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.
