BY LAKACHEW ATINAFU
The Economic dynamics in the Ethiopian banking sector has been traveling in a similar momentum where there is no battle ground where the economic sectors confront each other and contribute something worth for the nations based on outshining performance. Nonetheless, public firms have started to keep the pace of their core process and registered achievements and are crawling to the scoreboard of success.
According to press releases, the Commercial Bank of Ethiopia (CBE) has secured billions of Birr over the preceding fiscal year formulating sound strategies and implementing reforms.
And the bank conveyed across best practices to private banks to track footsteps of it and compete international business arena, meanwhile the Commercial Bank of Ethiopia urged private banks to follow its footsteps in investing in the agricultural sector, and it was reported that CBE has earned 27.5 billion Birr profit for 2021/2022 fiscal year despite global and domestic challenges.
Presenting CBE’s last fiscal year performance, CBE President Abe Sano said that the bank has registered remarkable performance using several banking systems and it has contributed lion’s share for the growth of the economy of the country.
He said that the bank has collected 155 billion Birr deposits over the budget year making its total deposit 890 billion Birr and its total assets have reached 1.2 trillion Birr. He stressed that the bank has collected 2.6 billion USD in foreign currency from different sources like remittance, currency exchange and export.
The president also noted that the bank managed to increase its number of branches to 1,824 while its number of customers has reached 35.9 million. As to Abe, the bank has been registering fruitful results via digitalizing the transaction system in the country and enhancing the number of users of CBE Birr, Mobile Banking, ATM and Internet Banking, and it has managed the transaction of 1.2 trillion Birr in the budget year by these modern modes of transaction.
As agricultural sector is the backbone of the economy of the country, the bank has provided more supports to mechanize the sector. To this end, the bank has provided a credit for 55 billion exclusively to supply a fertilizer, he added.
CBE Chief of Board Teklewold Atinafu on his part said that the economy of the globe including that of Ethiopia is under the challenge over the last two to three consecutive years. However, the bank registered very amazing performance despite global and local challenges.
He called on private banks to follow the footsteps of Commercial Bank of Ethiopia in investing in the agricultural sector as it has deployed 60 billion Birr for agricultural mechanization, if they are keen to change the economy of the country.
On the other hand, apart from reporting empirics, an expert commended Ethiopian government for allowing foreign banks to enter and operate in the country highlighting the significance of consolidation, and acquisition of local banks to be competitive.
Fairfax Africa Fund Global Chairperson, Zemedeneh Negatu, on his part said that the government has embarked on reforming the financial sector particularly the banking sector. Ethiopia has decided officially to allow foreign banks enter the market for the last almost 30 years that sector has been off the foreign banks. So this is a major change within the banking sector in Ethiopia, he said.
Not only the traditional banks, but also the fintechs for example, they have recently allowed mobile money by none financial institutions, in particular, the telecoms. Adding he said; “Soon, I think, in the next few months Safaricom and others will be authorized to operate in Ethiopia.”
First and foremost, the local banks need to be strong enough to compete both domestically and globally but also with the expected foreign banks to operate in Ethiopia. Secondly, the expectation is that some of the bigger Ethiopian Banks, especially the private banks, also the state-owned bank, which is one of the biggest in Africa, will be going abroad. Accordingly, the Ethiopian Banks venturing into Kenya, Tanzania, Rwanda and others. So the reforms are designed to make sure that these banks not only are competitive domestically, but also can go abroad and be competitive, he indicated.
The other component is the establishment of ESX, which is just the overall view of the reforms that are taking place. The banks including the regular leaders need to look at consolidation. For example, the state-owned Commercial Bank of Ethiopia (CBE) is a huge bank, locally and by African standards which is amongst to top 25, largest banks in Africa by capital and asset. Currently, there are 18 private banks and only one is in the top 100 biggest banks in Africa, which is Awash Bank, according to the African business magazine published every year. One of the ways to make the banking sector competitive is consolidation.
In the next year, there is very significant consolidation of the banking sector in Ethiopia. “We cannot have relatively small, 18 private Banks and in fact some are now still being established. One of the solutions is the consolidation. Foreign banks are going to be allowed into Ethiopia next year and selling equity is another solution.”
The competition would help the Ethiopian Banks build with the capital base and also the institutional capacity. Opening the banks for the last many years and at the moment has been among the most profitable businesses anywhere in the world, some of them pay up to 45 percent dividend yield annually consistently.
“There is interesting dichotomy in the marketplace where these are extremely profitable Banks but they’re very small, so that cannot be sustained and that’s my position that we need to be prepared.”
“Consolidation, regardless of whether or not foreign banks coming to Ethiopia is crucial and the decision by the government to open it up to foreign banks, definitely will accelerate that path of local banks thinking should I demerging or acquisitions,” he noted.
“The urgent need of domestic banking consolidation, which I firmly believe needs to happen regardless of whether or not foreign banks coming in. Ethiopian Banks, especially the private banks will be very competitive already, very profitable, but from a capital based perspective they’re very small. I think consolidation would bring up their capital base.”
Finally, it would be very important to be on the alert the need of competition as Ethiopia has stepped to liberalize its banking system and nation’s public assets as the fundamental changes of circumstances and the time demands.
A Committee dawned to liberalize Ethiopia’s banking sector had already hit the ground running to amend the country’s moribund financial code that has been in place for the past half a century.
A new code guiding the country’s banking sector will allow the opening up of the financial industry, the head of the committee was quoted saying. This Committee’s work plan states the first draft of the financial services code must be ready by December 2022.
THE ETHIOPIAN HERALD FRIDAY 5 AUGUST 2022
