Banks Face Trust Test with the Capital Market Becoming Operational

Banks Face Trust Test with the Capital Market Becoming Operational

Dec 27 , 2025. By Eyasu Theodros ( Eyasu Theodros is a U.S.-licensed financial advisor serving global diaspora clients. He provides investment and retirement guidance to professionals across the U.S. and advises financial institutions on diaspora behavior, trust dynamics, and inclusive financial system design. He can be found at (etheodros@gmail.com) )

For millions of Ethiopians, banks are more than financial intermediaries. They are stewards of household trust. As savings are redirected toward the capital market, the question of responsibility for market risk becomes urgent. Are today’s bank structures, designed for deposit safety, fit for an environment defined by investor risk and market volatility, questions Eyasu Theodros (etheodros@gmail.com), a U.S.-licensed financial advisor serving clients in the global diaspora.

The capital market reform is transforming from an idea into reality, marking a new era for the financial sector. Licenses are being issued, crucial institutions are joining the system, and early market activity is starting to take shape.

At the heart of this transformation are commercial banks, which remain the backbone of the financial system and the main custodians of household savings. As the market grows beyond its initial phase, these banks face an important question.

How should they position themselves for the future?

The focus so far has been on tangible milestones, such as the licensing of investment banks, preparations for the first trades on the Ethiopian Securities Exchange (ESX), and ensuring everyone follows new regulatory guidelines.

These efforts are essential, providing the foundation for a market that has never before operated at this scale in Ethiopia. But meeting regulatory requirements and preparing to do business on the Exchange are only the beginning. They do not guarantee that the capital market will reach ordinary households, everyday savers, or long-term investors. Nor do they ensure that the domestic savings will be channelled effectively into the country's future.

As policy makers and regulators work to build up the new system, commercial banks have responded by establishing investment-banking project offices and forming partnership agreements. These are positive steps, showing that banks are engaging with the reforms early and getting their houses ready for the new rules of the game. But as banks make these moves, a quieter, more practical question is beginning to surface, one that concerns not only transactions and compliance, but the very trust households place in their banks.

An issue is the assumption that for banks to play a fundamental role in the capital market, they should form full-scale investment banks. In a newly liberalised system, it is natural to see licenses, project offices, and institutional partnerships as signs of progress. But capital markets and investment banks are not one and the same.

Investment banks focus on corporate finance, underwriting, and large transactions. Capital markets, on the other hand, encompass a wide range of trading venues, intermediaries, financial products, and, most importantly, investors from all parts of society. As the market expands, commercial banks are set to become the main bridge between the market and households. This is not a coincidence. For decades, banks have linked household savings to the broader economy.

How this transition, its timing, pace, and oversight are managed will be crucial to maintaining public trust and financial stability.

How will their existing clients experience this change? Who is responsible when household savings are exposed to market risk?

Right now, most talk of “advisory” services focuses on investment banking, helping big clients raise capital or navigate mergers. But as ordinary savers enter the market, the real advisory questions will become around how banks introduce risk, set expectations, and protect trust.

Currently, most activity in the capital market remains institution-led, involving interbank trades, treasury bills, and financial products for other banks, microfinance firms, and insurers. There are early signs of household participation, such as expanding brokerage access for individuals, but simply opening the market to more people does not resolve the deeper issue of institutional responsibility. Transactional access can be rolled out quickly, but preparing for real household participation takes time and careful planning. It cannot be done on the fly.

This brings banks a delicate question of their current structures, client interfaces, and risk management systems designed to support households as investors.

Are they built for a deposit-focused system with a completely different risk profile?

As the primary channels for household savings today, banks are central to this transition. They may not be the only institutions involved, but they are ultimately responsible for how trust in banks extends to trust in the broader capital market. Household investment activity is not limited to the privileged few. It is a crucial part of building a strong, resilient capital market, mobilising domestic savings, and supporting Ethiopia’s long-term growth.

Banks that manage this transition with care and foresight will help shape not only the next phase of the market, but also the foundation of confidence on which the entire financial system rests.

PUBLISHED ON Dec 27,2025 [ VOL 26 , NO 1339]