Financial Sector Developments in Ethiopia on Q2 2022/23

The financial sector of Ethiopia, particularly the banking, insurance, and microfinance institutions, has seen significant growth in the second quarter of 2022/23. The sector's expansion has not only facilitated economic growth but has also contributed to financial inclusion and stability.

The banking sector in Ethiopia has experienced robust growth, with the total number of banks reaching 30, two of which are state-owned and the remaining 28 privately owned. A surge in the establishment of new bank branches, with 714 added during the review quarter, brought the total number of branches to 10,221. Consequently, the ratio of the population to bank branches stood at 10,289, pointing towards increased accessibility of banking services for the Ethiopian population.

The expansion of banking services was dominated by private banks, which accounted for 93.7% of the new bank branches. In the geographic distribution of these branches, 31.9% were located in Addis Ababa, the capital.

In terms of capital, the banking system accumulated Birr 221.1 billion, 61.9% of which was held by private banks, while state-owned banks, namely Commercial Bank of Ethiopia and Development Bank of Ethiopia, accounted for the remaining 38.1%.

The banking sector has also shown promising trends in terms of credit disbursement and collection. During the second quarter, the sector disbursed Birr 181.8 billion in new loans, marking a remarkable 122.9% annual growth. The private banks held a substantial share of 75.9% in the new loans disbursed, while state-owned banks contributed 24.1%. The sectors benefiting most from these loans were domestic trade, international trade, consumer and staff loans, manufacturing, building and construction, among others.

On the collection side, the banking sector retrieved Birr 80.7 billion in loans, indicating an 83.6% annual growth. The majority of this loan collection, 74.8%, was handled by private banks, with state-owned banks accounting for the remaining 25.2%.

The insurance sector remained steady with 18 insurance companies, one of which is state-owned, and the remaining 17 privately owned. The number of branches of these insurance companies increased to 717, up from 667 a year ago.

The insurance sector's total capital rose to Birr 14.4 billion from Birr 11.9 billion last year. Of this, private insurance companies contributed 75.3%, demonstrating the private sector's significant role in expanding insurance coverage.

Microfinance Institutions (MFIs) are pivotal in Ethiopia's financial sector, primarily serving low-income groups and micro and small-scale enterprises. During the review quarter, the number of MFIs reached 43, mobilizing about Birr 23.6 billion in saving deposits, reflecting a 17.9% annual growth.

Simultaneously, the outstanding credit provided by these institutions increased by 29.3%, reaching Birr 35.4 billion. This increment highlights the growing role of MFIs in promoting financial inclusion, poverty reduction, and wealth creation. The total assets held by the MFIs grew by 29.8% and stood at Birr 51.5 billion.

The developments in the banking, insurance, and microfinance sectors reveal a robust and growing financial sector in Ethiopia. The increased number of banks, insurance companies, and microfinance institutions, and their expansive network of branches, has improved the financial inclusion and stability in the country.

The challenge for the future will be maintaining this growth and ensuring that it is inclusive and sustainable. Policies will need to focus on strengthening the regulatory framework, promoting financial literacy, and ensuring the financial sector's stability for it to continue supporting Ethiopia's socio-economic development goals.