The National Bank of Ethiopia (NBE) has officially codified the most significant transformation of its financial sector in decades with the issuance of Directive No. SBB/94/2025. This comprehensive document, effective June 25, 2025, lays out the stringent rules for licensing and operating banking businesses, formally opening the market to foreign competition while establishing a robust regulatory fortress to ensure stability.

The directive is a meticulously crafted framework that moves beyond mere policy statements, providing a detailed rulebook for foreign banks seeking entry. It balances the government’s goal of attracting foreign capital, technology, and expertise with a non-negotiable insistence on regulatory compliance, risk management, and protection of the local financial ecosystem.

Here is a detailed analysis of the directive’s key components.

1. The Three Gateways: Structuring Foreign Bank Entry

The directive provides three distinct and clearly defined modes for foreign banks to establish a presence in Ethiopia. The choice of structure carries significant legal and operational implications.

• Foreign Bank Subsidiary (Part Two):

  • Structure: A foreign bank can establish a locally incorporated bank as a separate legal entity (a share company) under Ethiopian law. This subsidiary can be wholly or partially owned by the foreign “strategic investor.”

  • Capital: Requires a minimum paid-up capital of Birr 5 billion, which must be fully paid in an “Acceptable Foreign Currency” (USD, Euro, or Pound Sterling).

  • Governance: To ensure local context and oversight, the directive mandates that at least one-third of the subsidiary’s board of directors must be of Ethiopian nationality(Article 6.3.4.i).

  • Operations: Operates as a full-fledged bank with the ability to offer all banking services, similar to a domestic bank.

• Foreign Bank Branch (Part Three):

  • Structure: A direct operational arm of the foreign parent bank, not a separate legal entity. Its liabilities are the liabilities of the parent bank.

  • Capital: Requires a minimum “Branch Capital” of Birr 5 billion, permanently assigned by the parent bank and remitted to Ethiopia in acceptable foreign currency.

  • Types: A foreign bank can choose to open either a deposit-taking or a non-deposit-takingbranch. However, a single foreign bank is prohibited from operating both types simultaneously (Article 7.4.3).

  • Management: Must be managed locally by a “Senior Country Officer” and a “Branch Management Committee” responsible for local operations and oversight.

• Representative Office (Part Four):

  • Structure: The most limited form of presence. It is strictly forbidden from conducting any banking business (Article 8.22).

  • Permissible Activities: Its role is confined to liaison, marketing research, brand promotion, facilitating relationships between its parent bank and local entities, and exploring investment opportunities (Article 8.21).

  • Funding: The foreign bank must make a cash deposit of at least USD 100,000 to cover the office’s annual operational expenses (Article 8.16).

  • Naming: The name must explicitly state its function, using the phrase “representative office of…” before the foreign bank’s name (Article 8.22.1).

2. The High Bar for Entry: Vetting, Capital, and Due Diligence

The NBE has embedded a multi-layered screening process to ensure only reputable and financially sound institutions enter the market.

• The “Fit and Proper” Gauntlet: This is the cornerstone of the vetting process. All “Persons with Significant Influence” (major shareholders, directors, CEOs, senior officers) must pass a rigorous test. The questionnaires in Annex II and Annex VII probe for:

  • Criminal convictions related to fraud or dishonesty.

  • Past regulatory sanctions or refusal of licenses.

  • History of bankruptcy or loan defaults.

  • Disputes with previous employers or professional associations.
    This ensures that the individuals steering the new banks are of high integrity and competence.

• Home-Host Supervisory Cooperation: No foreign bank can enter Ethiopia without the blessing of its home country’s regulator.

  • No Objection Letter: A formal “no objection letter” from the home supervisor is a prerequisite for both subsidiaries and branches (Articles 6.1.6.b and 7.1.7). This letter must confirm the bank is in good standing, meets prudential requirements, and is supervised on a consolidated basis.

  • Information Sharing Agreements: The NBE requires a signed agreement with the home supervisor covering information sharing, cross-border supervision, and crisis management cooperation before a license is granted (Articles 6.3.9.a and 7.3.12).

• Detailed Business and Operational Plans:Applicants must submit a comprehensive and credible plan detailing:

  • A three-year business plan with financial projections, target markets, and competitive strategy.

  • A robust organizational structure, including key functions like risk management, internal audit, and compliance.

  • Plans for information technology, cybersecurity, and business continuity.

  • A capital and liquidity contingency plan.

3. Strict Rules of Engagement: Key Operational Mandates

Once licensed, banks are subject to stringent operational rules designed to protect the integrity of the Ethiopian financial system.

• Data Sovereignty and Localization (Article 9):This is a critical and potentially costly requirement for entrants.

  • For Foreign Bank Subsidiaries: Article 9.1.1 is unequivocal: they “shall be required to store and process customer data, account information and transaction records as well as, data related to its core banking business, both primary and back-up data, within Ethiopia.”

  • For Foreign Bank Branches: While they may use the parent bank’s core system, Article 9.1.2 mandates that they “shall store and process customer data, both primary and back-up data, within Ethiopia.”

  • Implication: This rule enhances the NBE’s supervisory reach, aligns with Ethiopia’s Personal Data Protection Proclamation (No. 1321/2024), and is a key national security consideration. It prevents data from being exclusively held in foreign jurisdictions, outside the NBE’s direct oversight.

• Shareholding Limits in Domestic Banks (Article 6.3.2.f): While foreign banks can own 100% of a subsidiary, their participation in domestic banks(new or existing) is capped:

  • Strategic Investor: A foreign bank acting as a strategic investor in a new domestic bank cannot hold more than 40%.

  • Aggregate Foreign Ownership: The total shareholding by all foreign nationals and foreign-owned organizations in a domestic bank is limited to 49%.

  • Individual Limits: Standard limits of 7% for natural persons and 10% for juridical persons apply.

4. The Cost of Doing Business: Fees and Renewals

The directive establishes a transparent, multi-tiered fee structure, with foreign entities paying higher fees in foreign currency.

All licenses must be renewed annually between July 1 and September 30.

5. Transition and Housekeeping

• Transition for Existing Offices: Representative offices licensed by other government bodies prior to this directive are given a six-month window to re-license with the NBE and meet all new requirements (Article 8.24).

• Repeal of Old Directives: This directive officially repeals and replaces the previous “Requirements for Licensing and Renewal of Banking Business Directive No. SBB/56/2013” and related articles from other fee directives, signaling a clean slate under the new liberalized regime (Article 15).

In conclusion, Directive SBB/94/2025 is more than just an invitation; it is a detailed contract with the global financial community. The NBE is clearly communicating that while Ethiopia’s doors are now open, entry will be granted only to those who are well-capitalized, well-governed, and willing to operate under a framework of robust local oversight and data sovereignty. This directive will undoubtedly be the foundational text for the transformation of Ethiopia’s banking sector for years to come.