NBE Pushes For Bank Consolidation, Spotlights Market Share Disparity

Regulators at the National Bank of Ethiopia (NBE) are pushing commercial banks to consolidate, citing in a new report that 25 of the country’s 31 banks operate with a combined market share of less than 22 percent.

The central bank’s third annual Financial Stability Report, covering the 2024/5 fiscal year, outlines the continued dominance of the state-owned Commercial Bank of Ethiopia (CBE), which controls more than 49 percent of market share.

A total of six commercial banks, categorized as medium-sized in the report and presumably including veterans like Awash and Abyssinia, account for 29.1 percent of market share, while more than two dozen “small” banks control just 21.8 percent of the market, according to the report.

“Ethiopia’s sole systemically important bank successfully passed all major stress tests conducted at the end of June 2025, indicating that systemic risk emanating from this institution remains low. However, the bank’s strong performance has heightened concentration risks and raised competitiveness concerns for smaller banks. This underscores the potential need for consolidation within the banking sector,” it reads.

The NBE indicates market share for medium-sized banks shrank slightly in terms of loans and bonds, deposits, and capital compared with the previous fiscal year. However, in terms of total assets, this category of banks saw a marginal 0.2 percentage point rise over the reporting period.

The publication warns of growing concentration risk in terms of market share, top depositors, availability of liquidity, and loans by sector, and notes that stiff competition has seen small commercial banks to shed market share in assets, loans, deposits, and capital.

Despite this, regulators say the sector remains stable.

The report highlights strong profit growth over the last financial year, as banks recorded their biggest-ever profits owing largely to the appreciation of forex-denominated assets in light of the currency reforms of July 2024.

Banks registered a total income of 646 billion Birr and expenditures of 526 billion Birr in 2024/5, resulting in a net income that was nearly double the 58 billion Birr recorded the year prior. Meanwhile, the Birr depreciated by more than 150 percent against the US Dollar.

The report suggests an improvement in asset quality, citing the industry’s average non-performing loan (NPL) ratio had fallen to a five-year low of 3.1 percent. This was accompanied by an improvement in the average provisions-to-NPL ratio, which stood at 80 percent as compared with 104.1 percent a year earlier.

Regulators attribute the achievement to improved economic conditions, strategic debt management, and balance sheet restructuring at CBE.

The report notes that although 16 banks failed a liquidity stress test using the top-10 depositor withdrawal scenario, industry liquidity levels are at the best they have been in recent years. No less than 20 commercial banks had failed the same stress test in 2023/4.

The NBE states the proportion of total bank credit held by the 10 largest borrowers (primarily state-owned enterprises and regional administration) fell from 14.7 percent to 12.5 percent last year. On the other hand, digital financial service expanded rapidly during the review period, with transaction values nearly doubling to over 18.5 trillion Birr, according to the report.

It highlights a 40 percent growth in total financial sector assets (including pension funds), with asset value climbing to 5.6 trillion Birr or 37.2 percent of GDP as of June 2025.