KCB Group, Kenya’s biggest bank by assets, and a regional powerhouse, is one to watch. The Bank already has a representative office in Addis Ababa. There have also been a lot of conversations over the years of its strategic entry into Ethiopia and this new directive opens up an inroad into the market.

Equity Group also has a representative office in Addis Ababa. Equity is already laying the groundwork for an Ethiopia entry by 2026, with senior executives reportedly conducting feasibility studies and regulatory engagements. The move is part of a broader plan to increase Equity’s footprint to 15 African countries by 2030, with additional eyes on Angola, Mozambique, and Zambia.

Notably, Ecobank Kenya, a subsidiary of Togo-based Ecobank Transnational Inc., received a $27 million capital injection from its parent company to boost its core capital, aiming to meet Kenya’s new minimum core capital requirements. Ecobank Transnational Inc. is a pan-African banking conglomerate operating in 36 African countries. The group also has a presence in Ethiopia through its representative office in Addis Ababa. Time will tell if they will also opt to expand their growth in the market by seeking an additional capital injection.

The directive positions Ethiopia alongside its African peers who have undertaken similar reforms to strengthen capital adequacy, attract foreign investment, and enhance sector stability. Kenya for one has positioned itself as a regional banking and financial hub in East Africa. The new directive is a gateway for investors seeking to access broader regional markets.