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Ethiopia is on the verge of a historic financial transformation, with a Kenyan banking giant poised to become the first foreign bank to operate in the country in over 50 years. This milestone comes after the Ethiopian government passed the Banking Business Proclamation in December 2024, ending the decades-long restriction that prevented foreign financial institutions from entering the domestic banking industry. Under this new law, foreign banks can now operate in Ethiopia through subsidiaries, branches, representative offices, or equity investments in local banks.
The move is part of Prime Minister Abiy Ahmed’s broader economic liberalization agenda, which seeks to modernize Ethiopia’s financial system, improve financial inclusion, attract foreign direct investment, and stabilize the macroeconomic environment following years of conflict. Kenya’s leading financial institutions particularly KCB Group and Equity Bank are widely seen as front-runners in this new era. Both banks have previously expressed interest in entering the Ethiopian market and have the regional footprint and capital to establish a strong presence. If finalized, KCB or Equity Bank would mark the first entry by a foreign bank into Ethiopia since the sector was nationalized in 1975.
The new banking law outlines key restrictions and requirements: strategic foreign investors can hold up to 40% in Ethiopian banks, while non-strategic foreign nationals are limited to 7% and foreign corporate entities to 10%. Total foreign ownership in any Ethiopian bank cannot exceed 49%, ensuring majority control remains with Ethiopian nationals. Foreigners will also be allowed to serve in executive roles, although boards must include Ethiopian citizens.
This reform is expected to bring multiple benefits, including access to international capital, improved banking technologies, enhanced customer service, and increased competition in the sector. Kenya’s banks, known for their digital innovations and inclusive banking models, are expected to influence Ethiopia’s financial landscape significantly. The entry of foreign banks could particularly benefit underbanked rural populations and SMEs by offering more diverse financial products and credit options.
However, there are concerns among local banking professionals and policymakers. Critics argue that foreign banks may focus on profitable urban markets, neglecting Ethiopia’s broader financial inclusion goals. Others fear that increased competition may threaten the survival of smaller local banks. To address these concerns, the National Bank of Ethiopia (NBE) has introduced stronger regulatory oversight, including higher capital requirements, crisis management frameworks, and regulatory sandboxes to test fintech innovations.
The government has also mandated that all banks meet a minimum paid-up capital of 5 billion birr by 2026 to strengthen the sector’s resilience. These steps aim to ensure that the entry of foreign banks does not destabilize the local economy but instead supports Ethiopia’s development goals.
Beyond Kenya, other African financial institutions, such as Nigeria’s FirstBank and fintech companies like Flutterwave, have shown interest in Ethiopia’s newly opened financial space. Ethiopia, with a population of over 120 million and a largely unbanked population, represents a lucrative market for regional and global financial players.
The next steps involve the NBE finalizing licensing requirements, reviewing applications, and granting approvals expected by late 2025. Kenyan banks are exploring different entry strategies some may establish new branches, while others may invest in or acquire stakes in existing Ethiopian banks.
This development marks a turning point in East African finance. Kenya’s likely emergence as the first foreign banking presence in Ethiopia in half a century underscores the region’s growing financial integration and Ethiopia’s commitment to reform. If implemented successfully, this move could serve as a model for balancing foreign participation with national financial sovereignty, unlocking new opportunities for businesses and citizens alike.
