Ethiopia’s financial system remains stable despite global pressures, Central Bank report finds

Addis Ababa, March 17, 2026 (FMC) — Ethiopia’s financial system remained stable and resilient during the 2024/25 fiscal year, supported by improving macroeconomic conditions despite a challenging global environment, according to a new report by the National Bank of Ethiopia.

The central bank’s third Financial Stability Report, covering the period from July 2024 to June 2025, provides a comprehensive assessment of risks, vulnerabilities and sector performance, offering insights for policymakers, investors and other stakeholders.

The report indicates that the review period was marked by external headwinds, including slower global growth and broader uncertainties. Nevertheless, Ethiopia recorded notable macroeconomic improvements, with stronger economic growth and declining inflation contributing to a more stable environment for financial institutions. These developments also supported the transition to positive real interest rates and improved the effectiveness of monetary policy.

Fiscal performance also strengthened during the period, with lower budget deficits and more sustainable public and domestic debt levels helping to ease macroeconomic pressures and reinforce financial stability.

The banking sector remained sound and resilient, with key indicators — including capital adequacy, asset quality, liquidity and profitability — showing improvement compared to the previous year. Stress tests conducted on credit, liquidity and foreign exchange exposures indicate that banks are well positioned to absorb potential shocks.

The National Bank of Ethiopia also projects a positive outlook for the 2025/26 fiscal year, underpinned by expectations of continued economic expansion, single-digit inflation, credit growth and improving foreign exchange earnings. Ethiopia’s systemically important bank met key stress test thresholds, suggesting limited systemic risk, although the report underscores the need for continued monitoring given sector concentration.

Performance across other segments of the financial system remained broadly stable. The microfinance sector posed low systemic risk, supported by its relatively small share of total financial assets and improved performance across capital adequacy, asset quality, liquidity and non-performing loan indicators, alongside increased profitability. Capital goods finance companies also maintained sound financial positions, characterized by low credit risk and adequate capital and liquidity buffers.

Similarly, the insurance sector demonstrated resilience, with solid performance in liquidity, profitability, premium growth and underwriting results.

The report further highlights the growing role of the capital market and the social security sector in supporting liquidity management and government financing, particularly through investment in Treasury Bills.

At the same time, digital financial services expanded rapidly during the review period, with transaction values nearly doubling to exceed 18.5 trillion birr. While this growth is enhancing financial inclusion and efficiency, it also introduces increased exposure to operational, cyber and fraud-related risks, the central bank noted, emphasizing the importance of strengthening technological infrastructure, human capacity and risk management frameworks.

Overall, the National Bank of Ethiopia concludes that Ethiopia’s financial system remained safe, sound and stable throughout the fiscal year, supported by strong growth in key balance sheet indicators, improved profitability and continued progress in the development of the Deposit Insurance Fund.