The New Banking Business Proclamation No. 1360-2025
Ethiopia enacted a new Banking Business Proclamation No. 1360/2025 ("Proclamation") that allows foreign participation in the banking sector. The Proclamation repeals and replaces the Banking Business Proclamation No. 592/2008 and its amendment, Proclamation No. 1159/2019.
In this edition of our insight, we examine the key elements of the Proclamation, focusing on the liberalization of the banking industry and the proposed modalities for foreign engagement in the sector.
Sector Liberalization
Under the Investment Regulation, No. 474/2021, which regulates investment sectors, the provision of financial services is reserved for domestic investors only. These include, but not limited to, banking, insurance, or micro-finance services. With the enactment of the Proclamation, the banking business is liberalized (while insurance and micro-finance services will still remain closed from foreign investment).
Eligibility and Engagement Modality
The Proclamation provides that well-established, reputable, and financially sound foreign banks will be eligible to invest in Ethiopia. A "foreign bank" is a bank or a bank group incorporated under the laws of a country other than Ethiopia, which holds a banking license issued by its home country's regulator and conducts banking business either in its country of incorporation or in other jurisdictions.
The Proclamation outlines three investment modalities available to foreign banks. These are:
- Operating as a wholly or partially owned subsidiary of a foreign bank.
- Establishing a branch
- Acquiring shares in domestic banks
Further, the Proclamation provides the engagement approach for foreign investors based on the classification as either "strategic" or "non-strategic." Strategic investors can establish subsidiaries or branches, whereas non-strategic investors may only participate through share acquisition of existing banks. A foreign bank will be considered a "Strategic investor" if it is a foreign bank or a banking group with a good reputation in its country of incorporation, or owned by the government of the country where it was incorporated, or an international development finance institution, private equity fund, or other similar entities. The NBE will provide further details on eligibility to qualify as a strategic investor through future directives.
Foreign Bank Subsidiary
The Proclamation permits a foreign bank to establish a subsidiary in Ethiopia through partial or full ownership. The subsidiary may take various corporate forms, such as a share company or a private limited company. Additionally, the Proclamation provides that the subsidiary must be controlled by a "Strategic Investor" and be incorporated within Ethiopia. Under the Commercial Code, a subsidiary is a company subject to the control of another company (or a parent company). “Control” is established if the parent company meets any of the following conditions:
- owns, directly or indirectly, voting shares representing more than half of the subsidiary’s capital or has the right to exercise more than half of the voting rights through an agreement with other shareholders.
- has the right to control the financial and operating policies of the subsidiary.
- has the right to appoint or remove the majority of the governing body members, which has the power to run the business.
- acquires the right to exercise the majority of votes at a general meeting or equivalent body and thus, has actual control of the business
The Proclamation further provides that a foreign bank subsidiary, irrespective of its local company form, is required to have a board of directors composed of the foreign parent bank, other shareholders (if any), and local resident non-shareholder Ethiopians.
Foreign Bank Branch
The Proclamation allows foreign banks to incorporate a branch of a foreign parent bank. The branch may be established as a deposit-taking branch or a non-depositing-taking branch. However, the branch will not be allowed to carry out both. The type of activities to be undertaken by a foreign bank branch will be provided in a future NBE directive. It should be noted that under the Commercial Code and the Proclamation, a branch does not have a separate legal personality from the parent company. Accordingly, the Proclamation requires the foreign bank to guarantee the prompt payment of all liabilities of the foreign bank branch and observance of the constitutional rights of its employees. Additionally, a foreign bank with a branch in Ethiopia is required to appoint a senior country officer who meets NBE’s requirements. The officer will represent the foreign bank, manage the overall operation of the branch, submit consolidated reports, and serve as the main contact with the NBE.
Acquisition of Shares in an Existing or New Domestic Bank
In addition to the option of setting up a subsidiary or branch, the Proclamation permits foreign banks to enter the Ethiopian market through the acquisition of shares of domestic banks. Strategic investors may acquire up to forty per cent (40%) of the total subscribed shares of an existing or a new domestic bank. In exceptional circumstances, the proposed law authorizes the NBE to allow foreign banks to partially or fully acquire an existing domestic bank.
Acquisition of Shares by Foreign Nationals or foreign-owned Ethiopian Organizations
The Proclamation allows foreign nationals and foreign-owned Ethiopian organizations to acquire up to 7% and 10% of a bank’s subscribed shares respectively. Further, it caps the aggregate shareholding by foreign nationals and foreign-owned Ethiopian organizations in a bank at 49% of the total subscribed shares of the bank. Foreign-owned Ethiopian organizations include entities that are either fully or partially owned by foreign nationals.
Investment by foreign nationals and foreign-owned Ethiopian organizations is required to be made in foreign currency. Dividend earnings generated from such investments will be repatriated in foreign currency. However, the Proclamation allows dividend earnings from the investment made to be reinvested in the Ethiopian Birr to the extent the 49% aggregate shareholding limit is maintained.
Acquisition of Shares by Foreign Nationals of Ethiopian Origin (Ethiopian Diaspora)
Until 2019, only Ethiopian nationals were allowed to invest in the banking sector. The 2019 amendment to the banking business proclamation eased this restriction, allowing the Ethiopian Diaspora and organizations fully or jointly owned by them to acquire shares in Ethiopian banks or establish their own banks. However, the law imposed limitations on the currency of investment and rights to repatriation. Ethiopian Diaspora and entities owned by them were required to invest exclusively in foreign currency and were prohibited from repatriating proceeds from dividends, the transfer of shares, or the sale or liquidation of a bank.
The new Proclamation has eased this restriction by allowing Ethiopian Diaspora to invest in Ethiopian birr. The NBE will issue detailed directive to govern the purchase of bank shares in Ethiopian Birr or the establishment of a bank by Ethiopian Diaspora. However, while the Proclamation allows for Ethiopian Diaspora to invest in banks as domestic investors using local currency, there will not be any entitlement to repatriate any income or proceeds from this investment in foreign currency.
Foreign Bank Representative Offices
To date, foreign banks in Ethiopia could register representative offices under the auspices of the Ministry of Trade and Regional Integration. The Proclamation shifts the mandate of registering and regulating foreign banks' representative offices to NBE. Representative offices have limited operational scope, being permitted to only promote the goods and services of their parent companies. Representative offices not permitted to trade or provide services in Ethiopia.
Similarly, the Proclamation provides that a bank's representative office will be limited to performing representational functions, including liaison, marketing, research, and other similar activities. These offices are not authorized to provide banking services. Existing representative offices currently registered with the Ministry of Trade and Regional Integration must re-register with the NBE.
Minimum Capital and Currency Requirements
Currently, domestic banks are required to meet a minimum paid-up capital requirement of ETB 5 billion (~ USD 39Million), fully paid in cash and deposited in a bank. Banks established before April 2021 must fulfill the minimum paid-up capital by 30 June 2026, while banks formed after April 2021 have 7 years from the commencement of banking operation to meet the minimum paid-up capital requirement.
The Proclamation does not provide a minimum capital requirement for foreign banks and provides that NBE will determine the threshold at a later date. However, it provides that the capital required to establish a foreign bank subsidiary must be fully paid in cash in advance. Additionally, it requires the capital of a foreign bank branch to be inwardly remitted and converted into local currency.
Further, the Proclamation requires investments by foreign nationals or foreign-owned Ethiopian organizations to be made in foreign currency. The Proclamation is silent in relation to the minimum investment expected from foreign nationals or foreign-owned Ethiopian organizations, and it is not clear whether the USD 150,000 minimum capital investment under the Investment Proclamation applies to banking sector investments. It is expected that NBE will address this matter when setting the minimum investment requirements for foreign banks in a future directive.
The minimum capital requirement for a foreign bank representative office is not provided under the Proclamation. This is also expected to be regulated through directives of the NBE. Currently, the registration and licensing of Representatives Offices is subject to the Commercial Registration and Licensing Proclamation (with its implementing legislations) which requires the parent company to commit USD 100,000 annually.
Registration and Licensing Requirements
The Proclamation provides general licensing requirements for banks and NBE is expected to issue a detailed registration and licensing directive to complement the general licensing requirements. These include:
All issued shares of a bank under formation must be subscribed, and for a foreign bank subsidiary, the capital must be fully paid in cash in advance and deposited in a blocked bank account opened in the bank's name. For others, a minimum of one-fourth of the subscribed shares must be fully paid in cash.
Submission of completed application form and documents - the foreign bank, at least once a week for two consecutive weeks, publish in widely circulating newspaper and in electronic form, a notice of intention to engage in banking business that also contains a list of shareholders with significant ownership.
The NBE must approve the memorandum of association, unilateral declaration, and minutes of shareholders of the bank under formation.
Additional Regulations
The Proclamation grants the NBE broad regulatory mandate. Through directives, the NBE is expected to regulate the following key aspects of foreign participation in the banking business:
- The minimum capital requirement for foreign banks to invest in Ethiopia
- Permissible activities to be undertaken by foreign bank branches
- Licensing requirements for foreign banks and their representative offices
- Limits on the number of foreign bank subsidiary or branch that can be licensed, or limits on the percentage of the total assets of the banking system that can be owned by foreign banks.
- Procedures for dividend repatriation by foreign nationals and foreign-owned Ethiopian organizations
- Minimum criteria for foreign investor’s eligibility as a strategic investor
- Composition and criteria for board members of foreign banks
- Corporate governance and operational guidelines for foreign banks
- Transfer of foreign national employees from foreign banks to its branch/subsidiary.
- Financing and repayment of loans to parent companies of foreign banks with a branch in Ethiopia
Conclusion
The enactment of the new Proclamation heralds a new era of banking in Ethiopia. The policy shift to liberalize the sector for foreign investment underscores the country’s ongoing liberalization trajectory, which began with the telecom sector’s liberalization in 2019. Furthermore, the Proclamation reinforces the NBE’s central regulatory role in the banking sector. The directives to be issued by the NBE will be crucial in providing clarity and ensuring that foreign banks operate within a well-defined legal framework, contributing to the stability and growth of the Ethiopian banking sector.