Foreseeing the country as the home of both rich and low-income community as well as Africa’s beacon of prosperity, the reform government of Ethiopia led by Prime Minister Abiy Ahmed (PhD) has been working admittedly to execute new programs such us; setting new economic reform agenda that would ensure a decent livelihood so far.
The government is also working exhaustively to achieve its vision to become a middle-income economy by 2030. To this end, it is coming up with different alternatives which are vital for the national economic growth. On top of that the government has recently announced that it will allow foreign banks to enter to Ethiopian banking sector. In order to materialize the announcement, the government has taken further actions by establishing a committee which is dedicated to the functionality and entry of foreign banks, particularly Kenyan Banks to operate in Ethiopia.
Considering liberalization of the banking sector as one of the pillars for the nation’s economic growth, Ethiopia has constituted the committee taking a major step in opening the door for Kenyan lenders such as KCB Group to set up operations in the second most populous nation in Africa. The committee has already started work to amend Ethiopia’s half-a-century old financial code which was the long-awaited easing of restrictions on foreign banks making investments in Ethiopia have inched closure.
According to Alemante Agidew, Legal and Justice Service Division State Minister at the Ethiopian Ministry of Justice and the Head of the committee, a new code guiding the country’s banking sector will allow the opening up of the financial sector. The committee’s work plan states that the first draft of the financial services’ code must be ready by December 2022.
“The new code is necessitated to cope with the new direction the economy is going in. This includes a capital market and opening up of the economy for foreign players. The new Financial Service Code will also determine engagement modalities of foreign banks in Ethiopia’s financial industry,” Alemante said.
The latest development looks set to excite top Kenyan banks such as Equity Group and KCB Group which have expressed ambitions to run fully-fledged operations in the neighboring country, Ethiopia. At present, Ethiopia has 18 commercial lenders, two of which are state-owned apart from some an “under formation” banks, according to the Central Bank.
Following the aforementioned government’s economic reform and decision, Commercial Bank of Ethiopia announced that it is ready for the continental and international competitiveness in the banking sector.
Branch and Digital Banking Executive Vice President of CBE, Fikreselassie Zewdu, told Ethiopian Press Agency (EPA) that it is preparing itself to compete with foreign banks that could join the sector following the new financial code which makes the sector to be opened to foreign banks.
As to him, the Bank is working hard to make its services more efficient and technologically advanced. He said CBE is preparing itself for maintaining its current competitiveness and desirability.
Mentioning that the bank is constantly updating its operations and maintaining its popularity, he pointed out the ever-increasing number of new customers and trustworthiness of the existing customers to go with the Bank as an illustration for the bank’s competitiveness. He further said that the bank is working to uphold its leadership in all fields.
“Recognizing that technology plays a key role in this sector, management of the bank is focusing on technology development. Similarly, the Bank will strengthen adopting new technology-based services. The rapid growing of Bank’s saving accounts will also strengthen the bank’s financial capacity and play a significant role in its competitiveness,” Fikreselassie explained.
According to him, the feedback from customers indicates that the services provided by the bank are constantly improving. However, this does not mean that there are no problems; he said adding that the bank will continue to improve its service delivery through using feedback from its customers in various ways.
“Therefore, the government’s decision for the entry of foreign banks will not harm our service. On the contrary, it will further help us to strengthen and modernize our service. Together, we can bring a magnificent economic growth and assure the real prosperity of Ethiopia,” he noted.
A noted Economist and Global Chairman of Fairfax Africa Fund, Zemedeneh Negatu told the U.S. based-media that the entry of foreign banks in Ethiopia has multiple benefits to the country. However, it needs a careful demonstration to allow them.
Ethiopia has set up a liberalization committee for its financial services sector, as part of on-going plans to allow foreign banks to set up shop in the country. According to him, the new financial code is up-to-date and of paramount importance in bringing economic growth across the country.
While explaining his idea whether Ethiopian banks are ready or not to keep up with the new code, Zemedeneh accentuated that Ethiopian commercial banks should awake from their sleep to compute with the foreign banks. Panel discussion Consolidation of the banks should be the prerequisite. There is only one bank mentioned amongst 100 banks across the world, but there are more than 10 banks in Kenya, he recalled.
As to him, Banking is a balance sheet business. Therefore, they need some time for consolidation. This will help them to be small medium size but more competitive banks across the world. This government decision is happened as part of the financial reform, in the context of the overall opening up the finance sector for foreign market. The government is looking at liberalizing the exchange rate, and it is also planning to open stock market in Ethiopia. So it is significant to look up from the banking sector as part of the best economic reform, Zemedeneh contended.
He further underscored that opening up of Ethiopia’s financial sector; particularly permitting foreign banks to set up shops here is instrumental to help the country to attain its vision of becoming a middle-income economy by 2030.
Recalling the five-decade closure of the banking sector for foreign actors, the economist said that foreign investment in the industry, which was promised by Prime Minister Abiy Ahmed (PhD) last month, would give impetus for the overall economy. This commitment is the major step to realize holistic advantages of the financial sector, as the banking industry is an engine of the country’s Gross Domestic Product (GDP).
“The homegrown economic reform which was introduced following the coming to power of Premier Abiy has given utmost priority to the financial sector with a view to supplementing the economic growth. In this regard, bank liberalization is a key point to boost foreign capital inflow and reach unbanked areas,” he underscored.
Appreciating the role of the 18 commercial banks in Ethiopia including the state-owned policy bank, the Development Bank of Ethiopia, Zemedeneh noted that several other banks are also in the pipeline to commence operations. Despite this progress, Ethiopian banks have small capital and relatively sluggish running system they could hardly compete in the world market single-handedly and thus, they need to merge to gain financial power and economic capacity.
“Though Ethiopian GDP in aggregate terms is about 107 billion USD and the country has the third largest economy in Sub-Saharan Africa, it is seriously deprived of big banks that could compete regionally and internationally. Accordingly, the government must encourage the available banks to merge together so as to help them have ample capacity to compete with the world financial sector and record further development in the nation.”
Also, the combined capital of the 18 private banks in Ethiopia does not exceed 23 billion USD which is very small even compared with the small European bank. “During the last five years, Ethiopia has been categorized among the top five African destinations for foreign investment and to sustain this investment flow, the foreign banks’ huge capital, technology and expertise will be critical,” the economist emphasized.
BY HIZKEL HAILU
THE ETHIOPIAN HERALD THURSDAY 31 MARCH 2022
