Experts predict minimal disruption to local banking market
Experts anticipate limited impact from foreign financial firms as Ethiopia opens its market. During a panel discussion hosted by Zemen Bank on the theme ‘Economic Liberalization and the Future of Banking in Ethiopia,’ experts examined the implications of foreign financial firms entering the Ethiopian market. The consensus indicated that while the market will open to competition, the influence of foreign banks is expected to be minimal.
Prominent economist Tewodros Mekonnen emphasized the urgent need for macroeconomic reforms to rectify past policy errors. He explained how government development policies have affected the country’s macroeconomic landscape.
Tewodros pointed out that excessive money printing has undermined the economy, stating, “If we are loose with our money—printing and injecting it without control—we intentionally make it cheap.” He asserted that no amount of patriotism could save a currency if economic policies continued to devalue it.
Regarding foreign exchange liberalization, Tewodros acknowledged public skepticism but argued that reforms are essential to address long-standing mistakes. “We have already been making errors; now is the time to fix them,” he said, stressing that Ethiopia should implement these reforms independently without relying on international organizations.
On the entry of foreign banks, Tewodros, a Senior Country Economist at the International Growth Centre, expressed doubt about their anticipated influence.
“I see it like any other foreign direct investment in Ethiopia,” he explained, noting that foreign banks generally cater to their own investors rather than engage in broad market competition. “Their involvement will likely be limited, and I do not expect them to disrupt Ethiopia’s banking sector.”
He likened the situation to Safaricom’s gradual entry into Ethiopia’s telecom sector, suggesting that foreign banks would require time to adapt. “Local banks already have profitable business streams. Unless something disrupts their operations, their growth will remain healthy.” He predicted no significant economic shifts, only potential improvements in efficiency and product innovation.
Dereje Zebene, President of Zemen Bank, supported this perspective, stating that foreign banks would likely target niche areas such as technology and human capital rather than focus on market volume. “In countries like India, local banks outperformed global players because they could mobilize resources more effectively,” he noted, suggesting that Ethiopian banks could similarly thrive.
Million Kibret, Managing Partner of BDO Ethiopia and the panel moderator, highlighted that foreign banks face due diligence challenges in Ethiopia. “The lack of reliable KYC infrastructure and customer databases is a major hurdle,” he said, predicting that foreign banks would conduct thorough market analyses before entering, indicating that their arrival would not be swift.
Dereje concurred, adding that data reliability is a concern not only for foreign investors but also for local banks, particularly in micro-lending.
Tewodros drew comparisons with Ethiopia’s previous liberalizations, such as the entry of private banks three decades ago and the opening of the telecom sector.
“Just as those changes did not upend the market, foreign banks will not bring about an extraordinary shift.” He highlighted the dominant role of state-owned banks like the Commercial Bank of Ethiopia, which operates under government policy, making it unlikely for foreign banks to capture significant market share.
“Still, as a nation, we must prepare for competition,” he concluded, emphasizing cautious optimism about the evolution of Ethiopia’s financial sector.
The discussion underscored that while Ethiopia’s banking sector is opening to global players, local institutions remain well-positioned to sustain stability and growth.
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