Ethiopian banks deliver biggest-ever earnings as sector expands

Ethiopia’s banking sector expanded further in the 12 months to June 2025, recording its highest-ever profit alongside rapid balance sheet growth, even as the central bank flagged rising concentration risks within the industry, according to the latest Financial Stability Report.

The third edition of the report released by the National Bank of Ethiopia (NBE) shows the banking sector grew sharply in the fiscal year ending June 2025 while posting record earnings. The report, covering July 2024 to June 2025, is part of the central bank’s mandate to safeguard the safety, soundness and stability of the financial system.

Total assets of the country’s 31 commercial banks rose 44.5 percent to 4.7 trillion Ethiopian birr ($35.5 billion), underscoring the rapid expansion of the financial sector.

Sector-wide total income increased 78.8 percent to 646.3 billion Ethiopian birr ($4.9 billion), while net profit after tax climbed 61.3 percent to 93.4 billion Ethiopian birr ($705 million), marking the highest annual earnings in the industry’s history.

“The profitability of Ethiopia’s commercial banking industry has continued to grow remarkably over the past five years, with 2025 recording the biggest-ever profit in commercial banking’s history,” the report said.

At the end of June, total income in the banking industry stood at 646 billion birr ($4.9 billion) while total expenses reached 526 billion birr ($4 billion), resulting in net income of 93 billion birr ($702 million). This nearly doubled the previous year’s net income of 58 billion birr ($437 million).

Profitability indicators also strengthened. Return on assets rose to 2.5 percent from 2 percent in the previous fiscal year, while return on equity increased to 27.4 percent from 24.6 percent, reflecting the sector’s strong earnings performance.

Despite the gains, the central bank warned that concentration risks are increasing across several areas including market share, large depositors, liquidity distribution, sectoral lending and geographic exposure.

“Credit concentration risk is also increasing in the trade sector, even though the share of the top ten borrowers in total loans and advances marginally declined during the review period,” the NBE said.

Trade — both domestic and international — continued to account for the largest share of bank lending, representing 41.5 percent of total outstanding loans as of June 2025, up from 39.7 percent a year earlier.

The manufacturing sector, the second-largest recipient of bank credit, saw its share of loans decline to 16.2 percent from 23 percent, partly due to balance-sheet restructuring by a systemically important bank that converted part of its manufacturing loan portfolio into bonds.

Agriculture as well as building and construction sectors recorded modest gains in their share of lending during the year.

Asset quality improved during the period, with the industry’s Non-Performing Loan (NPL) ratio falling to 3.1 percent, the lowest level in five years and comfortably below the regulatory ceiling of five percent.

The provisions-to-NPL ratio stood at 80 percent, compared with 104.1 percent a year earlier, reflecting improved economic conditions, strategic debt management and balance sheet restructuring by the systemically important bank.

Capital buffers also strengthened significantly. Total capital increased 63.3 percent to 422.4 billion Ethiopian birr ($3.2 billion), while the sector’s liquidity ratio climbed to 30.4 percent, the highest level in five years and well above regulatory requirements.

The central bank said the financial system remained resilient during Ethiopia’s transition to a market-based exchange rate regime and an interest-rate-focused monetary policy framework, with banks passing key solvency and liquidity stress tests.

The report also highlighted shifting market dynamics. The state-owned Commercial Bank of Ethiopia increased its share of total banking assets to 49.1 percent, accounting for 51.7 percent of outstanding loans and bonds.

“These figures show the bank’s growing market share and reconfirm its position as the only systemically important bank in Ethiopia’s financial system,” the report said, citing ongoing reforms within the institution.

However, the widening gap between large and smaller banks is contributing to rising concentration risks and may increase the need for consolidation across the sector.

Smaller and mid-sized private banks are facing growing pressure in deposit mobilisation, technology investment and risk management. At the same time, the rapid expansion of digital finance is reshaping competition.

The value of digital payments nearly doubled year-on-year, surpassing 18.5 trillion Ethiopian birr ($139.8 billion), reflecting the rapid adoption of electronic transactions across the economy.

Financial inclusion has also improved, with 63 percent of adults now holding a financial account. However, the accelerating pace of digitalisation has increased the importance of cybersecurity and operational resilience within the financial system.

External risks remain significant. A survey of financial sector stakeholders identified exchange rate volatility and inflation as the main short-term concerns.

Following the liberalisation of the foreign exchange market in July 2024, the Ethiopian birr has depreciated 151.4 percent against the US dollar as of last year September, reshaping risk exposure across the banking system.