Underperforming public financial institutions have long been a defining characteristic of Ethiopia’s financial sector, with the state-owned Commercial Bank of Ethiopia (CBE) and the Development Bank of Ethiopia (DBE) serving as prime examples of the struggles.
Despite accounting for half of the assets in the country’s banking industry, CBE finds itself mired in a debt crisis brought on by unbridled lending to other state-owned enterprises and government projects. Likewise, DBE continues to grapple with high non-performing loan (NPL) rates.
The significant role these two banks play in the broader financial system translates to priority in ongoing reforms backed by international financial institutions such as the World Bank. Its far-reaching Financial Sector Strengthening Project (FSSP) seeks to restructure and recapitalize CBE, and transform DBE into a viable development institution. Updating the National Bank of Ethiopia’s (NBE) regulatory and supervisory framework is also part of the initiative.
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The World Bank recently injected more than a quarter of a billion dollars into CBE, with an additional USD 450 million in the pipeline contingent on performance assessments.
The Reporter Magazine’s Yared Nigussie caught up with Marlon Rawlins, senior financial sector specialist at the World Bank Group Addis Ababa Office, to learn more about the project, the criteria used in the performance assessments, and the general outlook for the Ethiopian banking industry ahead of its pending liberalization. EXCERPTS:
The Reporter Magazine: Can you provide an update on the financial stability fund established to strengthen CBE?
Marlon Rawlins: The primary focus of the specific project is ensuring the stability of the financial sector, particularly in preparation for its gradual opening. The goal is to build a stable and resilient financial system that can support Ethiopia’s economic growth and provide financing across all productive sectors. And normally, the first point of call in achieving that is to make sure there is stability in the financial sector. While we run programs addressing financial inclusion, market depth, and stability, this particular project focuses on stabilizing the financial system. What does that mean in practice?
We identified particular vulnerabilities in the sector and worked to address the accumulated risks as the financial system evolves. What we did in this regard is we partnered closely with the government of Ethiopia, including the NBE [National Bank of Ethiopia], Ministry of Finance, Commercial Bank of Ethiopia, and Development Bank of Ethiopia. The first focus area was to tackle building a program that focuses on the state-owned banking sector and that program includes support for the NBE—the project supports strengthening its supervisory and regulatory practices in line with international best practices, such as those outlined in the Basel framework.
The second component of the project targets support to the CBE, which holds about 50 percent of the total banking sector assets. Given its size, any weakness in CBE could have serious ripple effects across the entire financial system. Recognizing this systemic importance, the government requested World Bank support to strengthen CBE. Historically, Ethiopia has followed a government-led growth strategy, which required CBE to finance state-owned enterprises and large public projects. As a result, the bank’s capital position needed reinforcement to ensure it could also support the private sector effectively. To address this, we developed a ‘Three Rs’ strategy for CBE. The first R is Reform, which involved governance reforms and updating the business model to better support private sector and commercially oriented operations. The second is restructuring—focused on cleaning up the balance sheet, particularly non-performing assets. Recapitalizing is the third strategy. The government made significant capital contributions, and the World Bank is providing USD 650 million to further strengthen CBE’s capital base.
The third component of the project supports the DBE. Given DBE’s vital role in financing Ethiopia’s productive sectors—such as agriculture—we adopted a similar approach. This included governance reforms, improvements to risk management, and a capital injection of USD 20 million to help DBE evolve into a modern and transformative development finance institution.
What steps are being taken to ensure that the fund is effectively utilized to strengthen CBE’s financial health and operational efficiency?
In terms of how the funds are disbursed, and as part of our quality assurance process, we have been working with the government of Ethiopia, NBE, CBE, and DBE, as mentioned earlier. Reform was the first step—undertaken even before capitalization. The governance reform agenda is particularly important, as it helps establish guardrails to ensure that these reforms are sustainable in the long term.
For example, we have supported amendments to the Banking Business Proclamation to bring it in line with global standards, as well as changes to the NBE Establishment Proclamation. Additionally, the National Bank of Ethiopia has issued multiple directives providing rules and guidelines for the banking sector. These reforms focus on areas such as governance and better risk management to ensure the stability of the entire financial sector.
A great deal of time and effort was invested to ensure that, a few years from now, we are not facing the same challenges again. From the World Bank’s perspective, we are confident that the program has been built on a strong foundation. We also believe that the government, through the NBE, will remain committed to sustaining the program and preventing any reversal of the progress made.
What specific objectives is the financial stability fund designed to achieve in the Ethiopian banking industry, particularly in regards to CBE?
Specifically, the fund is focused on building CBE’s capital to ensure the bank remains strong and stable. The focus is on providing stability by strengthening capital, as a bank’s strength fundamentally depends on the size of its capital base. The level of capital determines a bank’s capacity to lend to the real economy, support private sector growth and development, and ultimately help unlock Ethiopia’s economic potential. Our approach is based on the idea that by strengthening the Commercial Bank of Ethiopia, it will be better positioned to fulfill its role as the country’s largest bank—especially in supporting private sector development. This increased lending capacity supports business growth, which in turn helps create jobs. This, in turn, is expected to contribute to broader economic growth and job creation. That is the intended trajectory of this financial sector strengthening program—starting with stability and capital reinforcement, and ultimately contributing to private sector development and job creation.
Can you explain the proposed timeline and key milestones for the consolidation of CBE? What are the next steps?
The USD 700 million project was approved by the World Bank’s board on December 17, 2024. Since then, our focus has been on ensuring the project becomes effective, which it now is. And how the project is designed? The project is structured so that disbursements are based on the achievement of specific performance-based conditions. As CBE meets these agreed-upon conditions—set between the World Bank, the government, and CBE— the funding is disbursed.
Could you provide an update on the status of the first round of disbursement?
The first disbursement to CBE in the amount of USD 250 Million was done on Thursday, 15 May, 2025. Another USD 150 Million is expected to be disbursed before the end of May 2025.
Your delegates recently engaged in discussions with relevant officials here. What is your assessment of the measures being undertaken by CBE to facilitate the receipt of the first disbursement?
The first disbursement was made upon confirmation that the government had issued a bond to the CBE, representing new capital injection and replacing SOE debts.
What specific conditions does the World Bank require the CBE to satisfy to access these funds?
The government of Ethiopia developed a program to reform, restructure and recapitalize the CBE, which was approved by the Council of Ministers. It is the implementation of this plan that triggers World Bank disbursement under the FSSP. This plan was agreed to by the World Bank and includes measures to strengthen governance and restructure the balance sheet of CBE to address non performing SOE debt and further capital injections from the government.
How do you assess the potential long-term benefits of a strengthened Commercial Bank of Ethiopia, particularly in terms of financial resilience and regional competitiveness?
The focus on strengthening CBE’s capital is a key to increasing its competitiveness, both within Ethiopia and globally. A bank with stronger capital has a greater capacity to lend, raise deposits, and compete. The more capital a bank has, the more competitive it becomes. Stability is directly tied to enabling the bank to fulfill its core function—lending to the real economy. Through this program, we believe CBE will be positioned for sustained growth. It will also become more competitive, not only within Ethiopia but also in the regional banking landscape.
In your view, how crucial is the support from international financial institutions like the World Bank in navigating Ethiopia’s banking reforms and achieving the country’s economic goals?
I believe international financial institutions like the World Bank Group bring a valuable perspective to Ethiopia’s transformation, having witnessed and supported similar changes in many other countries around the world. Our aim is to leverage those global experiences—drawing lessons from regions such as Asia and other continents—to support countries like Ethiopia. This international perspective, combined with the insights we’ve gained from assisting other nations on similar development paths, is a key part of the value we offer. In addition to funding—often provided at concessional rates or as grants—we offer strong technical assistance. Institutions like ours play a critical role in supporting the capacity building of governments, including Ethiopia’s. Ultimately, it’s the combination of timely financial support, technical expertise, and global experience that allows us to contribute meaningfully to Ethiopia’s development journey.
Our expectations are very clear: by the end of the project, Ethiopia’s financial sector will be significantly stronger, more inclusive, and possess the depth needed to rival any financial sector across the African continent.
What are the potential risks associated with the consolidation process, and how is the World Bank helping Ethiopia mitigate these risks?
In everything we do—especially with large-scale projects—we provide extensive technical assistance and support. This support is designed to ensure that any potential risks are minimized or mitigated. As with any program, risks do exist, but drawing on our global experience in implementing similar initiatives in many other countries, we believe we have the capacity and expertise to help Ethiopia navigate those risks effectively.
What are the risks involved in implementing this particular project?
I don’t see any particular risks; in fact, I see more upside potential in this project. Of course, as with any initiative, there are always some risks. Our role is to provide guidance and support, but this is ultimately a reform program led and owned by the government of Ethiopia. We serve as trusted advisors, but implementation and long-term sustainability are the responsibility of the government as a sovereign entity. So, if there is a potential risk, it would be that the reforms may not be sustained over time.
