By Ebi Kesiena
Ethiopia has taken a major step towards financial liberalisation as lawmakers approved the Banking Proclamation on Tuesday, allowing foreign banks to establish a presence in the country for the first time.
The new legislation provides multiple pathways for foreign banks to operate in Ethiopia, including setting up subsidiaries, opening branches or representative offices, and acquiring shares in local banks. However, strict regulations have been introduced to protect local interests.
Under the law, foreign nationals and foreign-owned Ethiopian entities are limited to owning a maximum of 49% of a local bank’s shares, with the remaining 51% reserved for Ethiopian ownership to ensure local control.
Foreign banks will also be permitted to hire foreign nationals as senior executives, but the law requires Ethiopian representation on the boards of these banks to maintain oversight and local inclusion.
This historic decision comes after six months of deliberation in Parliament, following the Council of Ministers’ endorsement of the draft legislation earlier this year. The Ethiopian government plans to issue up to five banking licences to foreign investors over the next five years, marking a pivotal moment in its strategy to integrate the country’s banking sector into the global financial market.
The move ends decades of exclusivity for local financial institutions, signalling opportunities for foreign competition and innovation. However, some lawmakers have voiced concerns about the potential dominance of well-capitalised foreign banks, warning of challenges for local banks in maintaining a level playing field.
This development aligns with Ethiopia’s broader economic reforms, including the recent flotation of its foreign exchange market, as the country continues to shift away from centralised financial controls.
