Over the past seven months, four of Africa’s largest lenders — KCB Group, Equity Group, Banque pour le Commerce et l’Industrie Mer Rouge (BCIMR), and Standard Bank Group — have signalled plans to enter Ethiopia’s opening financial market.
The growing appetite follows sweeping reforms implemented over the past two years aimed at liberalising and modernising the economy after decades of tight state control.
As part of a broader reform programme, the government has floated the birr to eliminate multiple exchange rates, launched a stock exchange, and rolled out new monetary tools including a central bank policy rate to anchor stability.
Arguably, the biggest shift came in June 2025, when Ethiopia opened its banking sector to foreign players for the first time in half a century. This move has drawn interest from major African lenders, including two Kenyan heavyweights.
Last month, KCB Group, Kenya’s largest lender with assets of about KSh2 trillion ($15.5 billion), disclosed plans to acquire a local Ethiopian bank, underscoring its clearest signal yet of intent to enter the market.
With half-year net profit up 8% year-on-year to KSh32.3 billion ($250 million), and earnings rising across all business lines, KCB is pushing the expansion from a position of strength.
Rival Equity Group is also eyeing the Horn of Africa. Earlier in September, CEO James Mwangi met with Zeleke Temesgen, head of the Ethiopian Investment Commission, to discuss entry plans.
The bank, which already operates in Uganda, Rwanda, Tanzania, the Democratic Republic of Congo, and South Sudan, reported a 16.9% rise in first-half profit to KSh34.6 billion ($268 million), cementing its place as the most profitable lender in East and Central Africa.
Djibouti’s largest bank, BCIMR, has also made similar overtures.
Elsewhere, South Africa’s Standard Bank Group has signalled interest but says it needs better “clarity about the rules” before committing, according to Patrick Mweheire, the lender’s East Africa chief executive.
Analysts argue that the wave of planned expansions could unlock vast opportunities in lending, trade finance, and investment for the emerging market.
Two rules that changed the game
For decades, foreign lenders eager to tap Ethiopia’s financial market were restricted to representative offices barred from offering banking services. The policy was rooted in a state-led economic model that shielded domestic players from international competition.
This insular approach left Ethiopia lagging behind its peers in financial development, despite being Africa’s fifth-largest economy, eventually forcing policymakers to reconsider their long-standing protectionist stance.
A decisive shift began after Prime Minister Abiy Ahmed took office in 2018 and launched his economic liberalisation agenda aimed at boosting foreign capital inflows and integrating Ethiopia into the global economy.
The first breakthrough for the banking sector came in December 2024, when parliament passed the Banking Business Proclamation No. 1360/2024.
The landmark law reopened the sector to foreign players after a 50-year hiatus, allowing international lenders to launch full operations. Still, the new legislation was missing a framework for entry.
That came in last June, when the National Bank of Ethiopia (NBE) issued the Directive on Licensing and Renewal of Banking Business and Representative Offices (SBB/94/2025). The directive formally openedEthiopia’s doors to outsiders by permitting foreign investors to apply for banking licences and acquire stakes in local lenders.
To protect domestic interests, however, the NBE built in safeguards through ownership caps. Under the directive, foreign strategic investors may hold up to 40% in an Ethiopian bank, while overall foreign ownership is limited to 49%.
Another key provision is a 5 billion ($34.4 million) capital requirement for foreign-owned subsidiaries and branches which must be deposited in acceptable foreign currency with the central bank.
Together, these two policies dismantled decades of protectionism and set the stage for Ethiopia’s banking market to welcome regional and global competition.
Untapped market
Ethiopia’s appeal to foreign lenders is further strengthened by a large underbanked market and a rapidly-growing economy.
With more than 130 million people, it is Africa’s second-most populous nation after Nigeria and already ranks among the continent’s largest economies by gross domestic product.
The International Monetary Fund (IMF) projects average annual growth of more than 7.4% between 2025 and 2030, underscoring its long-term potential.
Yet financial access remains significantly low.
World Bank data show that only 46% of Ethiopian adults held a bank or mobile money account in 2022, compared with nearly 80% in Kenya, 77% in Rwanda and 66% in Uganda.
The gap underscores decades of state dominance in the banking and telecommunications sectors.
For foreign banks, this represents a rare opening to capture new customers in a market of significant scale as the government races to raise banking access to 70% by the end of the year.
Additionally, recent reforms in the country’s telecom industry, such as the entry of Kenya’s Safaricom and its mobile money business, suggests a willingness to use foreign participation to fast-track inclusion.
Emerging concerns
While foreign interest in Ethiopia’s banking sector is seen as a sign of confidence, risks remain, particularly for domestic lenders who, analysts warn, could be crowded out during the liberalisation process.
“Ethiopian banks are considerably smaller compared to their regional peers,” Mered Fikireyohannes, CEO of Pragma Capital, a local capital advisory firm, told The Africa Report.
His caution comes amid indications that the central bank may pursue mergers among local lenders as foreign competition intensifies.
“Higher stake would be considered depending on economic interests and systemic risks,” Fikireyohannes added, in reference to a clause in the NBE’s new directive that allows for full foreign takeovers in cases deemed critical to economic development or necessary to stabilise distressed institutions.
Awash International Bank, Bank of Abyssinia, and Dashen Bank — three of the country’s biggest privately owned banks — currently hold asset base of under 350 billion birr ($2.4 billion), comparable lower than regional counterparts
Ethiopia has about 32 banks, most of which are considered small-sized. The sector is dominated by the state-owned Commercial Bank of Ethiopia, which controls 22% of the market.
Beyond the banking space, Ethiopia’s fiscal position continues to cast a shadow on its growth prospects. A joint IMF–World Bank Debt Sustainability Analysis (DSA) published this month flagged unsustainable debt levels, worsened by dwindling reserves and repeated breaches of export-related indicators.
Following a $3.6 billion peak in the third quarter of 2024, Ethiopia’s forex reserves have steadily declined, falling to $3.4 billion in Q1 2025 and remaining unchanged in Q2. The consistent drop has further eroded the country’s debt-carrying capacity.
In March, the government reached an agreement in principle with official creditors under the G20 Common Framework. A debt treatment memorandum is expected soon, potentially easing financing strains and lowering debt distress to moderate levels by 2027/28, when the current IMF programme ends.
Still, both institutions warned that restructuring alone may not be enough. Ethiopia remains vulnerable to export shocks, currency depreciation, and political instability, raising the risk of a prolonged financial crisis if deeper reforms aren’t implemented.
Enter Eyob Tekalign
Against this backdrop, Eyob Tekalign assumed the role of NBE governor on September 19, just two weeks after Mamo Mihretu’s resignation.
As central bank chief, Eyob is at the centre of the country’s most pressing challenges, with observers saying his biggest task will be balancing immediate pressures with long-term reforms.
Encouragingly, his appointment signals continuity rather than disruption. In his previous roles as state finance minister and an NBE board member, Eyob was focal to Ethiopia’s economic reform agenda and helped shape key banking policies.
Market participants say this institutional memory alongside his credibility with donors and creditors are critical at a time of fragile investor sentiment. “For investment, his appointment will lure foreign investors because of the trust he has gained during negotiations with lenders and the Bretton Woods institutions,” a senior Ethiopia bank executive told local media.
With nearly two decades of experience spanning government, academia, international organisations and the private sector, Eyob brings a solid track record. But his effectiveness will be judged less on pedigree than on how quickly he signals policy direction.
Double-digit inflation, currency volatility, and a fragile financial market, remain immediate risks, and investors are looking for reassurance that the central bank can anchor stability while reforms take shape.
Note: Kenyan shilling and Ethiopian birr figures were converted to their estimated US dollar equivalent using KES129.2/$1 and ETB145.2/$1 as of September 25, 2025.
