The history of banking in Ethiopia

Before, 1994, Ethiopia’s banking sector was state-owned. However, since then, the country’s banking system has become mostly private-owned, triggering immense growth. But just, how did that happen?

History of banking in Ethiopia

The first modern bank in Ethiopia was built after an agreement between Emperor Minilik II (1844-1913) and Mr Ma Gillivray, a representative of the British-owned National Bank of Egypt, in 1905.

Inaugurated on the 16th of February, 1906, Ethiopia’s first bank was named the Bank of Abyssinia (BoA) and it was managed by the Egyptian National Bank.  \The Bank of Abyssinia (BoA) had the authority to issue bank notes, monitor coins, and perform other financial duties on behalf of the government. Although the BoA was the only bank in Ethiopia, it faced a lot of difficulties before it was closed.

As a result of the losses it continued to accrue and other factors, BoA was legally replaced in 1931 by The Bank of Ethiopia (BoE) after Emperor Haile Selassie came to power. The Bank of Ethiopia (BoE) was entirely owned by the Ethiopian government and it was established by an official decree on the 29th of August, 1931.

Like the BoA, The Bank of Ethiopia (BoE) also had the authority to issue notes and coins. Its growth was stopped by the Italian invasion in 1935, but it commenced full operation again on the 15th of April 1943. During its run, the BoE acted as a central bank and a commercial bank. It was also granted the sole right to issue currency and deal in foreign currency. This continued until 1963 when the Ethiopian Monetary and Banking law was formed.

The 1963 Ethiopian Monetary and banking law separated the function of commercial and central banking in Ethiopia. The law also limited the maximum ownership of foreign banks in Ethiopia to 49%.This led to the Ethiopian government splitting The Bank of Ethiopia into two: The National Bank of Ethiopia (NBE) and The Commercial Bank of Ethiopia (CBE).

The National Bank of Ethiopia (NBE) took over the central bank duties while the CBE took over the commercial banking aspects of the Bank of Ethiopia (BoE).

The first privately owned bank in Ethiopia, Addis Ababa Bank Share company, started operating in 1964 and other financial institutions like the Imperial Savings and Home Ownership Public Association (ISHOPA) were also established after the proclamation. However, after the declaration of socialism in 1974, the Ethiopian government extended its control and nationalised all the large corporations in the country.

Addis Ababa bank was merged with the Commercial Bank of Ethiopia (CBE) in 1980 and the merged bank was the sole commercial bank in Ethiopia until the Monetary and Banking proclamation of 1994.

After the collapse of the socialist regime in 1991, the EPRDF declared a liberal economic system, separated the National Bank of Ethiopia from government rule, and allowed the establishment of private banks in Ethiopia. Shortly after the proclamation, Awash International Bank was established in 1994. Since then, Ethiopia has grown to have over 30 commercial banks with 8,944 branches as of June 30, 2022.

There are currently no foreign-owned banks, but Ethiopia’s government has allowed a few foreign banks to open liaison offices in Addis Ababa.

The National Bank of Ethiopia

After the 1963 Ethiopian Monetary and Banking law, the National Bank of Ethiopia (NBE) became Ethiopia's central bank. During the government's socialist rule, the powers of the NBE increased and it was granted the power to participate in Ethiopia’s national planning.

This continued until EPRDF ended socialist policies in 1991. The modified monetary and banking proclamation of 1994 established the National Bank of Ethiopia (NBE) as a judicial entity separate from the government and it outlined the roles, functions, and duties expected from the National Bank of Ethiopia.

Some of the duties of the NBE include:

• Printing currency and controlling the country's money supply.
• Managing the international reserve of the country
• Creating and managing the country's exchange rate policy.
• Licensing, supervising, and regulating commercial banks, insurance companies and other financial institutions.
• Providing short and long-term refinancing facilities to banks and other financial institutions.
• Acting as a banker, fiscal agent and financial advisor to the Government.

Types of banks in Ethiopia

As of 2022, Ethiopia has 29 commercial banks, 1 development bank, and 40 microfinance institutions. As there are no foreign-owned banks in Ethiopia, commercial banks in Ethiopia fall under two main categories: state-owned and private-owned banks.

The National Bank of Ethiopia (NBE), the Development Bank of Ethiopia (DBE), and the Commercial Bank of Ethiopia (CBE) are the only state-owned banks in Ethiopia while the remaining banks are privately owned.

Here is a full list of the 29 commercial banks in Ethiopia:

1. Abay Bank S.C
2. Addis International Bank S.C
3. Ahadu Bank S.C
4. Amhara Bank S.C
5. Awash International Bank
6. Bank of Abyssinia
7. Berhan International Bank
8. Bunna International Bank
9. Commercial Bank of Ethiopia
10. Cooperative Bank of Oromia
11. Dashen Bank
12. Debub Global Bank S.C
13. Development Bank of Ethiopia
14. Enat Bank S.C
15. Goh Betoch Bank S.C
16. Gadaa Bank S.C
17. Hibret Bank
18. Hijira Bank S.C
19. Lion International Bank
20. Nib International Bank
21. Oromia Bank
22. Shabelle Bank S.C
23. Sidama Bank S.C
24. Siinqee Bank S.C
25. Tsedey Bank S.C
26. Tsehay Bank S.C
27. Wegagen Bank
28. ZamZam Bank S.C
29. Zemen Bank

Conclusion

As part of its plans to liberalise its economy, Ethiopia has enacted several reforms to redefine its banking sector. One of Ethiopia’s recent moves was to legalise the entry of foreign banks in Ethiopia during the 13th regular meeting held by the Ethiopian Council of Ministers in September 2022.

Although a lot of laws still need to be passed before foreign banks can fully operate in Ethiopia, this new regulation will boost competitiveness among local banks and create job opportunities for unemployed youths in Ethiopia.