Ethiopia Parliament gives nod for entry of foreign banks

Ethiopian MPs listen to Prime Minister Abiy Ahmed as he addresses them on the current situation of the country, at the Parliament Building in Addis Ababa, Ethiopia on October 31, 2024.

Photo credit: Reuters

Ethiopia’s Parliament has approved a Bill that allows foreign banks to set up operations in the country, paving the way for the long-awaited expansion by regional lenders into East Africa’s most populous market.

The new law allows external lenders to open branches and subsidiaries in Ethiopia, or purchase shares in existing local banks, while capping the aggregate ownership stake of foreign nationals or foreign-owned Ethiopian organisations in local banks at 40 percent.

Ethiopia’s cabinet approved the banking Bill in June, part of wide-ranging efforts to open up the country’s economy to foreign investments. The government had said in 2023 that it intended to issue up to five banking licences to foreign investors over a five-year period.

Last week, Ethiopia’s central bank governor Mamo Mihretu told delegates at the Africa Financial Summit (AFIS 2024) in Casablanca, Morocco, that the regulator expected the approval of the new banking law to be done by the end of this week.

Kenya’s top banks have long eyed an entry into Ethiopia, attracted by the large market and the country’s relatively fast pace of economic growth. 

Equity Group has been operating a commercial representative office in Ethiopia since mid-2019, with an eye on a commercial banking licence, while KCB Group has in the past also outlined plans to expand its regional footprint into Ethiopia.

Entry into Ethiopia would mark the first foray of Kenyan banks outside the East African Community (EAC) bloc of countries, where top-tier lenders KCB, Equity, Co-operative Bank, NCBA, DTB, and I&M Group have subsidiaries.

There are currently 32 commercial banks operating in Ethiopia, which as per the latest statistics from the National Bank of Ethiopia (the monetary regulator), hold Sh2.44 trillion worth of deposits, and a loan book of Sh2.17 trillion.

The Ethiopian market had largely been closed to external investors but started relaxing the stance in 2019 through an economic reform agenda, with the support of the International Finance Corporation of the World Bank.

Since then, its government has allowed foreign participation in the country’s telecommunication sector and has also put in place monetary reforms by introducing a flexible exchange rate for its Birr currency earlier this year— as part of the conditions for securing a loan from the International Monetary Fund (IMF).

Ethiopia issued a telecommunications licence to a consortium led by Kenya’s Safaricom in 2021, with commercial services starting officially in October 2022. In May 2023, the consortium was awarded a licence to operate the M-Pesa mobile money platform in the country.

By the end of June 2024, Safaricom Ethiopia’s market share stood at 5.5 percent, with a subscriber base of 4.6 million. 

The unit reported a total revenue of Sh2.85 billion in the six months to September 2024, with mobile data contributing the lion’s share at Sh2.04 billion. 

It made a loss of Sh37.5 billion (Safaricom’s share of the loss was Sh19.4 billion), where it was affected by a 51 percent depreciation of the Birr against the dollar in the period.

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