The Commercial Bank of Ethiopia (CBE), the nation’s largest and state-owned bank, recently announced an impressive profit of 32.6 billion birr over the past eight months, marking a remarkable 170.5% increase compared to the same period last year. This announcement, made by the Bank’s President, Abe Sano, during a presentation to the House of Peoples Representatives’ Standing Committee on Government Enterprises Affairs, signifies not only the bank’s robust financial health but also reflects a broader normalization within Ethiopia’s financial sector.
Out of Ethiopia’s 130 million population only very few people are banked and particularly in the rural areas sizable number of population save money in the traditional Equb and Idir institutions.
This shows that there is a venue to mobilize finance from the rural population. On the other hand, the absence of the transaction value of land inhibited farmers not to secure loan from banks by providing their land holdings in the form of collateral which intern restricts the going of investment to the sector.
Meanwhile according to financial experts, Ethiopia’s financial sector has faced numerous challenges in recent years, including economic instability, regulatory constraints, and a largely closed environment to foreign competition.
Most manufacturing industries due to power outage do not produce in their full capacity which intern reduces their output and created market deficit. The sluggish business environment also hampered manufacturers to delay their debt services to banks, which financed them. The waiting time in banks to obtain hard currency also slowed down the manufacturer’s importation of inputs which intern negatively affected their production process. Even though after the floating of the currency value, scarcity of hard currency seemed to shore up, unfortunately there are still some bureaucratic hurdles in banks which hampered securing loan.
However, CBE’s record profit symbolizes a turning point, indicating a return to stability and growth. This performance is attributed to a combination of effective revenue expansion strategies and stringent cost management practices.
Abe Sano highlighted the bank’s encouraging results across all income-generating segments, underscoring that the remarkable profit growth is a testament to CBE’s commitment to enhancing operational efficiency. The bank’s total income during this period reached 109.32 billion birr, marking a 26% year-on-year increase. This growth trajectory demonstrates CBE’s resilience and adaptability in a volatile market.
Several key factors have contributed to CBE’s impressive financial performance. Notably, the bank has successfully reduced its non-performing loan (NPL) ratio, which has historically been a significant concern for financial institutions.
In the past with regard to provision of loan CBE prioritized the public sector and extended loans were provided to the mega projects owned by the government. Due to various reasons some projects had been delayed and others were totally closed. As the result, recollecting the loan was cumbersome to the bank. However, after intensive negotiation with the government the projects debt was written off.
Currently based on the government rules providing loan to the mega projects is restricted and they only obtain loan based on their paying capacity and performance.
The instruction given to the CBE by NBE to cap the amount of the provision of loan to customers also reduced the flow of paper money to the market which intern contains inflation. Because in the past the excessive flow of birr to the market gave chance to the affluent segment of the society to purchase more goods and services which posed scarcity of products in the market which further aggravate inflation.
By enhancing credit quality and decreasing provisions for bad loans, CBE has bolstered its bottom line, creating a more sustainable financial model.
Additionally, the bank’s strategic focus on digital transformation has played a pivotal role. In an era where technology drives financial services, CBE has embraced innovation to broaden its customer base and streamline operations. By investing in digital banking solutions, the bank has improved customer accessibility and engagement, thereby increasing its competitive edge.
Digitization in the process grants very important improvements since all the data and signatures are captured correctly which was not a past practices. Cost reduction is another advantage of digitization of banks.
It also reduces cost to banks and customers through the use of new means of payment.
In addition it fosters a collaborative environment where empowering one another to succeed can be possible, uphold a culture of continuous development, prioritize safety and responsibility, while operating with integrity.
CBE’s record profits are not merely a reflection of the bank’s internal strategies; they also have broader implications for the health of Ethiopia’s financial sector. As the nation’s largest bank, CBE plays a critical role in shaping the banking landscape and ensuring financial stability. Its strong performance can serve as a benchmark for other financial institutions, encouraging them to adopt best practices in governance, risk management, and customer service.
Before the opening up of the financial sector to the private sector in 1991, it had a monopoly power in the financial sector and this gave good opportunity to upgrade its staff’s technical and financial skills, to boost its profit and to draw lesson from other banks worldwide.
After the liberalization of the sector by the previous EPRDF led regime, it came across with new opportunities to stay in the market instead of by monopoly advantage, through competition with the emerging private financial institutions including banks and insurance firms.
Moreover, CBE’s success can foster greater confidence among investors and the public, which is crucial for the overall growth of the financial sector. A healthy banking environment, characterized by transparency and accountability, is essential for attracting both domestic and foreign investment. As CBE continues to thrive, it sets a positive example for the industry, demonstrating that sound financial practices can yield substantial rewards.
While CBE’s current performance is commendable, it is essential to recognize the challenges that lie ahead. Ethiopia’s banking sector remains largely insulated from foreign competition, but impending liberalization plans may introduce new dynamics that could test the resilience of domestic banks, including CBE. The potential entry of foreign banks could intensify competition, prompting CBE to further innovate and improve its services.
Despite these challenges, CBE appears well-positioned to navigate the changing landscape. With its strong profitability and enhanced asset quality, the bank can leverage its market position to adapt to new competitive pressures. Maintaining a focus on customer-centric services and technological advancements will be vital as the sector evolves.
Although CBE has not disclosed its full-year forecast, the exceptional performance in the first eight months has heightened expectations for a record-breaking fiscal year. Industry analysts remain optimistic about the bank’s trajectory, anticipating continued growth as CBE capitalizes on its strengths while addressing potential challenges.
As the bank embarks on this journey, it will be crucial for CBE to remain steady and responsive to market conditions. Continuous investment in technology and human capital will be pivotal in sustaining its competitive advantage. Furthermore, fostering partnerships with other financial institutions and stakeholders can enhance CBE’s capabilities and enrich the entire financial ecosystem.
The Commercial Bank of Ethiopia’s record profit is a significant milestone that underscores the normalization of the financial sector in Ethiopia. CBE’s ability to achieve such impressive results amidst challenges speaks volumes about its operational efficiency and strategic foresight. As the bank continues to thrive, it not only contributes to its own success but also plays a vital role in building a healthier, more resilient financial sector in Ethiopia.
The path ahead may be fraught with challenges, particularly with the anticipated liberalization of the banking sector. However, with its strong foundation, innovative spirit, and commitment to excellence, CBE is well-equipped to face these challenges head-on. By continuing to prioritize customer needs and embracing technological advancements, CBE can further solidify its position as a leader in Ethiopia’s financial landscape, paving the way for sustainable growth and stability for years to come.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD FRIDAY 9 MAY 2025
