Banks from Kenya, Morocco, and the United Arab Emirates (UAE) are preparing to enter Ethiopia’s banking sector as the government approaches the final stages of liberalization. In June, the Ethiopian cabinet approved a bill allowing “well-established, reputable, and financially sound foreign banks” to establish subsidiaries, branches, representative offices, or acquire shares in local banks.
Mamo Mihretu, governor of the National Bank of Ethiopia (NBE), indicated that “the bill is expected to be approved by the country’s parliament around the end of November.”
Mamo noted that banks from Morocco, Kenya, and the UAE have expressed interest in either establishing local subsidiaries or acquiring shares in existing lenders. Over the past five years, Ethiopia’s banking sector has more than doubled in size, while foreign banks have been limited to representative offices offering restricted services.
This move towards liberalization follows a $3.4 billion bailout from the International Monetary Fund (IMF) in July, after which the Ethiopian birr floated, losing approximately a third of its value against the dollar. The NBE also shifted from a quantity-based policy to an interest rate-based policy, setting rates at 15% to combat inflation, which reached 33.9% by late 2023.
Recently, the NBE eliminated its “surrender provision” for foreign exchange, which required banks to deposit a portion of their earnings with the central bank. Mamo stated that since these reforms were implemented, there has been “a significant improvement in remittance inflows, export service receipts, and foreign exchange assets,” with reserves increasing by 152% as of October.