Feb 7, 2023

Mawazo Writing Africa

Writing about the main

Banks eyeing Ethiopian market to partner with local lenders

Foreign banks wishing to enter Ethiopia could be required to have a local partner to establish a business in the country, whose unbanked population stands at 75%. This is in line with new proposed rules being drafted by Addis Ababa.

This means Kenyan banks, which have had their sights set on the Ethiopian market for years, could be forced to make acquisitions or joint ventures with local ones set up partners to operate in the country.

“Opening-up may be limited to regional banks only…on a joint-venture basis with local banks,” an adviser spearheading the liberalization process said over the weekend quoted by Ethiopian publication The Reporter.

“This will be easy for the central bank to handle. The first goal is to stimulate the foreign exchange inflow. Many revisions to the legal framework are underway and many are at the draft stage.”

Ethiopia set up a banking sector liberalization committee in March this year, taking a major step in opening the door to Kenyan lenders to increase operations in the populous nation.

Read:Ethiopia moves to allow access for Kenyan banks

The committee has already started work begun to amend Ethiopia’s half-a-century-old financial code that blocked foreign investment, meaning the long-awaited easing of restrictions on foreign banks investing in Ethiopia is closer.

The new code of law governing the country’s banking sector will allow Ethiopia’s opening up of the financial sector, the local central bank said last week.

“We are creating the right environment for that. Once we complete the revision of the legal procedures, the banking sector will be opened up,” Ethiopian Central Bank Governor Yinager Dessie was quoted as saying by the local press last week.

“The opening will be completed in a win- Win situation without affecting local banks. The opening up will greatly benefit the economy, local banks and other businesses as well.”

The new Financial Services Code will define the modalities of foreign banks’ involvement in Ethiopia’s financial industry.

Kenyan Banks led by KCB and Equity Group initially preferred to start from scratch in the regional markets but have now focused on acquisitions and spent billions of shillings on the expansion and diversification plan.

KCB previously said that if Ethiopia’s economy would be liberalized and foreign banks would be allowed to invest, the institution would consider partnering with a local bank.

Alternatively, the bank could set up an independent company.

KCB opened a representative office in Addis Ababa in 2015 to have it ready in the market when opportunities arise.

Equity opened a representative office in Addis A in 2019 beba. Co-op Bank previously said it would prefer to enter the Ethiopian market through a joint venture with Co-op ment in a deal similar to its business in South Sudan, in which the government has a stake.

< p>Read:Equity Bank enters the Ethiopian market

Ethiopia has a population of 110 million people – the second largest in Africa after Nigeria – offers significant business opportunities. Less than 15 percent of Ethiopians have access to a bank account, highlighting the opportunity for foreign lenders.

There are currently 18 commercial lenders in Ethiopia, two of which are state-owned, according to the central bank.

< p>Kenyan banks have had their sights set on the Ethiopian market for years due to the country’s large population.

While the representative offices open up trade or export finance opportunities for local banks, the deal is in comparison to normal banking, the a subsidiary would be seen as less lucrative.

This is because trade between the two countries is still limited, with Kenya’s exports to its northern neighbors hovering around Sh9. 4 billion annually compared to Uganda’s 72.2 billion Shs and Tanzania’s 31.8 billion Shs.