The National Bank of Ethiopia (NBE) sets the preconditions that should be met by foreign banks to enter the Ethiopian market.
The Ethiopian Council of Ministers approved the draft policy on opening up the banking sector to foreign investors and decided to be operational in September.
Indicating opening up the sector to foreign banks will commence only with a few selected banks, NBE announced the preconditions that would make foreign banks eligible to operate in Ethiopia.
In this regard, foreign banks would need to establish a sub-branch in Ethiopia, buy a 40% share from local banks, and aim to deliver services in agriculture, housing, infrastructure development, and rural areas.
Solomon Desta, NBE’s Deputy Governor of Financial Institutions Supervision told the Ethiopian News Agency that since foreign banks come up with their rich experiences in the sector, it would create an opportunity to motivate local banks.
“Moreover, the capital foreign banks bring in is expected to alleviate the shortage of foreign currency in the nation which in turn facilitates additional investment.”
Noting that the entrance of foreign banks would also usher in threats, Solomon said, until the experience in the sector develops well a limit on the number of foreign banks entering the country will be laid including undertaking the proper follow-up.
Mulugeta Girma (Ph.D.), a marketing researcher at Dire Dawa University says allowing foreign investors into the local finance sector can be a chance to share their knowledge and financial technology advancement with the local banking sector.
Concerning the risk factors the allowance of foreign banks would create, Mulugeta said “With the coming of foreign investors in the local banking, the sustainability of the Ethiopian banks will be risked. But the local banks can avoid this through various means such as unification by working under one sectoral umbrella”.
Ethiopia’s Banking Business Proclamation was last amended in 2019 and prohibits foreigners from fully or partially owning or opening banks in the country