BY ABEBE WOLDEGIORGIS
Allowing foreign banks has been a matter of discussion for more than 20 years and brought high expectation and recently the government gave green light to be operational and some appreciate the government’s decision as historical. Until the coming to power of the Derg regime 50 years ago, foreign banks had been legalized.
Asegid Gebremedihin is a senior economist working for various firms as a consultant and as to him the move taken by the government to allow foreign banks to operate here is vital, historical and timely.
He also said that the entry of foreign banks here creates good opportunities for knowledge transfer and experience sharing.
The decision taken by the Council of Ministers to allow foreign banks’ operation here is essential for attaining economic progress in the country and can change the sector’s working system. Vice president of Ethiopian Banks Association and President of Dashen Bank, Asfaw Alemu on his part said that local banks should consider the impact of incoming of foreign banks and prepare themselves for the inevitable competition and plan their strategy to win the competition. He also said that the move has profound value for the nation’s endeavor in transforming and digitizing the economy.
In fact, the government announced that foreign banks will be operational, nevertheless, Asfaw refuted that it should be transparent that how foreign banks are operating here.
As to Assegid, the incoming of foreign banks helps Ethiopia to develop a strong economy in east Africa and magnify its influential role in the global politics. However, the modality of how they engage in business should be clearly defined.
The functioning of foreign banks has various importances to the nation and among others, enables to resolve shortage of hard currency; to secure loan to customers within small amount of interest rate and to upgrade the working activities of the local Banks and insurance companies to the level of international standards which have been working for more than 60 years. Not only these, it also enables the local banks to function in foreign countries which in the past have been restricted only locally.
But to be practical, the ground must be started. As to Asegid and Asfaw, the introducing of foreign banks has no a negative impact locally. However, Asfaw said that in his view the incoming of the foreign banks must be conducted step by step rather than abruptly.
If they begin operation with joint venture with local banks, it will bring numerous benefits to the nation’s economy. As to Asegid if the foreign banks come here by whatever means, they will come up with huge amount of capital. Hence, local banks should accumulate their capital to competitive level. Therefore, to realize it, two or three banks with huge capital should unify themselves and five or six small banks with average capital on their part should be unified so that competing with foreign banks will be possible. The unification of local banks not only helps them to compete with foreign banks and operate in joint venture but also enables them to operate in foreign countries.
As to Asfaw, allowing foreign banks simultaneously has its own negative repercussions. Hence, in the initial phase, it must be in joint venture with local banks and later on to operate by their own. However, if foreign banks allowed to engaged directly out of the regular service and specialized on specific sector such as agriculture, investment and others the nation could benefit a lot. Though the pertinent institution still did not get detail information with regard to the instruction, various segments of the society are commenting on the recent decision of the government on allowing foreign banks to operate here. Some commentators said that the giving of green light to foreign banks to operate here indicates how the government badly needs hard currency but Asegid did not agree with such comment and as to him; even the decision is too late. He further said that to resolve the rampant economic malaise, no solution is essential other than allowing foreign banks to operate here. If one thinks of the nation’s economic growth, going against the decision is irrational.
There are different views with regard to the coming of foreign banks because as the change of working system is apparent, some confusion also can be occurred. Whenever new working system is introduced, observing such bizarre is common.
Raising questions such as whether the decision brings harm on the economy, whether institutions are harmed, whether the nation’s interest is protected or not are raised. However, it should be understood that the incoming of foreign banks has no negative consequence on the economy. Because the foreign banks have their own objectives to meet here and critically scrutinize the rules and regulation introduced by the National Bank of Ethiopia.
Make assessment whether investing here is feasible or not and finally make decision to operate here. It should be understood that, they do not simply come here to invest just simply they are allowed to come.
Some argue that the government hastily made decision to invite foreign banks and related the matter with emerging new local banks. Nevertheless, the government’s action in this regard in the past was slow but now it is time to enhance its pace to achieve economic transformation by allowing foreign banks to operate here, Assegid said.
Both Assegid and Asfaw do not look the issue as simple as ordinary matter. The situation might force the government to amend financial laws and introduce the new one.The situation is not as business as usual and even it might bring structural change in the National Bank of Ethiopia. One commentator who asked his name to hold in anonymity said that, none disclosing of the Council of Ministers with regard to the details rules of the execution of the instruction seems odd and might be related with the structural reformation of NBE. The future organizational structure of the NBE to be continued as it was or reorganizing it again also might be related with the undisclosed reason of the detailed rule.
The current structure, capacity and competency of the NBE limits the bank to accommodate foreign companies interests that is why it did not explained the detailed aspect of the instruction. And it can be predicted that the implementation of the new rule might take some times. In addition, there needs to make negotiation with the foreign banks regarding the NBE supervision and inspection system.
Therefore, one can understand that the government announced that it has interest to invite foreign banks but did not explain in what modality they operate here and this indicates that there is an unfinished task here. Not only these, the decision paves the way for attaining for the functioning free market therefore, before the entrance of foreign banks here, the government might take measure on introducing a system where purchasing dollar governed by free market.
Assegid also agreed by the mentioned statement and further said that freeing the foreign currency to be governed by the market might weaken the black market activity. Some elements engage in the black market also might refrain to engage in the old practices or adopt the new form of foreign currency market. The allowing of foreign banks to engage in the business also enables to deter deception rampant in the sector.
If the local banks create strong capital base and adjust themselves with the new development, they can withstand any challenge they might face because the nation has broad market opportunities in this regard.
However, the local banks have to have sufficient capital, unless and otherwise they might face difficult challenges.
As to Assegid, in fact the foreign banks coming here are not familiar with the rules of the NBE; therefore, such situation might necessitate the establishment of neutral finance sector supervising institution.
Probably the existing supervising organs might be reorganized by the auspicious of new board and if it happens, it might totally change the supervision system and change the existing supervision administration structure and this by itself can be taken as a challenge. The other challenge is related with well-trained human resources. Workers employed in the financial sector must upgrade their skills.
The absence of training centers helpful to upgrade finance professionals created skill gaps in the sector. Therefore, to resolve the problems efforts must be exerted. The other thing that should be considered is in case the incoming foreign banks put chartered banking professionals as precondition for employment, problem might occur because in this regard, the nation has very limited number of chartered bankers. As to Assegid, currently the local banks do not upgrade their employee skills as per the international standard hence; such situation might create obstacle to the incoming banks.
Even many doubt whether local banks have capable leadership or not. The other anxiety is that the incoming of foreign banks may make the nation vulnerable to foreign influence. But as to Asegid, the foreign banks being operational here do not bring any harm on the nation’s interest because banking business conducted by local or foreign companies only target making money and as the working system is governed by the international rules, skepticism has no place here.
The governor of the National Bank of Ethiopia Yinager Dessie (Ph.D) recently told reporters that, the NBE is undergoing in the preparation of laws to create enabling environment to foreign banks to do business without any hindrance.
THE ETHIOPIAN HERALD WEDNESDAY 21 SEPTEMBER 2022
