Gov’t Pushes Mergers And Acquisitions As Banks Brace For Liberalization, Capital Deadline

Increasingly urgent discussions over mergers and acquisitions have moved from the boardrooms of commercial banks to the most senior levels of government as officials and regulators push to consolidate the industry ahead of foreign entry and a looming deadline for the central bank’s improved paid-up capital requirements.

Senior officials and regulators at the National Bank of Ethiopia (NBE) signaled their appetite for mergers and acquisitions during the Finance Forward Ethiopia Conference organized by the Office of the Prime Minister this week.

Statements made during the event indicated that mergers will be the central bank’s next priority under Governor Eyob Tekalign (PhD), with regulators reportedly already crafting a directive to guide the process.

The industry has been mulling the prospect of mergers and acquisitions since 2021, when the NBE, then led by Yinager Dessie (PhD), issued a directive requiring commercial banks to raise their paid-up capital to five billion Birr by a quickly approaching deadline of June 30, 2026.

While many have already met or surpassed it, several of the country’s 31 commercial banks still lag far below the threshold. Insiders say the prospect of foreign banks joining the industry and rumors of another jump in minimum capital requirements as a way to correct for the Birr’s devaluation over the past year and a half are pushing boards and executives to reckon with mergers as a real alternative.

“NBE has already set the groundwork for mergers and acquisitions. Some banks are also in talks about whether they can find suitable matches [for mergers],” a banking executive told The Reporter, speaking anonymously.

Meanwhile, the banker points out that several microfinance institutions (MFIs) based in Addis Ababa are in the waiting line for a license to operate as a full-fledged commercial bank.

“At the same time that the government is pushing banks to consolidate through merger and acquisition, it is also considering granting licenses to new banks,” said the banker, noting the irony. “In the digital era, banks are not a must for banking. The economy needs banking, not banks. Wallets, digital banking platforms like Telebirr, and fintechs are better serving the cause of access to finance.”

He also notes that banks do not necessarily have to be large to serve the economy.

“Bank classification or bank specialization is a common practice globally. Not all banks have to be similarly large. Some banks are good at serving specific businesses, sectors, regions, industries or client bases. So as long as they are good at that frontier, they should not be forced to become large or merge,” argues the banker. “The economic segment and client base they serve should be the key indicative measure, not only the capital threshold.”

He also noted that Ethiopia’s commercial banks are formed along strong identity grouping instead of business feasibility, and warned that forcing mergers could lead to a crisis.