The National Bank of Ethiopia has published its third Financial Stability Report, covering the fiscal year from July 2024 to June 2025, and concludes that the financial system remained safe, sound and stable despite a challenging external environment. The report points to stronger domestic macroeconomic conditions over the period, with higher economic growth, lower inflation, improved fiscal performance and more sustainable public and domestic debt helping reduce vulnerabilities and support monetary policy transmission. The banking sector was assessed as stable, resilient and low risk, with improvements in capital adequacy, asset quality, liquidity and profitability. Stress tests on credit, liquidity and foreign exchange risks indicated that banks could absorb plausible shocks, and the country’s sole systemically important bank passed all major stress tests at the end of June 2025, although concentration in a single bank still warrants monitoring. The report also describes the microfinance, capital goods finance and insurance sectors as stable, with stronger prudential indicators and profitability. Elsewhere, digital financial services expanded rapidly, with transaction values nearly doubling to more than ETB 18.5 trillion, increasing the importance of stronger technology infrastructure, staff capacity and risk management to address operational, cyber and fraud risks. For 2025/26, the report presents a positive outlook based on expectations of continued economic growth, single-digit inflation, expanding credit and higher foreign exchange earnings. It also notes the continued development of the Deposit Insurance Fund.

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