17 March 2026 | Addis Ababa, Ethiopia
The National Bank of Ethiopia is issuing its third Financial Stability Report in line with its mandate to maintain the safety, soundness, and stability of the financial system, covering the fiscal year July 2024 – June 2025. The report provides a comprehensive and in-depth analysis of risks and vulnerabilities, offering insights into the health of the financial system for regulators, stakeholders, policymakers, and investors. It considers various economic variables, risks, market conditions, and the system’s resilience to internal and external shocks. In doing so, it aims to further enhance depositor confidence and support economic growth and sustainable development.
During the review period, Ethiopia’s financial system operated in a challenging global environment marked by a moderate slowdown in economic growth, persistent geopolitical tensions, and external shocks. Despite these global pressures, macroeconomic indicators in Ethiopia showed clear improvement over the fiscal year. Economic growth strengthened while inflation declined, creating a more stable environment for financial institutions, supporting the transition to positive real interest rates, and enhancing the effectiveness of monetary policy. Similarly, improvements in fiscal performance, reflected in lower budget deficits and more sustainable public and domestic debt, reduced macroeconomic vulnerabilities and reinforced financial stability.
The banking sector remained stable, resilient, and low risk. Key indicators – capital adequacy, asset quality, liquidity, and profitability – all improved compared with the previous year. Stress tests covering credit, liquidity, and foreign exchange risks confirm that the sector is well positioned to absorb plausible shocks. The outlook for the 2025/26 fiscal year is positive, supported by expectations of continued economic growth, single-digit inflation, expanding credit, and rising foreign exchange earnings. Ethiopia’s sole systemically important bank successfully passed all major stress tests conducted at the end of June 2025, indicating that systemic risk from this institution remains low, although the concentration in a single bank warrants continued monitoring.
The microfinance sector posed low risk to financial system stability, reflecting its small share of total financial assets and its strong performance during the review period. Capital adequacy, asset quality, liquidity, and non-performing loan indicators all improved and remained well within regulatory thresholds, while profitability also increased. Similarly, capital goods finance companies exhibited sound financial conditions, with low credit risk and adequate capital and liquidity buffers, supporting the assessment that the sector remains safe and stable. The insurance sector also remained stable and resilient, demonstrating solid performance in terms of liquidity, profitability, premium growth, and improved underwriting results.
Other pillars of the financial sector, the capital market and the social security sector, are playing an increasingly important role in the financial system by supporting liquidity management, reducing borrowing costs, and investing in government Treasury Bills. At the same time, digital financial services expanded rapidly during the review period, with transaction values nearly doubling to over ETB 18.5 trillion, supporting financial inclusion and efficiency. However, this rapid expansion also increases exposure to operational, cyber, and fraud-related risks. Strengthening technological infrastructure, human capacity, and risk management frameworks is therefore becoming increasingly important.
Overall, during the fiscal year the financial system as a whole recorded remarkable growth in major balance sheet indicators and profitability. Key financial ratios and risk assessments also indicate that the financial system remained safe, sound, and stable throughout the review period, alongside the continued development of the evolving Deposit Insurance Fund.
SEE PREVIOUS FINANCIAL STABILITY REPORT BELOW
National Bank of Ethiopia
Notes on the Launch of the Financial Stability Report
Upholding a sound and stable financial system in Ethiopia is one of the mandates of the National Bank of Ethiopia (NBE). This requires the assessment and addressing of risks that may affect financial sector stability, whether these risks originate within the financial sector itself or from other domestic or international developments. Considering this, the NBE is publishing its first Financial Stability Report (FSR) to inform key stakeholders about the NBE’s analysis and assessment of key risks as well as its recommendations to mitigate these identified risks. The report is based on an assessment of risks and stress tests undertaken for the 2022-23 fiscal year (the review period).
The main conclusion of the report is that while the systemic risk level of Ethiopia’s financial sector is low, some risks have increased in the most recent review period, and these warrant appropriate attention and preventive actions to ensure the continued safety and soundness of the financial system.
- In the banking sector, overall risks are judged to be moderate. At the same time, credit, liquidity, operational, and, to a lesser degree, market risks increased during the review period. Nevertheless, banks have remained sound and stable due to strong capital and liquidity buffers, solid profitability, and other factors (see Figure). These factors contribute to the resilience of banks to various potential shocks, as indicated by the risk stress tests performed by the NBE.
- In the microfinance sector, the capital adequacy ratio, non-performing loan ratio, and liquidity ratio are all well within the NBE’s parameters and have improved over the course of the review period.
- The capital goods finance business sector’s risk rating is moderate, with low capital risk and moderate ratings for asset quality and systemic risk.
- The insurance sector remains resilient, but earnings and concentration risks are rated high and may call for regulatory actions.
- Across the industry, credit and deposit concentration risks are found to be high, an area that warrants close oversight as well as potential regulatory intervention.
- With respect to Ethiopia’s financial sector infrastructure, there have been substantial improvements in recent years, but some areas remain underdeveloped. It requires further improvements in structural, operational, and technical efficiencies. A more refined and explicit standard for risk assessment in the rapidly evolving space of digital finance is one of the key areas requiring policy attention, as well as the implementation—in partnership with industry players—of risk mitigation strategies and interventions.
As the FSR is the first report of its kind prepared by the NBE, special care was taken in its preparation, and the views of peers with ample experience in preparing such reports were sought and incorporated into the report. As a result, it has taken longer than initially planned to publish the report. Future Financial Stability Reports will be published annually, with the aim of having them completed by November of each year, covering the previous fiscal year. The next edition is thus planned to be published before the end of 2024.