Ethiopia’s financial sector has historically been characterized by protectionist policies aimed at preserving domestic banking institutions. For decades, the exclusion of foreign banks was justified by a perceived need to protect nascent local banks, support monetary policy controls, and preserve foreign exchange reserves. However, the government’s Homegrown Economic Reform Program (HERP), launched in 2019, signaled a gradual shift toward liberalization.
In February 2022, Prime Minister Abiy Ahmed publicly committed to opening the financial sector to foreign competition. This commitment has now materialized through Banking Business Proclamation No. 1360/2025 and the accompanying NBE Directive No. SBB/94/2025. Together, these instruments usher in a new legal regime enabling the licensing of foreign bank subsidiaries, branches, and representative offices in Ethiopia for the first time.
This regulatory breakthrough aligns with Ethiopia’s broader economic goals, including its accession to the World Trade Organization (WTO), increased financial inclusion, improved capital allocation, and integration with the African Continental Free Trade Area (AfCFTA).
Purpose and Legal Foundation of the Directive
The directive is grounded in the National Bank’s statutory authority to regulate and supervise banking institutions. Its stated objectives include ensuring financial stability, safeguarding depositor interests, enhancing prudential oversight, and promoting competitive neutrality between foreign and domestic banks. The directive applies broadly to individuals and entities intending to obtain or renew licenses to engage in banking operations or to establish representative offices in Ethiopia. It sets out foundational regulatory principles, emphasizing the importance of cooperative oversight between domestic and foreign regulators, adherence to internationally recognized banking standards, and the National Bank of Ethiopia’s discretionary authority in the licensing process.
Licensing Framework for Foreign Bank Subsidiaries
Foreign bank subsidiaries are required to incorporate in Ethiopia and are treated as locally registered entities. The directive introduces a multilayered licensing process that begins with a pre-application phase, where prospective entrants submit business rationales, governance models, and regulatory clearances from home supervisors. The formal application phase demands a comprehensive submission, including a business plan, organizational structure, risk framework, and detailed financial projections.The directive imposes a minimum paid-up capital requirement of ETB 5 billion, to be fully remitted in acceptable foreign currency.
Additionally, the directive caps foreign shareholding in domestic banks at 49%, with a maximum of 40% permitted for a single foreign strategic investor. Fit and proper assessments are required for shareholders, directors, and chief executive officers. The NBE is given 90 calendar days to review completed applications and licensed subsidiaries must commence operations within 12 months. Before doing so, they must meet robust operational readiness standards, including governance systems, internal policies, physical infrastructure, and staffing.
Licensing and Operational Rules for Foreign Bank Branches
Foreign bank branches, by contrast, are not separate legal entities and are subject to direct obligations by the parent foreign bank. The directiverequires a permanently assigned branch capital of ETB 5 billion, to be inwardly remitted in foreign currency. The branch must designate a senior country officer residing in Ethiopia, who serves as the regulatory contact and is responsible for local operations. Applicants must provide extensive information on business strategy, IT systems, risk controls, and service providers.
Importantly, branches are restricted to one operational model: they may be either deposit-taking or non-deposit-taking, but not both. Foreign banks must submit a letter of undertaking to guarantee the solvency and compliance of their Ethiopian operations, ensure management quality, support distressed branches, and adhere to NBE directives. The parent bank is also obligated to notify the NBE of any significant developments affecting its Ethiopian operations.
Regulation of Representative Offices of Foreign Banks
The directive also creates a licensing framework for representative offices, which are limited to non-banking activities such as liaison functions, market research, and promotional engagements. These offices are expressly prohibited from engaging in any banking business, including deposit-taking or lending. Applicants must submit authenticated founding documents, a no-objection letter from the home regulator, and proof of a minimum USD 100,000 inward cash deposit. The chief representative officer must be fit and proper and cannot concurrently hold positions in other financial institutions in Ethiopia.
Representative offices are subject to operational conditions, including segregation from local banks, annual reporting obligations, and advance notifications of any material changes. A transitional provision requires all representative offices previously licensed by other government bodies to relicense under the NBE within six months of the directive’s effective date.
Data Localization and Sovereignty Provisions
A defining feature of the directive is its strong emphasis on data sovereignty. Article 9 mandates that all core banking data—including customer information, account records, and backups, must be stored and processed within Ethiopia. While foreign bank branches may use parent company systems, all data must be locally mirrored. Transfers of non-customer data outside the country are allowed only upon prior NBE approval, and must be supported by service level agreements, encryption, audit protocols, and evidence of adequate data protection in the destination jurisdiction.
Licensing and Renewal Fees
The directive introduces a detailed licensing fee structure that applies to both domestic and foreign banking institutions, designed to reflect the type and scope of the licensed activity. Article 10 sets out the amounts payable at various stages of the licensing process.
For domestic banks, the investigation fee is ETB 100,000 and the licensing fee is ETB 500,000. For renewal of an existing license, a fee of ETB 250,000 is required.
In the case of foreign entities, the fees must be paid in acceptable foreign currency. A foreign bank establishing a subsidiary in Ethiopia is required to pay an investigation fee equivalent to USD 10,000 and a licensing fee of USD 25,000. The renewal fee for a foreign bank subsidiary license is set at USD 15,000.
For foreign bank branches, the investigation fee is USD 10,000, and the licensing fee is USD 20,000. The renewal of a branch license attracts a fee of USD 15,000.
In the case of representative offices, the investigation fee is USD 5,000, while the licensing fee is USD 10,000. Renewal of the license for a representative office requires payment of USD 7,500.
These non-refundable fees must be paid in full before the processing of the application and serve both as a cost-recovery mechanism for the National Bank and a screening measure to ensure applicants possess adequate financial and operational capacity. The directive also stipulates that payment confirmations must accompany all license applications as a condition precedent to further review by the NBE.
Supervisory Architecture and Regulatory Philosophy
Underlying the directive is a clear commitment to harmonizing Ethiopia’s regulatory regime with international norms such as the Basel Core Principles for Effective Banking Supervision. The NBE is empowered to assess the integrity and capability of applicants and to refuse or defer licenses in the public interest. Cooperation with home regulators is a recurring requirement, particularly through information-sharing agreements and supervisory colleges for systemic foreign banks. This architecture reflects a deliberate balancing act: opening the sector to credible foreign institutions while preserving the integrity, autonomy, and prudential oversight of the Ethiopian financial system.
Conclusion: A Calibrated Opening with Strong Guardrails
Directive No. SBB/94/2025 introduces a formal legal framework for the licensing and supervision of foreign bank subsidiaries, branches, and representative offices in Ethiopia. It sets out minimum capital requirements, detailed application procedures, operational standards, and compliance obligations. Foreign banks are subject to the same prudential requirements as domestic banks and must provide formal undertakings to support local operations and cooperate with the National Bank of Ethiopia.
The directive outlines distinct rules for each type of foreign presence, limits permissible activities, and mandates local data storage. Licensing and renewal fees are specified, and all applicants must undergo fit and proper assessments. The National Bank retains full discretion over the approval process and may impose licensing moratoria when necessary.
Overall, the directive marks a regulatory shift that enables foreign banking institutions to enter the Ethiopian market within a defined legal and supervisory framework. Its impact will depend on how applicants respond and how effectively the National Bank administers its oversight functions.
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