Sixteen Ethiopian banks would struggle to meet required liquidity levels if their biggest customers suddenly pulled out their money, according to the National Bank of Ethiopia’s March 2026 Financial Stability Report. The stress test based on a scenario where each bank’s 10 largest depositors withdraw funds at once, highlight ongoing vulnerability to sudden cash outflows, even if such an event is considered unlikely.
The figure marks an improvement from 20 banks recorded in the previous year, the report shows.
The report also identifies vulnerabilities in capital under adverse conditions. In a severe credit shock scenario involving a 30 percent increase in non-performing loans, four banks would fall below the minimum capital adequacy requirement, with a combined capital shortfall of 8.3 billion birr.
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At the same time, the sector’s overall Capital Adequacy Ratio stood at 19.1 percent, above the regulatory minimum of 8 percent.
Foreign exchange stress tests indicate limited but present exposure. Under a highly severe scenario involving a further 30 percent depreciation of the Birr, one bank would fail to meet capital adequacy requirements.
Beyond balance sheet risks, the report documents rapid growth in digital financial services. Total transaction values reached 18.5 trillion birr, reflecting a year-on-year increase of nearly 92 percent. Nearly half of all formal customer complaints were linked to mobile banking transaction failures, according to the report. The number of debit cards declined by 4 percent during the period, attributed to the deactivation of expired or inactive ATM-only cards.
In the insurance sector, motor insurance declined by 5.1 percent despite an increase in the number of vehicles, highlighting pricing and structural inefficiencies. Total net income for the sector reached 8.3 billion birr, while the solvency ratio declined from 316 percent to 284 percent, reflecting slower growth in paid-up capital.
The report points to deeper structural challenges within the insurance industry. A significant 69.9 percent of total income is derived from interest on fixed-time bank deposits rather than underwriting activity, underscoring a heavy reliance on investment income. This is closely linked to asset allocation patterns, with 54.6 percent of total assets held as bank deposits to match short-term liabilities.
Despite these constraints, the sector recorded strong premium growth, with gross written premiums reaching 41.1 billion birr, a 43.1 percent annual increase. However, the market remains highly concentrated, with general insurance accounting for 92.5 percent of total premiums and motor insurance alone contributing nearly half (49.6 percent) of general business.
The central bank warns that stiff price competition across the industry may be suppressing premium levels, raising concerns about insurers’ ability to meet future obligations.
Microfinance institutions remain closely linked to the banking system, with 82 percent of their liquid assets held in banks.
Social security institutions allocated around 80 percent of their assets to Treasury bills, while real interest rates turned positive during the period.
Insurance penetration stood at 0.3 percent, remaining significantly below the African average of 3.6 percent and the global average of 6.5 percent.
