Foreign Banks Entry Boosts Competitiveness in Ethiopia's Banking Industry: Policy Research Institute

Addis Ababa, December 26, 2024 – The entry of foreign banks into Ethiopia is expected to significantly enhance the country's banking industry and improve its competitiveness, according to the Policy Research Institute.

The House of Peoples' Representatives of Ethiopia recently approved a new banking proclamation that allows foreign banks to operate within the Ethiopian market.

Banking industry experts believe this development could address critical issues such as the shortage of foreign currency and improve access to affordable loans.

The presence of foreign banks is also anticipated to elevate Ethiopia's banking sector on the global stage.

Coordinator of the Macro-Policy Department at the Policy Research Institute, Tewelde Girma highlighted the urgent need to improve banking access in Ethiopia, where only 60 percent of the population currently holds bank accounts. He emphasized that to align with global standards; Ethiopia would need to open over 500 new bank branches annually.

The entry of foreign banks is expected to motivate local financial institutions to enhance their services, diversify revenue streams, and adopt innovative strategies.

 "This move will push domestic banks to improve their offerings and embrace technology, ensuring their competitiveness in an evolving financial landscape," Tewelde said.

He also expressed confidence in the ability of Ethiopian banks to compete effectively. The influx of foreign expertise and technology could particularly benefit the retail banking and credit sectors, fostering growth and innovation.

Tewelde encouraged local banks to adopt digital solutions and streamline operations to cut unnecessary costs and maintain their market share.

Furthermore, he underscored that the entry of foreign banks represents not just a challenge but a significant opportunity for investment and wealth management. This development has the potential to transform Ethiopia’s financial landscape by enabling local banks to expand, innovate, and offer enhanced services.