Ethiopia has officially opened its banking sector to foreign investors for the first time, signaling the most significant transformation of its financial system in decades.

The landmark move is central to the government’s broader strategy to liberalize financial institutions and marks a decisive break from the nation’s long-standing closed banking model.

The announcement came on Tuesday from the National Bank of Ethiopia (NBE), which unveiled Directive SBB/94/2025.

The directive sets out a comprehensive regulatory framework to guide foreign participation in Ethiopia’s banking industry.

With immediate effect, foreign financial institutions and investors can apply for banking licenses, paving the way for joint ventures with local players or direct market entry, as reported by AddisInsight.

Analysts believe the deregulation could attract international names like Standard Chartered, Ecobank, and Gulf banks, which may explore joint ventures or fully owned subsidiaries.

In a country where formal banking penetration remains around 40% among a population of more than 120 million, the reform lays a foundation for increased capital inflows, enhanced technical innovation, and greater efficiency.

While specific timelines for license approvals have not yet been announced, the regulatory clarity and firm political backing are expected to spur international interest and reshape Ethiopia’s banking landscape.

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This move builds on Ethiopia’s June 2024 economic liberalization plan, which allowed foreigners to buy stakes in domestic banks and permitted international banks to set up subsidiaries locally.

The cabinet approved the policy as part of a broader effort to open up the economy.

Ethiopia’s shift toward a more open banking sector comes at a pivotal moment for the country’s financial future.

The government sees it as a critical step toward attracting investment, advancing financial inclusion, and driving economic growth as the continent’s second-most populous nation moves to integrate more fully with the global financial system.

In February 2025, Ethiopia’s ambassador to Russia, Genet Teshome Jirru, said during an interview that Ethiopia and Russia were moving toward conducting trade in their own national currencies.

He highlighted the potential benefits, including reduced transaction costs and lower economic uncertainty, if the plan advances.

Additionally, Ethiopia signed a $3.4 billion, four-year reform package with the International Monetary Fund in July 2024.

The package includes major reforms such as the flotation of the Ethiopian birr, already implemented, and an ongoing $8.4 billion debt restructuring with official creditors, steps aimed at stabilizing the economy and boosting investor confidence.

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Image Credit: Borkena Ethiopian News