Ethiopia has constituted a committee to liberalise the banking sector, taking a major step in opening the door for Kenyan lenders such as KCB Group to set up operations in the populous nation.

The committee has already started work to amend Ethiopia’s half-a-century old financial code, local reports said meaning the long-awaited easing of restrictions on foreign banks making investments in Ethiopia has inched closer.

A new code guiding the country’s banking sector will allow the opening up of the financial sector, the head of the committee was quoted saying. Business Daily learnt that the committee’s work plan states the first draft of the financial services code must be ready by December 2022.

Led by Alemante Agidew, Legal and Justice Service Division State Minister at the Ethiopian Ministry of Justice, the committee convened at Hyatt Regency Hotel on March 17, 2022, in Addis.

“The new code is necessitated to cope with the new direction the economy is going in. This includes a capital market and opening up of the economy for foreign players,” Mr Alemante was quoted saying by Ethiopian publication The Reporter.

The new Financial Service Code will determine engagement modalities of foreign banks in Ethiopia’s financial industry.

The latest development looks set to excite top Kenyan banks such as Equity Group and KCB Group which have expressed ambitions to run fully-fledged operations in the neighbouring country.

At present Ethiopia has 18 commercial lenders, two of which are state-owned, according to the central bank.

Kenyan banks have had their sights on the Ethiopian market for years due to the country’s huge population.

Its 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.

KCB opened a representative office in Addis Ababa in 2015 to have it ready in the market when the opportunity to run fully-fledged banking operations arises.

This followed the 2012 deal that allowed Kenyan banks to open representative offices but barred full banking operations in Ethiopia including direct lending and deposit-taking.

This means that the local lenders cannot generate deposits or lend directly to Ethiopian companies and households, but they can conduct research and credit assessments to allow lending from their headquarters in Kenya.