1. Ethiopia’s Legal Framework for Foreign Bank Entry
The Proclamation requires all foreign bank investments to be made as Foreign Direct Investment (FDI) in foreign currency. It sets strict licensing requirements, prohibits unlicensed banking activities, and grants the NBE broad regulatory powers. It also defines permitted entry modalities, capital requirements, property ownership rules, profit repatriation rights, and employment conditions for foreign nationals.
2. Modality of Entry and Capital Requirement
Foreign banks may enter through four modalities: establishing a subsidiary, opening a branch, setting up a representative office, or acquiring shares.
- Foreign Bank Subsidiaries: A foreign bank subsidiary is a locally incorporated and independently operating legal entity established and controlled by a foreign bank strategic investor, registered under Ethiopian law with its head office in Ethiopia, and treated as a domestic bank. As set out in the directive, a minimum capital of ETB 5 billion fully remitted in an acceptable foreign currency is required to establish a foreign bank subsidiary, which must also have a board of directors, with at least one-third of the total number of directors being non-shareholder Ethiopian nationals.
- Foreign bank branch: Foreign bank branch, on the other hand, is not locally incorporated and does not have separate legal status from its parent bank; it may engage in either deposit-taking or non-deposit-taking activities, but not both. The minimum capital required to establish such a branch is ETB 5 billion, which must be fully remitted in an acceptable foreign currency.
- Representative office: Lastly, a representative office is the most limited form which is not allowed to conduct banking activities such as accepting deposits or issuing loans, and its role is typically limited to market research, building business relationships, and supporting the parent bank’s clients in the host country. Investigation fee of USD 1500, a licensing fee of USD 1500 and deposit of at least USD 100,000 is required to establish representative office.
- Share Purchase: A foreign bank may enter the Ethiopian banking sector by acquiring shares in an existing domestic bank, as one of the permitted entry modalities under the proclamation and directive.
3. Property Ownership
Foreign banks can own property in Ethiopia, but only for purposes related to their banking business like opening branches or offices. This allows them to have a proper physical presence in the country. If foreign banks acquire property through foreclosure or mortgage, this will continue to be governed by the current laws of Ethiopia.
4. Employment of Foreign Nationals
With prior approval from the national bank, foreign nationals can hold important roles like CEO and senior executives in banks, but only if there are no qualified Ethiopian candidates available. Foreign employees may serve in key positions for up to five years, during which they are expected to transfer their knowledge and skills to local staff, after which they must be replaced by qualified Ethiopian nationals.
5. Repatriation of Profit
The Proclamation allows the repatriation of dividends, salaries of foreign employees, and other investment returns, subject to the fulfillment of tax obligations. The directive emphasizes that the transfer of profits must be made through the formal banking system and in compliance with the Foreign Exchange Directive FXD 01/2024 of the National Bank of Ethiopia.
6. Personal Data Protection
Banks, including foreign subsidiaries and branches, must retain and handle personal and transaction data within Ethiopia. However, the Licensing Directive permits the transfer of data that does not include personally identifiable information to another country, provided that prior written approval is obtained from the National Bank of Ethiopia.
7. Licensing and Renewal of Foreign Banks
Licensing involves a two-stage process: pre-application and formal application. In the pre-application phase, the NBE reviews the bank’s ownership, governance, and strategic plan. The application phase requires submission of full documentation, including proof of capital, business plans, and regulatory approvals. The NBE has 90 days to decide once a complete application is received. Fees for investigation, licensing, and renewal are fixed and non-refundable.
7.1 Licensing of Foreign Bank Subsidiary
Applicants must first obtain NBE’s preliminary approval by providing governance details, ownership structure, regulator “no objection” letters, and capital proof. In the application stage, they must submit business and financial plans, organizational structures, proof of capital payment, and facility ownership or lease documents. Minimum paid-up capital is ETB 5 billion.
7.2 Licensing of Foreign Bank Branch
Requirements are similar to subsidiaries, with the additional appointment of a resident senior country officer. Branches must operate as either deposit-taking or non-deposit-taking and cannot combine both. Additional branches can be opened without extra capital if approved by the NBE.
7.3 Licensing of Representative Office
Representative offices must register with the Ministry of Trade and Regional Integration, obtain NBE licensing, and maintain a USD 100,000 operational deposit. They cannot engage in banking or use “Bank” in their name but may promote services, conduct market research, and facilitate business links. All existing offices must re-license with the NBE within six months of the Directive’s effect.
8. Licensing and Renewal Fees
The directive sets out specific licensing and renewal fees applicable to domestic and foreign banks, as follows:
- Domestic Bank:
o Investigation Fee: Birr 100,000
o Licensing Fee: Birr 500,000
o Renewal Fee: Birr 200,000
- Foreign Bank Subsidiary:
o Investigation Fee: USD 2,500
o Licensing Fee: USD 150,000
o Renewal Fee: Birr 200,000
- Foreign Bank Branch:
o Investigation Fee: USD 2,500
o Licensing Fee: USD 150,000
o Renewal Fee: Birr 200,000
- Representative Office:
o Investigation Fee: USD 500
o Licensing Fee: USD 1,500
o Renewal Fee: Birr 75,000
Note, these fees are non-refundable and must be paid at the time of application as part of the licensing process.
9. Commencement of Operation
As clearly stated in the directive, any licensed bank must begin its banking operations within 12 months from the date the National Bank grants the license. The bank is required to formally notify the National Bank in writing of its readiness to commence operation, confirming that it has met all the operational requirements outlined in the directive before commencing its activities.
Conclusion
The opening of Ethiopia’s banking sector to foreign investment marks a significant shift in the country’s financial and regulatory landscape. The Proclamation No.1360/2025 and Directive No. SBB/94/2025 establish a clear and comprehensive legal framework that outlines the entry modalities, capital requirements, and licensing procedures for foreign banks and representative offices. Through structured processes and well-defined criteria, the National Bank of Ethiopia aims to ensure that only credible and financially sound foreign institutions enter the market. This reform is expected to enhance competition compelling domestic bank improve service delivery, and support the broader goals of economic development and technology adoption.