In a historic shift, the National Bank of Ethiopia (NBE) on Wednesday issued a directive that officially opens the country’s banking sector to foreign investors, ending decades of protectionist policy.
The directive titled “Requirements for Licensing and Renewal of Banking Business and Representative Office” provides the legal framework for international banks and strategic investors to enter the Ethiopian market via subsidiaries, branches, or representative offices.
The move follows the 2023 passage of the Banking Business Proclamation and reflects a year of stakeholder consultations. Effective immediately, foreign banks may now apply to the NBE for market entry.
Operations via various channels
The NBE will be responsible for licensing and supervising foreign representative offices. The central bank expects the reform to bring capital inflows, improve service quality, and enhance financial inclusion through increased competition and efficiency.
In addition to strengthening the financial sector, these measures are expected to boost the country’s economy.
Foreign banks and investors looking to enter the Ethiopian market may now apply to the NBE with immediate effect.
Background story
Techpression reported last year that Ethiopia’s parliament had passed a new law which officially opens the nation’s banking sector to foreign investments for the first time to boost economic growth, encourage innovation, and increase competitiveness.
The new legislation titled “Banking Business Proclamation” marks a historic step towards banking sector liberalisation and a turning point for one of Africa’s biggest but most isolated economies.
The press statement released by the National Bank of Ethiopia last year stated that the new legislation will “provide a legal framework that would allow opening of the banking sector for foreign investment, enabling foreign banks and investors to contribute to the economic development of the country.”
The declaration, which follows years of debate, presents a methodically regulated strategy for banking market opening that strikes a balance between safeguards for local ownership and stability and the requirement for foreign investment and experience.
Prime Minister Abiy Ahmed’s government’s larger economic reform plan aligns with the decision, as Ethiopia aims to modernise its banking institutions, draw in international investment, and set itself up for World Trade Organisation (WTO) membership.
The opening of Ethiopia’s banking industry shows the government’s will to modernise the economy and draw in foreign investment, marking a dramatic shift from decades of protectionist policies.