Quick Summary

Ethiopia has just taken a historic step by opening its banking industry to foreign investors. The new Banking Business Proclamation No. 1360/2025 allows reputable international banks and investors to participate directly in Ethiopia’s financial sector — a major shift from the long-standing policy that reserved banking for domestic ownership only.

Here are the key takeaways:

  • Who Can Invest: Well-established and financially sound foreign banks can now operate in Ethiopia.

  • How They Can Invest: Foreign banks can establish subsidiaries, open branches, or acquire shares in local banks.

  • Investor Types: Strategic investors (large global banks or financial institutions) can open subsidiaries or branches, while non-strategic investors may only buy shares.

  • Foreign Ownership Limits: Foreign nationals can hold up to 7% of shares, and foreign-owned Ethiopian entities up to 10%, with a total foreign ownership cap of 49%.

  • Diaspora Inclusion: Ethiopians abroad can now invest in Ethiopian Birr and be treated like domestic investors.

  • Next Steps: The National Bank of Ethiopia (NBE) will issue detailed directives on licensing, minimum capital, and governance requirements.

This reform follows Ethiopia’s broader liberalization journey, including the opening of the telecom sector, and signals a strong commitment to economic modernization.

In-Depth Legal Analysis

1. A Milestone in Ethiopia’s Financial Liberalization

Ethiopia’s new Banking Business Proclamation No. 1360/2025 marks a historic shift in the country’s economic policy. By repealing the Banking Business Proclamation No. 592/2008 and its amendment No. 1159/2019, the new law opens the banking sector — previously reserved for local investors — to foreign participation for the first time.

This change is expected to attract foreign capital, strengthen competition, enhance access to financial services, and align Ethiopia with international banking standards.

2. Who Qualifies as a Foreign Bank

The Proclamation defines a “foreign bank” as a bank or banking group incorporated under foreign law, holding a valid banking license from its home regulator, and conducting active banking operations either in its home country or abroad.

Only well-established, reputable, and financially sound foreign banks will be eligible to invest. The National Bank of Ethiopia (NBE) will further specify qualifying criteria through future directives.

3. Modes of Entry for Foreign Investors

Foreign banks can now enter Ethiopia’s market through three main investment routes:

  1. Establishing a Subsidiary:
    Creating a separate Ethiopian company — fully or partially owned — that operates as a local bank.

  2. Opening a Branch:
    Operating directly as a branch of the foreign parent bank. A branch may either take deposits or operate without deposit-taking authority, but not both.

  3. Acquiring Shares:
    Buying shares in an existing or newly formed domestic bank.

4. Strategic vs. Non-Strategic Investors

The Proclamation classifies investors into two categories:

  • Strategic Investors:
    Large, reputable foreign banks, state-owned banks, international development finance institutions, and similar entities.
    These investors may establish subsidiaries or branches.

  • Non-Strategic Investors:
    Foreign investors who do not meet strategic criteria.
    They are limited to acquiring shares in existing Ethiopian banks.

The NBE will issue directives defining what qualifies an investor as “strategic” and detailing ownership and governance requirements.

5. Subsidiary Rules

A foreign bank subsidiary must be controlled by a strategic investor and incorporated in Ethiopia. Control is considered to exist if the parent company:

  • Owns or controls more than 50% of voting shares.

  • Has the power to influence financial and operational policies.

  • Can appoint or remove a majority of the board members.

  • Exercises effective control at shareholder meetings.

Each subsidiary must have a board composed of representatives from the parent bank, local shareholders (if any), and non-shareholder Ethiopian residents.

6. Branch Operations

A foreign bank may establish a branch in Ethiopia, either deposit-taking or non-deposit-taking. Branches have no separate legal personality; thus, the foreign parent is directly liable for all obligations of the branch.

Each branch must appoint a Senior Country Officer who manages local operations, ensures compliance, and represents the bank before the NBE.
The NBE will later issue detailed directives outlining permissible branch activities.

7. Acquisition of Shares in Domestic Banks

Foreign participation through shareholding is now permitted:

  • Strategic investors: May acquire up to 40% of the total subscribed shares of an existing or new domestic bank.

  • Foreign nationals: May acquire up to 7% of subscribed shares.

  • Foreign-owned Ethiopian organizations: May acquire up to 10%.

  • Total foreign ownership cap: 49% of a bank’s subscribed capital.

All foreign investments must be made in foreign currency, and dividends may be repatriated or reinvested in Ethiopian Birr within the ownership limits.

8. Investment by the Ethiopian Diaspora

The new law continues to support the Ethiopian Diaspora’s participation. Diaspora investors can now invest in Ethiopian Birr, removing the prior restriction that required foreign-currency-only investments. They will be treated as domestic investors for ownership purposes, though repatriation of dividends or sale proceeds in foreign currency remains limited.

The NBE will issue directives governing these transactions and related currency rules.

9. Representative Offices

The authority to license and regulate foreign bank representative offices now shifts from the Ministry of Trade and Regional Integration to the NBE.

Representative offices can only perform non-commercial activities — such as liaison, marketing, or research — and cannot offer banking services.
Existing representative offices must re-register with the NBE under the new framework.

10. Capital and Currency Requirements

Domestic banks must currently maintain a minimum paid-up capital of ETB 5 billion (approximately USD 39 million). For foreign banks, subsidiaries, and branches, the NBE will determine separate thresholds through directives.

Key highlights:

  • Capital for subsidiaries must be fully paid in advance in cash.

  • Capital for branches must be inwardly remitted and converted to Birr.

  • All investments by foreign nationals or foreign-owned entities must be in foreign currency.

  • Representative offices’ minimum capital will also be defined later.

11. Registration and Licensing Requirements

Banks under formation must have all issued shares subscribed and minimum capital paid into a blocked account before licensing.

Applicants must also publish a notice of intent to conduct banking business twice in a widely circulated newspaper and online.
The NBE must approve all constitutional documents — including the Memorandum of Association, declarations, and shareholder minutes — before granting a license.

12. Regulatory Oversight by the NBE

The Proclamation grants the National Bank of Ethiopia broad regulatory powers, including the ability to:

  • Set minimum capital thresholds for foreign entrants.

  • Define permissible branch activities.

  • Establish licensing and governance standards.

  • Regulate dividend repatriation procedures.

  • Limit the number of foreign banks or their share of total banking assets.

  • Define strategic investor eligibility.

  • Set board composition and qualification rules.

  • Oversee corporate governance and staff transfers between parent and local entities.

These directives will form the operational backbone of foreign banking participation in Ethiopia.

Conclusion

The Banking Business Proclamation No. 1360/2025 represents a defining moment in Ethiopia’s financial evolution.  It signals the government’s commitment to a gradual, well-regulated liberalization process — following the telecom sector’s opening — while maintaining firm regulatory control through the National Bank of Ethiopia.

The forthcoming NBE directives will determine how this liberalization unfolds in practice. For investors, this marks a long-awaited opportunity to engage in one of Africa’s most promising emerging markets. For Ethiopia, it represents another step toward building a modern, competitive, and globally connected financial system.