Ethiopian Banks Rushing for the Capital Market Badge Without a Map

In Ethiopia’s banking scene, there’s a familiar pattern when it comes to growth and competition. When one bank makes a move, the others rush to copy it, often without stopping to think if it really makes sense. We’ve seen this happen over and over again, and right now, it’s happening with the capital markets. 

Not long ago, the big race was about branches. The thinking was simple: the more branches you had, the more resources you could mobilize, which on paper seemed profitable. Profitability or actual customer need didn’t seem to matter much. By the end of the third quarter of the 2023/24 fiscal year, Ethiopia had 12,160 bank branches, which is more than triple the number from 2018. Each was scrambling to outdo the others by leasing the ground floor of every new building they could find. The goal wasn’t really to serve customers better but to be more visible to show they had volume. 

Then came the ATM rush. When one bank started putting out more machines, others quickly followed. Soon, ATMs were popping up in front of malls, hotels, and apartment buildings, often sitting side by side. Between 2023 and 2024, the number of ATMs jumped 34 percent, reaching over 10,500 across the country. But studies suggest this wasn’t about meeting real demand. It was driven by bank size and competitive pressure. The result was clusters of ATMs, some seeing long lines while others hardly got any use. Once again, strategy took a backseat to appearances. 

After that, the competition moved upward, literally. Skyscrapers became the new way to show status. In 2022, the Commercial Bank of Ethiopia opened its 46-story, 209-meter headquarters, the tallest building in East Africa. Smaller banks jumped into the game too, unveiling ambitious, sometimes over-the-top headquarters, fighting over who had more floors or flashier designs. These buildings didn’t change how banking worked but sent a clear message. They were saying, “We’ve arrived.” It was architecture as a form of public relations. 

Now the focus is shifting again, this time to capital markets. With the Ethiopian government launching a regulatory framework for capital markets, banks are racing to get in on the action. In early 2025, the Ethiopian Capital Market Authority licensed nine capital market service providers, including big names like CBE Capital and Wegagen Capital. This came after a 2024 directive that let banks own capital market subsidiaries within certain capital limits. 

Suddenly, almost every bank, big or small, experienced or new, is setting up or is in the process of setting up a capital markets wing. Licensing has become the latest badge of relevance. But here is the concern: many banks don’t yet have the right skills, vision, or long-term strategy to make these new ventures successful. It’s another case of jumping on a trend without fully understanding what it takes to win. 

Ethiopia's capital market is still in its infancy. With only a few licensed providers and an ecosystem that’s still forming, banks eager to get involved must resist the urge to treat licensing as just another milestone. This market needs foundational builders, not badge collectors. 

Applying for a license without internal readiness doesn’t just put the individual bank at risk. It weakens the credibility of the entire market. To ensure meaningful participation, banks must focus on some foundational pillars that form the backbone of a credible and capable capital market institution. 

Institutional Clarity on Purpose and Role 

Prior to initiating a licensing process, banks must conduct a strategic assessment to define the specific function their capital market subsidiary is intended to serve, be it primary market underwriting, secondary market brokerage, portfolio and asset management, or corporate advisory. This requires alignment with the bank’s existing risk appetite, operational capacity, and long-term financial strategy. A license obtained without such clarity risks underutilization of regulatory capital, regulatory non-compliance, or reputational damage. 

International experience reinforces the importance of this principle. JP Morgan Chase developed its capital market division through sustained investment in high-margin underwriting and M&A advisory, tightly integrated with its global corporate banking operations. Standard Chartered built its competitive edge by focusing on cross-border issuance and structured finance tailored to emerging markets. DBS Bank, leveraging Singapore’s regulatory environment and regional capital flows, concentrated on fixed income underwriting and asset management, with an institutional investor client base.

These institutions entered or expanded capital market operations with a clearly defined market position, differentiated services, and an internal structure capable of delivering both compliance and profitability. Ethiopian banks would be well advised to adopt a similar discipline, ensuring that any move into capital markets is guided by strategic intent rather than symbolic participation. 

Capital markets present unique risks that differ significantly from those in traditional banking. These include heightened market volatility, conflicts of interest, insider trading, and operational risks related to securities transactions. To manage these effectively, banks must establish governance structures specifically tailored to these challenges. This means implementing clear and transparent reporting lines, ensuring truly independent risk oversight, and enforcing strict Chinese walls between banking and capital market activities. Without these critical safeguards, not only will regulators like the ECMA question a bank’s readiness and credibility, but poorly managed capital market activities could also undermine investor confidence and pose systemic risks to the wider economy. 

Ethiopia currently lacks a mature labor market for capital market professionals. The existing higher education and vocational training landscape does not produce a sufficient volume of candidates equipped with the technical, regulatory, and analytical competencies required in areas such as securities trading, investment research, underwriting, portfolio management, and compliance. In the absence of a seasoned talent pool, banks seeking to enter the capital market space must adopt a deliberate human capital development strategy. 

This includes targeted recruitment of experienced professionals from diaspora networks or related sectors, internal capacity-building through structured in-house training programs, and long-term partnerships with universities, business schools, and global certification bodies. Positive developments such as the availability of global credentials through institutions like the CFA Institute and the Chartered Institute for Securities & Investment (CISI)⁶ can serve as platforms for workforce development. However, these efforts require coordination and institutional commitment. 

A license application submitted without a comprehensive staffing and skill development plan covering both front-office functions and back-office compliance roles raises serious concerns about operational viability and regulatory compliance. Human capital is not a post-licensing issue; it is a core pillar of pre-licensing readiness. 

Licensing is not solely a matter of legal form or organizational structure. It is a behavioral and systems-based commitment to market integrity. Capital market operations are governed not only by regulatory frameworks but also by expectations of ethical conduct, transparency, and accountability. As such, any institution seeking to participate must demonstrate the existence of a comprehensive compliance infrastructure prior to licensure. 

This includes the implementation of internal control systems capable of detecting, preventing, and responding to misconduct such as insider trading, front-running, and market manipulation. Banks must adopt surveillance technologies and trade monitoring tools aligned with global best practices, capable of generating actionable alerts based on anomalous trading patterns or conflict-prone transactions. Further, robust disclosure protocols must be established to ensure timely, accurate, and fair dissemination of material information, especially in relation to client orders, pricing, and related-party transactions. 

Additionally, cybersecurity frameworks must be integrated into capital markets operations to safeguard sensitive financial data, preserve transaction integrity, and protect investor information, especially as operations become increasingly digital. Equally important are whistleblower mechanisms and internal escalation procedures that encourage early reporting of unethical behavior and protect employees from retaliation. 

Embedding these controls and cultural norms into the DNA of the institution well before a single transaction is executed is not optional. It reflects global regulatory expectations and will form the basis on which the ECMA, investors, and counterparties assess the bank’s fitness to operate. A failure in this area not only invites regulatory sanction but also undermines the credibility of Ethiopia’s emerging capital market as a whole. 

Preparedness to Educate and Build Trust 

In the context of Ethiopia’s nascent capital market, investor protection and market trust will not emerge from regulation alone. They must be actively cultivated by market participants. Banks seeking to enter this space must recognize that they are not just service providers. They are foundational actors in shaping market norms, public confidence, and the pace of participation. 

Retail investors in Ethiopia will be engaging with capital markets conceptually and practically for the first time. Most have limited or no prior exposure to securities, trading mechanisms, risk-adjusted returns, or portfolio diversification. In such an environment, market literacy is not a public good to be left solely to regulators or civil society. It is a fiduciary responsibility of licensed institutions. 

Banks must therefore be prepared to launch and sustain investor education initiatives that explain the mechanics, risks, and benefits of participating in capital markets. They should also support transparent and inclusive public offerings, particularly for small and medium enterprises (SMEs) that may face barriers to listing. In addition, banks have a responsibility to promote fair access and protect first-time and vulnerable investors by discouraging predatory practices and ensuring transparency in fee structures and disclosures. 

Historical precedents underscore the importance of this approach. In India’s capital market liberalization during the 1990s, retail investor participation surged in response to policy reforms. However, a lack of adequate investor education and weak governance mechanisms led to major scandals, most notably the Harshad Mehta securities scam in 1992, which severely undermined public trust and caused long-term damage to market development. It took years of sustained reform and investor-focused outreach by SEBI (India’s securities regulator) and institutional players to restore confidence.

Conversely, Malaysia’s post-Asian Financial Crisis reforms in the early 2000s involved a deliberate push by institutional actors, including commercial banks and investment arms like Maybank, to integrate investor education with capital market expansion. Public seminars, retail-focused prospectuses, and digital financial literacy tools became a norm. This effort helped broaden domestic participation and anchored long-term capital in the market, contributing to the country's financial resilience and deepening of the capital base. 

Ethiopian banks would do well to learn from these contrasts. A license without a clear institutional commitment to public education and trust-building will likely lead to superficial engagement, low investor confidence, and reputational risk. In this environment, every licensed player is a de facto market ambassador. This role carries both responsibility and strategic importance. If a bank is not prepared to invest in that function, it should reconsider the timing and purpose of its market entry. 

Bottom Line 

In mature markets, licenses follow capability. In nascent markets like Ethiopia’s, licenses must signal commitment to capacity-building and integrity. Banks that don’t take time to prepare risk more than regulatory failure. They risk stunting Ethiopia’s capital market before it finds its footing. 

Capital markets are not just another business line or a shiny new division to add. They require deep expertise in market dynamics, investor relations, and regulatory compliance. They need careful planning and clear goals. Without that, banks risk building something that looks good on paper but struggles in practice. 

This is not about slowing down or missing the opportunity. The opening of Ethiopia’s capital market is a huge step forward and offers real potential. Success in this next chapter isn’t about who gets licensed first. It’s about who builds enduring market infrastructure, who earns investor trust, and who supports Ethiopia’s economic diversification with long-term capital. 

If done right, capital markets can reduce the country’s reliance on bank lending, give rise to stronger private enterprises, and channel domestic and foreign investment into meaningful growth. 

The real badge of relevance won’t be the license on the wall. It will be the ability to shape a functional, trustworthy, and inclusive financial future.