The National Bank of Ethiopia has officially issued new guidelines for banks regarding risk-based capital adequacy requirements. This directive, effective from November 10, 2025, introduces a framework designed to ensure Ethiopian banks maintain adequate capital to cover current and future risks, in alignment with international Basel II and III standards.

Key points from the directive include:

• Applicability: All banks licensed and operating in Ethiopia, including subsidiaries and branches, must comply both at entity and consolidated levels.

• Minimum Ratios: Banks are required to maintain:

  • Common Equity Tier 1 (CET1) ratio of at least 7% of risk-weighted assets,

  • Tier 1 capital ratio of at least 9%,

  • Total capital (Tier 1 + Tier 2) ratio of at least 11%.

• Capital Composition: The directive defines components of regulatory capital, including CET1, Additional Tier 1, and Tier 2 capital, adopting Basel III rules for quality and categorization.

• Risk Coverage: Banks must calculate and hold capital against credit risk, market risk, and operational risk, with methodologies provided in the directive.

• Governance and Reporting: Boards of banks are now responsible for compliance, with strategies and quarterly reporting to the National Bank mandatory. Both quantitative and qualitative data are required, supporting more robust supervision.

• Transition Period: Banks are mandated to begin quarterly reporting by March 31, 2026, with full compliance required from December 31, 2026.

• Sanctions: Penalties for non-compliance include substantial financial fines and administrative measures enforced by the National Bank.

This move is intended to bolster financial sector stability, public confidence, and align Ethiopian banking practices with international regulatory standards.​