The Cool Headmaster

Welcome to the 90th edition of ፍራንክ Digest!

Your weekly brief on all things Finance and Investing. Quick, enjoyable reads for busy professionals in 5 minutes or less.

Here’s what’s coming your way:

• ⚡️BUZZ: Banks Get Their Groove Back

• 🎂 ESX: Born To Trade

• 🖼️ Big Picture

Thanks for reading!

BUZZ: NBE Gives Power Back To The Banks

Banking

Imagine the Power Rangers without their suits or gadgets or Batman without his utility belt?

What are we left with? A group of nosy teenagers running around shouting ‘morphing time!’ on one end and a billionaire with no toys to play with…

That’s sad but that’s where Hollywood comes in: providing the imagination and letting action men and gals be heroes.

Now replace ‘Hollywood’ with National Bank of Ethiopia (NBE) and ‘men and gals’ with Ethiopian banks. 

So what is our famous headmaster up to this time around?

Well, it has issued a directive stating that banks can paint their logos pink and start selling La-Z-Boy sofas to make up the money lost on non-performing loans. Well this can’t be more false, but we’re here to have a bit of fun here with the jokes, aren’t we 😉?

No, the real tea ☕ here is actually Directive No. NBE/INT/13/2026 which states that, effective January 9, 2026, banks will now be allowed to freely set their own interest rates across all loan and deposit products.

We won’t judge if you pop the champagne bottle 🍾 that wasn’t used during your NYE celebrations because this is effectively ending decades of very tight rate policy control.

So, free market here we come? 

Let’s hope so: that minimum 7 percent yield on your deposit -> Now determined by your favorite bank. Loan rates are under the bank’s control as well. 

So much power and yet, the NBE, in typical headmaster fashion is still on the periphery, instructing the men and women on each bank board take accountability with two key responsibilities:

1. Submit newly approved pricing schedules to the central bank within five working days

2. File monthly weighted-average lending and deposit rates within seven days of month-end, based on templates included in the directive.

A piece of cake when you realize that the homework is done by the operations team, signed-off by management and then read out loud by the board member with the most eloquent voice 🗣️ 🎼.

This is big big news, enough to make you really consider that champagne…

Ask yourself, ‘how often does deregulation like this happen?’ 🤔

Moves like this really indicate a step into a more of liberal market, suggesting grandeur ambitions of mobilizing the potential of one of the biggest economies in Africa.

Big Picture

The NBE’s move to allow banks to set their own loan and deposit rates is on the surface a great move. Go a bit deeper, a few layers in, the move still makes a lot of sense.

Liberal markets, historically those with great track records abroad, all practice relaxed monetary policy with structured oversight. The NBE is looking to test out its latest move, contributing to a broader reform that will certainly make economic waves.

But as any reform, we see winners (depositors getting better rates and well capitalized banks offering attractive loan rates) and losers (institutions with low liquidity struggling to offer the same rates as well funded banks).

Amidst all of this, the market will determine the business of banking and a free market is always a winning market.

ፍራንክ Picks 

🚶🏽 Event: Ethiopia Edition of TenDX Summit 2026 [Feb 3rd @ Sheraton]

🗞️ In the news: French Giant Carrefour Enters Ethiopia’s Grocery Games

♟️ Innovation: Meet Dala, An AI-App Builder By Tech Company Gebeya

ESX Turns One

Economy

Ethiopian Securities Exchange (ESX) just celebrated its first birthday. 🎂 

Born on January 10, 2025, Ethiopia’s first-ever organised securities exchange is officially one year old. In market terms, it’s still very much a toddler: learning to walk, occasionally falling on its face, but already saying a few surprisingly smart words.

If it grows up right, it could quietly reshape savings and investment options for Ethiopia.

Ethiopia’s savings account for about 22 percent of GDP, which sounds impressive until you ask the obvious follow-up: saved where, and doing what exactly?

Right now, a lot of that money is just sitting around, earning negative real interest (bank saving rates minus inflation).

A functioning and liquid stock exchange gives those idle savings a purpose by channeling them into productive sectors like real estate and manufacturing. Places where money actually works to create employment.

Then there’s public infrastructure. Historically, when the government needed financing, it leaned heavily on banks, especially CBE. We all remember how that movie played out. Recovering non-performing loans from Ethiopian Electric Power and other state-owned enterprises wasn’t exactly smooth sailing.

A well-developed treasury market, open even to retail investors and tradable on a secondary market, changes the story. Liquidity improves, government securities become more attractive, and banks are no longer forced to carry distressed asset.

Of course, it’s not all sunshine and ringing bells.

Despite its promise, ESX is facing some very real growing pains. With only a handful of listings and limited trading activity, liquidity remains low. Even the Exchange’s own financials reflect this reality.

In 2025, ESX recorded total income of about ETB 126 million, but more than 90 percent of that came from interest earned on time deposits rather than actual market activity. Core operating revenue from listings, memberships and related fees amounted to just over ETB 6 million, which tells you the market is still warming up.

Add in the reality of front-loaded startup costs, and it’s no surprise that ESX reported a net loss in its first year. That’s not failure, it’s the price of building something new and waiting for the ecosystem to catch up.

Part of the slowdown is cultural. Many private Ethiopian businesses, especially family-owned ones, are understandably hesitant to go public. Transparency sounds great in theory, but in practice it means higher cost in compliance and disclosure measures. Not everyone is ready for that.

Macroeconomic uncertainty doesn’t help either. Inflation and foreign exchange volatility make investors shy away from low but stable returns in birr.

Now, this is where looking outward helps.

Saudi Arabia’s Tadawul, one of the largest and most active exchanges in the Middle East, offers an interesting case. With over 230 listed companies and strong participation from both local and international investors, Tadawul feels like a different universe. And yet, even Saudi Arabia decided it wasn’t liquid enough.

Regulators recently removed restrictions that required foreign investors to manage at least USD 500 million in assets, opening the market to all foreign investors from February 1. The expectation is that this could attract anywhere between USD 3.4 billion and USD 10.2 billion in passive investment inflows.

What really sets Tadawul apart is diversity. Banking, energy, tech, infrastructure, it’s all there. That spread reduces risk and supports broader economic growth.

Yes, Ethiopia is still a long way from Saudi Arabia. It still has capital flow restrictions because foreign currency imbalances are real, but the direction for ESX should be clear: liquidity comes first, refinement follows.

Big Picture

ESX is young, and its future will be shaped by public participation and consistent advocacy for transparent regulation.

For ESX to succeed, it needs to actively channel liquidity into the market. Whether that money comes from pension funds, university endowments or large domestic investors will depend on how clear and stable investor-friendly rules are established.

Diversity is key to support the broader economy, attracting companies beyond banks and state-owned enterprises.

For the rest of us, savings options are about to widen. Whether we’re thinking about investing or just trying to understand where Ethiopia’s economy is headed, it’s time to learn how capital markets really work, how risk and reward balance each other and why valuation is more than just vibes.

Stay curious, stay engaged, and when you do step into the market, invest wisely.

Thanks for sticking with us, ፍራንክ family! Keep those wallets smart and your inbox open - we’ll be sliding in next week!