Banking Boom Conceals a Deeper Concentration, Risk Reordering

Mar 21 , 2026.

In its latest financial stability report, the National Bank of Ethiopia (NBE), for the third in a row, declared the country’s financial system “stable, resilient, and low risk”.

However, the edition, released last week and covering the fiscal year to June 30, 2025, tells a more complicated story. Its most striking disclosures point not to fragility exactly, but to a financial system being reshaped at speed by foreign exchange market reform, growing concentration and a burst of digital finance that is impressive, but also odd.

Over a little more than a year, the Birr depreciated by 151.4pc. The banking industry became more concentrated around a single state-owned lender, the Commercial Bank of Ethiopia (CBE). Meanwhile, transaction accounts reached 313 million in a country where only about 63pc of adults are formally banked. The report presented the post-reform environment as a success. Nonetheless, its own numbers reveal a more uneasy reality.

Undoubtedly, some indicators improved sharply. The current-account deficit narrowed from three percent of GDP in June 2024 to 0.2pc a year later. In dollar terms, the gap shrank from 6.2 billion dollars to 289.3 million dollars. Export earnings jumped by 119.2pc. Private remittances increased by 13pc. The Central Bank’s foreign-exchange reserves climbed by more than 209pc year-on-year, to nearly three billion dollars.

These are impressive changes. But the mechanism of adjustment is what makes the report so revealing.

In the same document, the Central Bank records the effects of liberalising the foreign-exchange market. The average official exchange rate climbed from 56 Br to 119.3 Br to the dollar in the year to June 2025. In recent weeks, banks’ cash buying rate exceeded 153 Br to the dollar. The report treats this as a sign of improved competitiveness and fewer shortages. It is also evidence of one of the most violent currency repricings in the country’s economic history.

On the surface, the banking industry looks stronger. Commercial-bank assets expanded by 44.5pc to 4.74 trillion Br. Deposits climbed by 40.7pc to 3.51 trillion Br. Liquid assets almost doubled to 1.07 trillion Br. Net income after tax jumped by 61.3pc to 93.4 billion Br. Total liquid assets grew by 90.9pc in a single year. For a country emerging from years of financial repression, these are extraordinary numbers.

Yet they are also the numbers of an industry enjoying the nominal gains that come with financial liberalisation, disinflation and higher turnover. A striking share of those gains accrued to one institution. CBE increased its share of industry assets to 49.1pc, its share of loans and bonds to 51.7pc, and its share of deposits to 48.1pc. Most strikingly, its share of industry capital jumped to 43.1pc from 24.2pc a year earlier.

This is not merely market leadership but a consolidation of balance-sheet power on a scale that makes the Central Bank’s own language about “competitiveness concerns” and the possible need for sector consolidation sound restrained. The report contains an odd tension. It says the systemically important bank passed all major stress tests and that systemic risk from it, therefore, remains low. In the next breath, it concedes that the same bank’s “strong performance has heightened concentration risks”. Both statements can be true. Together, they amount to a warning.

The domestic financial system may be sturdier than it was a year ago. But it is also becoming more dependent on the continued good health of a single institution. That makes the claim of low risk harder to accept at face value.

The report is most unintentionally revealing when it turns to digital finance. Transaction values in digital financial services nearly doubled to more than 18.5 trillion Br. During the year, 44 million new transaction accounts were opened. Yet 37pc of the population is excluded from formal finance.

The juxtaposition is extraordinary as hundreds of millions of accounts exist in an economy where formal inclusion remains incomplete. The likely explanation is that many users hold several products at once, including mobile wallets, deposit accounts, agent-led products and Sharia-compliant accounts, which may all be counted separately. Even so, it is one of the report’s strangest numbers, revealing explosive digitisation and how shallow or fragmented that inclusion may be.

The quality of this digital expansion appears less pristine than the report’s tone implied. The Central Bank disclosed that 13,626 consumer complaints were received during the year. Nearly half were linked to mobile-banking transaction failures. That is a sizeable operational warning in a document otherwise keen to stress efficiency gains. Nor is technology risk an afterthought. Although the Central Bank says no cybersecurity threats were reported by payment-system participants or digital-finance providers during the period, it also identifies technology risk as the fastest-growing risk over the short, medium and long term.

With unusual candour, it adds that the low level of concern among survey respondents “may reflect limited awareness”. The authorities are claiming a clean cyber record while warning that the system may not yet grasp the scale of its technology exposure.

Another fault line lies outside the banks themselves. By June 2025, the two main social-security institutions, both public and private, held combined assets of 529 billion Br, up 26pc from a year earlier. More than 80pc of this money was invested in Treasury bills issued by the Central Bank. These institutions are also among the country’s largest depositors. The Central Bank appears worried that a disruption to the social security system could trigger “triple effects” across the broader financial sector.

That is an arresting phrase for money usually considered conservative and long-term. In Ethiopia, pension-type assets are not simply parked safely. They are deeply entangled with sovereign financing and system liquidity. What looks stable in one context could become a transmission channel in another.

Even the encouraging macroeconomic numbers come with caveats. Inflation fell to 13.9pc by June 2025, six percentage points lower than a year earlier. It has reached single digits in recent months. For the first time in five years, long-term lending rates and Treasury-bill yields turned positive in real terms. Yet the report also disclosed external debt reached 26.9pc of GDP. The Birr’s depreciation has increased external-indebtedness risk even as domestic debt ratios fell and the budget deficit narrowed sharply to 0.4pc of GDP.

The system may seem stabilising on the surface, but it does so by redistributing financial pain rather than by its disappearance. What emerges from the report is not a system in distress. It is something interesting. The financial sector is being rapidly repriced, recentered, and digitised by reforms that are clearly working in some areas while creating new concentrations and vulnerabilities in others.

The Central Bank may be right that the system looks more resilient than it did a year earlier. But its own numbers show that this new stability rests on unusual foundations, such as a currency shock of historic proportions, a state-owned bank edging towards outright dominance, digital-account growth that borders on statistical surrealism, and social-security money acting as a stabiliser until, perhaps, it does not.

PUBLISHED ON Mar 21,2026 [ VOL 26 , NO 1351]