As Africa’s largest lenders circle Ethiopia’s newly-opened financial market, Absa is opting for caution.
The South African lender says that while the country’s recent banking sector reforms are encouraging, it will only consider entry once the rules are less restrictive.
“We are closely following developments in Ethiopia and we think the first few necessary steps have been taken, but we would like to see more opening of the regulatory environment insofar as it relates to banking in that market,” Absa Group Chief Executive Officer Kenny Fihla told The EastAfrican earlier this week.
Ethiopia began opening its banking sector to foreign investors in December 2024, when the National Bank of Ethiopia issued Business Proclamation No. 1360/2025. The law allows foreign institutional investors and foreign nationals to acquire stakes in local banks for the first time in more than 50 years, marking a significant shift for one of Africa’s most tightly controlled financial systems.
The move immediately caught the attention of several of the continent’s largest lenders.
Kenya’s KCB Group and Equity Group, Djibouti’s Banque pour le Commerce et l’Industrie Mer Rouge (BCIMR), and South Africa’s Standard Bank Group have all publicly expressed interest in the Horn of Africa economy, drawn by its large population and low levels of financial inclusion.
Absa, however, remains unconvinced that the regulatory framework is ready.
A partial opening
While the reforms mark progress, they come with strict guardrails designed to protect domestic lenders.
Under the new rules, foreign institutional investors are capped at a 40% stake in local banks, while foreign nationals may hold up to 49%.
Without the ability to exert meaningful control over their investments, some lenders are reluctant to commit capital to a market that is still navigating broader macroeconomic and currency challenges.
“When we are of the view that we have the necessary comfort at the threshold required for us to make a long-term decision, we will definitely consider entry into that market,” Fihla said.
Absa remains one of South Africa’s Big Five lenders, with a market value of $15.8 billion (R255.7 billion) as of February 4,2026.
East Africa, via Kenya
Absa’s wait-and-see approach on Ethiopia contrasts with its more active stance elsewhere in East Africa, particularly in Kenya, where the lender is exploring new acquisitions to expand its footprint.
The group already operates a Kenyan subsidiary with assets of $4.29 billion (Ksh554.32 billion) and views the country as a natural base for regional growth. Kenya’s regulatory environment is seen as relatively predictable, with clearer rules on ownership, capital and supervision.
If Absa proceeds with a deal, it would join a growing list of heavyweight African banks widening their presence in Kenya. Just last month, Nigeria’s Zenith Bank announced that it had received regulatory approval to acquire Kenya’s Paramount Bank, while South Africa’s Nedbank agreed to buy a 66% stake in NCBA Bank.
Fihla said Absa continues to assess both organic and inorganic growth opportunities across the region, adding that regulatory clarity remains central to its strategy.
Regulation drives consolidation
Analysts link the renewed deal activity in Kenya to regulatory changes introduced in late 2024 when Central Bank of Kenya began implementing a phased increase in minimum core capital requirements under the Business Laws (Amendment) Act.
The threshold rose from Ksh1 billion to Ksh3 billion by the end of 2025 and is set to climb to Ksh10 billion by 2029. The higher requirements have pushed smaller lenders to seek capital injections, merge with peers or explore sale options.
By the end of 2025, several banks had already secured fresh capital from parent companies and external investors to meet the new standards, accelerating consolidation in the sector.
Ethiopia still in transition
Despite reform momentum, Ethiopia has yet to record a completed entry by a foreign bank, with the sector still dominated by local lenders led by the state-owned Commercial Bank of Ethiopia and a growing cohort of private banks.
While foreign interest remains strong, execution has been slow, reflecting a cautious approach from both regulators and prospective investors.
Absa’s stance highlights the balancing act many African lenders now face: acknowledging Ethiopia’s long-term potential while waiting for clearer signals that the operating environment can support sustained foreign participation.
Economists say the country’s large market gives it a natural advantage, but attracting durable foreign banking investment will depend on deeper regulatory alignment, policy consistency and sustained macroeconomic stability.
“Across Africa, countries that strengthened regulatory frameworks, adopted Basel standards, improved legal certainty and maintained macro-financial stability have attracted more sustainable foreign banking investment,” said Yisehak Teka Nibere, an Addis Ababa–based analyst.
For now, Absa remains on the sidelines — engaged, interested, but not yet convinced the timing is right.
