Authored By: Mebrahtu Fitsum
Adigrat University
Introduction
The Banking Business Proclamation No. 1360/2025 will bring to an end Ethiopia’s decades-long policy of barring foreign capital from financial markets. Following Directive No. Under SBB/95/2021, the National Bank of Ethiopia (NBE) requires commercial banks to maintain five billion Birr paid-up capital. A number of smaller domestic institutions are facing considerable liquidity problems as the deadline of June 30, 2026 approaches. Global financial liberalization will impose standards which will put under-capitalized domestic private banks out of business.
This article argues that NBE’s power to order involuntary consolidation within the ambit of Article 33 creates a regulator regime for takeovers. It is submitted that forced mergers may undermine domestic ownership and national control that statutory shareholding limits seek to promote. Regulators need not choose between the short-term objective of solvency and the longer-term goal of safeguarding the domestic banking industry from foreign ownership. The paper provides an outline of the regulatory framework for bank merger, reviews the NBE 2026 Financial Stability Report and put forth a guided voluntary action for the merger.
The Statutory Framework for Bank Consolidation
The proclamation provides the legal framework for the structural change of Ethiopian banking industry. The National Bank of Ethiopia has various powers, according to Article 33, which include reorganising domestic banks. The regulator has the power under article 48 to impose compulsory rehabilitation measures on financial institutions in case of serious distress. As per Article 58, we have the power to wind down institutions that create systemic risk. A foreign bank having stature with international experience can be a strategic investor as per the declaration.
Article 13(3) generally limits foreign equity participation to 40% of the aggregate shares subscribed Together, these provisions vest overall restructuring powers in the central bank. The regulator devised these regulations to ensure that only credible banks are allowed to operate.
Legislative Analysis of the Capital Adequacy Mandate
The current push for forced consolidation is justified by regulators through SBB/95/2021 directive. As per the instruction, the paid-up capital of the domestic commercial banks has to be five billion Birr. If banks do not meet this threshold, then regulator may involuntarily statutory consolidate them. The 2016 merger of the CBE and CBB is a noteworthy landmark in history. This new framework formally consents to the NBE acting as a Resolution Authority, unlike that political decision. Proclamation 1359/2025 gives the necessary macro-prudential tools to execute these forced combinations. The regulator says that those measures are needed to safeguard depositors against a potential institution failure. Supporters of this policy argue that the bigger the size of banks, the greater the resilience. All domestic financial institutions will have a closing date of June 2026 as part of this.
Critical Analysis of Regulatory Coercion and Sovereignty
The Financial Stability Report of March 2026 is an important source of empirical evidence on banking sector health. The report states that sixteen banks would have difficulty during a severe liquidity stress test. Nevertheless,the report further confirms the Capital Adequacy Ratio being a healthy 19.1 per cent overall. This percentage is far above the eight percent minimum needed to comply with global banking norms. The difference indicates that capital shortages do not mean operational failure will occur outright for small banks. The NBE is using its institutional might to direct mergers without credible evidence, it is submitted. The regulator must balance the need for solvency while preserving domestic institutional autonomy.
This article argues that regulatory coercion facilitates a backdoor for foreign control of domestic banks. The five-billion Birr threshold acts as a significant barrier to the growth of domestic financial institutions. The NBE may favor foreign strategic investors to provide the capital required for distressed domestic banks. While this restores solvency, it risks diluting the influence of domestic shareholders over the national economy. Regulators must avoid the false dichotomy of choosing between immediate forced consolidation or total systemic collapse. The NBE should utilize the Regulatory Sandbox under Article 2(55) to test alternative capital-raising models. Specialized banks focusing on interest-free services or niche rural credit provide essential financial access to underserved populations. Forced mergers often prioritize balance sheet size over the broader socio-economic objective of financial inclusion.
It is further submitted that the dilution of domestic ownership weakens the link between banking and national development. Foreign strategic investors typically prioritize dividend repatriation over the long-term financing of local small and medium enterprises. The loss of local control over credit allocation may hinder the implementation of national economic strategies. The regulator must demonstrate that involuntary consolidation is the least restrictive means of achieving stability. Economic sovereignty requires a banking system that balances global performance standards with domestic institutional survival. The NBE should encourage voluntary, market-driven partnerships through the newly established Ethiopian Securities Exchange. Promoting organic growth through public equity offerings allows banks to remain under domestic ownership while meeting capital targets. A guided voluntary approach ensures that bank consolidation remains a tool for empowerment rather than a mechanism for takeover. Protecting the domestic banking core is vital for maintaining economic independence during the liberalization process. Future directives must clarify the safeguards intended to prevent the total foreign dominance of the financial sector.
Conclusion
Banking Proclamation No. 1360/2025 provides the National Bank of Ethiopia with extensive powers to mandate involuntary mergers. Current directives require all domestic commercial banks to raise five billion Birr in paid-up capital by June 2026. While systemic stability is vital, the sector currently maintains a strong overall Capital Adequacy Ratio of 19.1 percent. This article argues that regulatory coercion risks diluting domestic ownership in favor of foreign strategic investors. It is submitted that the NBE should avoid forcing mergers between operationally healthy small banks and larger entities.
The regulator should adopt a guided voluntary approach to bank consolidation to preserve national economic sovereignty. This article proposes that the NBE extend the capital compliance deadline for specialized institutions and newer market entrants. Domestic banks must have adequate time to utilize the Ethiopian Securities Exchange for public capital mobilization efforts. Future directives should establish a neutral facilitation unit to support market-driven mergers rather than mandating lopsided acquisitions. Protecting the domestic banking core is essential for directing credit toward national development goals during financial liberalization.
Reference(S):
Primary Sources (Statutes and Directives)
– Banking Business Proclamation No 1360/2025, Federal Negarit Gazette, 31st Year No 28, Addis Ababa, 12 March 2025.
– National Bank of Ethiopia Establishment Proclamation No 1359/2025, Federal Negarit Gazette, Addis Ababa, 2025.
– National Bank of Ethiopia, ‘Minimum Capital Requirement for Banks’ (Directive No SBB/95/2021).
– Trade Competition and Consumers’ Protection Proclamation No 813/2013, Federal Negarit Gazette, Addis Ababa, 2013.
Secondary Sources (Journal Articles and Reports)
– Amin Tadesse Assfaw, ‘Bank Merger Regulation and Enforcement in Ethiopia: The Need for Fitness or Wellness Approach’ (2021) 5 Hawassa University Journal of Law 27.
– International Monetary Fund, The Federal Democratic Republic of Ethiopia: Fourth Review Under the Extended Credit Facility Arrangement (IMF Country Report No 26/20, Washington DC, January 2026).
– National Bank of Ethiopia, Financial Stability Report (Addis Ababa, March 2026).
– Mekdes & Associates, ‘The New Banking Business Proclamation No. 1360/2025: Key Legal and Regulatory Implications’ (Addis Ababa, April 2025).
Newspapers and Online Media
– Samson Hailu, ‘Consolidate or Collapse: Mergers and acquisitions as strategic lifeline for Ethiopian banks’ Addis Standard (Addis Ababa, 30 March 2026) <https://addisstandard.com> accessed 31 March 2026.
– Yared Nigussie, ‘Private Banks in Uproar over NBE’s Forced Merger Scheme’ The Reporter Ethiopia (Addis Ababa, 26 July 2025) <https://www.thereporterethiopia.com> accessed 31 March 2026.
– The Reporter Magazine, ‘16 Banks Fall Short in Liquidity Stress Test’ (Addis Ababa, 19 March 2026).
