Banks unable to raise 5bln before June 2026 will be forced to consolidate, regulators warn

The executives of private commercial banks are pushing back against a proposal from the National Bank of Ethiopia (NBE) seeking to force banks that fail to meet a five billion Birr minimum paid-up capital requirement before the June 2026 deadline into mergers.

NBE regulators first introduced the requirement in a directive in April 2021, more than doubling the capital threshold and granting banks five years to comply with the new minimum.

With less than a year to go, the central bank says it is ready to step in and actively oversee the consolidation process, which could affect even the oldest names in the industry.

Speaking during the Ethiopian Finance Forum at the Commercial Bank of Ethiopia (CBE) headquarters last week, NBE Vice Governor Solomon Desta announced that commercial banks that cannot meet the requirement before the end of the fiscal year will be forced into mergers.

“The NBE will decide which banks merge and will enforce that decision. Banks should prepare for this regulatory action,” he stated, eliciting a mix of laughter and uncertainty from industry leaders in attendance.

Despite the NBE’s firm stance, the executives of private commercial banks who spoke to The Reporter voiced their strong opposition to the decision.

“We have no plans to merge with another bank,” a senior manager at a mid-sized bank told The Reporter, speaking anonymously. “We’re already working toward fulfilling the five billion Birr minimum capital requirement. We are not opposed to mergers in principle, but the industry needs the right environment and adequate preparation for it.”

His bank has a paid up capital of over 3.5 billion Birr.

Nonetheless, the manager emphasized that mergers are not a concept to be pursued blindly.

“Mergers are not a cure-all. Before merging, banks need to understand each other’s operational environment, philosophies, strategies, strengths, and weaknesses,” he said.

The manager concedes that mergers are inevitable in the global context, but argues they should be approached strategically rather than enforced through regulatory compulsion.

He also noted that foreign partnerships could be a better path forward for capital enhancement, particularly through strategic investors—an option allowed under the recently amended Banking Business Proclamation.

“If local capital mobilization is insufficient, partnering with foreign investors could enhance competitiveness,” he said.

The manager warned that without groundwork, forced mergers may result in internal conflicts and inefficiencies.

His peers and industry experts seem to agree.

Wolde Bulto serves as president of Gadaa Bank, which benefits from a three-year extension on the capital requirement deadline as a result of it still being under formation when the directive was issued in 2021. He says that while mergers are a potential option, Gadaa is not considering one at the moment.

“Mergers and acquisitions remain a possible strategy, but we haven’t initiated local merger talks. We’re focusing on building capital and exploring strategic partnerships, including foreign investments,” Wolde told The Reporter.



Industry observers like Abdulmenan Mohammed (PhD), a London-based financial analyst keeping a close eye on Ethiopian banking, question the validity of the reasoning behind the requirement. He expressed dissatisfaction with the NBE’s claims that the directive is aimed at strengthening the industry ahead of the foreign banks’ entry.

“Forced mergers don’t necessarily offer more benefits than drawbacks,” Abdulmenan told The Reporter. “Many banks established before 2012 can meet the capital requirement. It’s the newer banks that face challenges.”

At the time the directive was introduced, the banking industry was awash with a flood of new entrants which nearly doubled the number of commercial banks in Ethiopia over the space of a few years.

Entrants like Siinqee and Amhara banks have long since surpassed the capital threshold. Abdulmenan notes the feat may be too much for banks like Hijra and Zamzam, despite them performing well in operational terms.

Others, such as Rammis and Tsehay, have incurred substantial losses and require urgent interventions—but not necessarily forced mergers, according to the expert.

“Merging a healthy bank with a struggling one poses serious governance and valuation issues,” he warned. “How will shareholders of a bank with eight percent returns accept merging with one earning just three? The stronger bank’s shareholders will be diluted, and that creates dissatisfaction across the board,” Abdulmenan explained.

He also pointed to the complex socio-political dynamics at many private banks, which were established along ethnic or religious lines.

“How can two such banks with vastly different cultures and priorities collaborate effectively?” he asked, adding that large-scale staff layoffs and branch closures would likely follow any mergers.

“In developed countries like the US or UK, thousands of banks exist. More banks mean better financial access and competition. Consolidation only for the sake of reducing numbers doesn’t make sense,” said Abdulmenan.

The analyst also dismissed fears over foreign competition.

“Kenya’s KCB Bank, which is expected to enter the Ethiopian market, has assets that are not significantly greater than Awash Bank’s, which holds only about five percent market share in Ethiopia. Is KCB really such a threat to local banks?” asked Abdulmenan.

He estimates that close to a dozen of the 32 commercial banks may struggle to meet the capital requirement, but insists that mergers should be evaluated case by case, not through a blanket policy.

However, not all experts oppose the NBE’s approach.

Dakito Alemu (PhD), an associate professor of accounting and finance at Addis Ababa University, argues the NBE is within its legal rights in forcing banks into mergers. He cites the Banking Business Proclamation, which grants the central bank the mandate to enforce statutory mergers to protect the stability of the financial sector.

Dakito argues the NBE’s move is a proactive measure to help local banks withstand foreign competition and ensure financial stability.

“If some banks cannot meet the minimum requirement, they can still enter voluntary mergers with others under NBE guidance,” he said.

The expert encourages banks to consider raising capital by listing on the Ethiopian Securities Exchange (ESX), which offers an opportunity to attract investment by selling shares to the public.

Although Dakito’s advice is sound, a former banker with a deep understanding of the industry told The Reporter he believes the intention to force mergers has nothing to do with the pending entry of foreign competition.

Speaking anonymously, the ex-banker observes Ethiopian banks currently lack the capital strength necessary to withstand potential macroeconomic shocks.

He emphasized that meeting the capital adequacy ratio—or the minimum required paid-up capital—is a globally accepted standard in banking. To illustrate his point, he compared it to building a house:

“A house without a strong foundation can be washed away by floods or other natural disasters. Similarly, the NBE is preparing for potential economic disruptions as the country opens up—not just in banking, but across the broader economy,” the ex-banker told The Reporter.

He noted that protecting depositors’ funds and ensuring banks have the capacity to absorb economic shocks is critical, especially as various risks could emerge from multiple sectors.

The global standard for capital adequacy is eight percent, but the NBE requires Ethiopian banks to maintain a 15 percent ratio, he noted.

“Many banks are struggling to meet this requirement, which indicates that they are undercapitalized,” he said.

The insider also highlighted the USD 700 million recently injected into the state-owned CBE by the World Bank as a move aimed at strengthening its shock absorption capacity.