Abstract: Based on Ethiopia Government’s major policy shift in 2018 to partly privatize major state-owned enterprises like ethiotelecom, Ethiopian Airlines, , the preparation to introduce the stock market in Ethiopia by 2020, is an indication to help expect the possibility of allowing foreign banks to operate in Ethiopia in the future. Allowing foreign banks to operate in Ethiopia will bring both prospects and challenges to the incumbent state-owned commercial and private banks in particular and the financial sector in general. As evidenced from literature, foreign bank entry to the domestic market will bring immense opportunity to the Ethiopian banking market, and create strong competition challenge between foreign and domestic banks and within the domestic banking institutions. Accordingly, four strategies are recommended to be adopted by local banks in Ethiopia to follow either: merger and acquisition, niche, do nothing, and joint venture, with merger and acquisition as an optimal strategy.
Keywords: Foreign banking, entry, merger, acquisitions, Ethiopia