Ethiopia’s banking sector is becoming more concentrated despite recent reforms aimed at opening the market to foreign investors, with the state-owned Commercial Bank of Ethiopia (CBE) now controlling close to half of total industry assets.
New data from the National Bank of Ethiopia’s (NBE) latest Financial Stability Report shows CBE’s market share rising across key balance sheet indicators in the year to June 30, 2025, even as medium and small banks lose ground. The trend highlights a growing structural imbalance in a sector that has drawn increased investor attention following recent policy changes allowing foreign bank ownership for the first time in more than 50 years.
CBE tightens grip on system assets
CBE remains the only bank in Ethiopia classified as systemically important, and its dominance strengthened further during the review period.
Its share of total banking sector assets rose to 49.1%, up from 47.9% in the previous, reversing earlier declines
The bank’s share of loans and bonds increased more sharply, climbing from 45.2% to 51.7%, while deposits rose to 48.1% from 47.1%. Capital share also expanded significantly, reaching 43.1% compared to 24.2% in the previous fiscal year.
The NBE said the bank’s performance “reconfirmed its position as the only systemically important bank for Ethiopia’s financial system,” adding that the trend also “increases the concentration risk to the financial system.”
The data underscores a widening gap between CBE and the rest of the market, even as reforms were expected to improve competition and diversify ownership.
Mid-tier and small banks lose share
By contrast, medium-sized banks recorded declines across loans, deposits and capital, although their share of total assets edged up slightly from 28.9% to 29.1%.
Smaller lenders faced broader pressure, with losses across all major indicators, including assets. The report attributes this to intensifying competition, noting that “stiff competition forced small banks somewhat to shed their market shares,” prompting some institutions to consider consolidation.
The uneven performance occurs against the backdrop of Ethiopia’s wider policy shift. In a landmark proclamation passed in December 2024, foreign banks were granted access to the market for the first time in more than five decades, marking a sharp acceleration in the country’s liberalisation efforts.
While the move drew early interest from Africa’s biggest lenders, no major entries have followed, even after the central bank began issuing licences to foreign investors in mid-2025.
The slow follow-through suggests that state dominance and existing ownership rules continue to shape how new entrants assess the market.
Strong balance sheet growth across the sector
Despite the high concentration, the banking sector recorded strong growth during the one-year period ended June 30, supported by expanding lending activity and deposit mobilisation.
Total banking sector assets rose 44.5% to more than $34.7 billion (ETB 4.7 trillion), up from $24.4 billion (ETB 3.3 trillion) a year earlier. Loans and bonds increased 38.6% to $22.2 billion (ETB 3 trillion), while deposits grew 40.7% to $25.9 billion (ETB 3.5 trillion). Loans accounted for 64.1% of total assets, while deposits represented 74.1%, reflecting continued expansion in core intermediation activities.
The NBE said the data “reflects the existence of significant loan and deposit expansion, and growth in the banks’ core business,” underlining the sector’s role in supporting economic activity.
Profitability and asset quality improve
Financial performance also strengthened during the year, with the industry recording its highest-ever profit.
Net income rose to $687 million (ETB 93 billion), nearly doubling from $429 million (ETB 58 billion) the previous year, as total income reached $4.77 billion (ETB 646 billion) against expenses of $3.89 billion (ETB 526 billion).
Returns improved alongside earnings growth, with return on assets increasing to 2.5% from 2.0%, while return on equity rose to 27.4% from 24.6%.
Asset quality metrics also showed improvement as the non-performing loan (NPL) ratio dropped to 3.1%, its lowest level in five years and below the regulatory maximum of 5%.
Capital and liquidity buffers strengthened further. The capital adequacy ratio rose to 19.1%, well above the 8% regulatory minimum, while the liquidity ratio reached 30.4% — more than twice the required level and the highest recorded in the past five years.
Opening the market amid rising concentration
The data highlights a key tension as Ethiopia opens its banking sector to foreign investors.
On one hand, strong growth, improving profitability and solid buffers present a more attractive entry point. On the other, the increasing dominance of a single institution may shape how new entrants assess the market, particularly in areas such as lending and deposit mobilisation where CBE’s share is already significant.
At the same time, pressure on smaller banks and early signs of consolidation suggest the industry could become more tightly held, even before foreign players establish a presence.
For policymakers, the challenge will be ensuring that liberalisation translates into broader participation, rather than reinforcing the lead of existing players.
As reforms take hold, the direction of travel is clear in the data: a fast-growing banking sector with improving fundamentals, but one where the gap between the largest institution and the rest continues to widen.
NB: ETB 135.36/$1 as of June 30, 2025
