BY ABEBE WOLDEGIORGIS
The African Business Magazine which rates the banks status announced its 2022 report and explained the names of 100 banks which have good performance. In the announcement only two Ethiopian banks names is mentioned. Among the Ethiopian banks the names of Commercial Bank of Ethiopia and Awash International Bank are mentioned. The two banks are mentioned by their performance and capital amount.
By the magazine’s 2022 report ranked the Commercial bank of Ethiopia 31 and Awash International Bank as 91. However, the two banks rank as compared to the previous year, it is declined. The major criteria for the banks competition is the amount of capital and their small capital amount made the Ethiopian banks to be out shined by other African banks.
In fact, the two banks increased their paid capita but as compared to the Dollar value, it is not huge as such.
The renowned economist zemedneh Nigatu said that, the two banks rank indicates that Ethiopian Banks are far less competent as compared to other countries banks. Though the mentioning of the banks name is taken as good but their ranks indicates that they lag behind other countries banks in terms of performance. He further said that both in the year 2021 and 2022 only the two banks names where mentioned. As to the report, the rank of the Commercial Bank of Ethiopia reduced from 26th to 3rd and the rank of Awash International Bank reduced from 53th to 91th.
According to the Megazine, the commercial bank of Ethiopia which scored 26th last year and slowed downed to 31th this year has 929 million Dollar paid capital. Among the best selected African banks the top ranked bank is the South African Standard Bank with 13.6 billion paid capitals. The second is the National Bank of Egypt which has 7.27 billion Dollar of capital amount. Third bank is an Egyptian bank by its name bank of Misri and its capital is 7.23 billion Dollars. Among the East African countries the Kenyan Equity Bank is leveled as vanguard by registering 1.5 billion Dollars.
According to Zemedneh, if the Ethiopian Banks continue their performance as business as usual, they might lose their current status because their capital which is deposited in Birr value compared to Dollar it is small. In fact both the public and private banks enhanced their capital but when it is exchanged in to Dollar it is insignificant.
Zafu Eyesus work zafu is a renowned financial professional. As to him, it is understood that Ethiopian banks have increased their capital but as compared to Dollar it is value is very small. As to Zemedineh, Ethiopia has the third large economy in Africa next to South Africa and Nigeria but the banks are not developed as such. Therefore, they have to upgrade themselves and prepare for competition with other countries banks. In fact the nation is the second populous country which is 100+ million in the continent but due to limited productivity, the population not yet reached to be economically active which engage in more vibrant industrial sector.
He also said that, he is optimistic that the government endeavor to change the economic landscape to the better will be fruit full. In this regard, the direction put by the government to merge banks will support the effort. In addition to this, giving green light to foreign banks to operate here is a positive signal.
Based on the current government policy he thinks that, with in the coming five years most banks will be merged and their number will be reduced up to six from the current 17. Other than this, specialized banks on agriculture, industry, construction will be emerged and the idea is supported by the government. In addition to the merging of banks, the incoming of foreign banks strengthen local banks. It is understood that recently the government announced that foreign banks are allowed to operate here and can purchase up to 40 percent of share from local banks.
As to Zemedineh, the entrance of foreign banks is good but it has to be understood that they do not invest their money in a fragmented small banks rather they invest in banks with huge capital. Therefore, the merging of various banks enables them to attract foreign banks. In addition, working with foreign banks by joint venture makes them more competent at the international level and enhance their capital amount. But if they fail to tap such opportunities they may face crises which crippled them not to provide loan to their customers.
According to Zemedineh, currently in Ethiopia there is no a single bank which can provide one billion birr in the form of loan to the customers. Hence, the consolidation of banks enables them to upgrade their loan provision capacity.
According to the information obtained from the National Bank of Ethiopia, all banks in the last four years could enhance their capital by 27 percent.
However, their capital amount in terms of foreign currency, it is declining. In the year 2011 EC budget year the amount of capital registered by all banks reached to 98.95 billion birr and the amount by that time exchange rate it was 2.38 billion Dollars. In the 2012 EC budget year when the birr- Dollar exchange rate was one Dollar to 34.95 birr, the banks registered capital amount was 114.59 billion birr but when it is exchanged in to Dollar the amount was 4.13 billion Dollars. In the 2013 EC budget year the banks total capital rose to 153 billion birr but when it is compared to the dollar exchange rate it was reduced from the 2012 budget year and down sized to 3.45 billion Dollar. In the year 2014 EC the banks total capital rose to 200 billion birr but when it is looked in terms Dollar it was 3.76 billion. The declining of the exchange rate of birr to that of Dollar made the banks less competent comparing to foreign banks and the trend seems to be worse.
One can understand from the mentioned Magazine report that foreign banks invest their money in Dollar hence, if a local bank wants to compete with them at least it has to have registered a 500 million Dollars paid capital.
Among the banks operate in east Africa the number of Ethiopian banks is growing from time to time and banks such as the commercial bank of Ethiopia, Awash bank, Abyssinia, Dashin and Development Bank of Ethiopia could build better reputation in the horn. Therefore, it should be understood that
Whenever, the exchange rate of birr against hard currency is declined the banks capacity to compete with foreign banks is reduced therefore, they have to increase their capital.
According to Zemedineh, private banks established in Ethiopia for the last 27 years are still youth and in the past they have been given protection that means they were not competing but now that protection will not be continue.
The current government policy let the banks to pass through competition therefore; banks should prepare themselves for the inevitable competition. Shareholders also should know that similar to the past taking their 20 to 30 percent of their share profit is not feasible; instead they must enhance their capital. They don’t look the profit they take today with fierce competition their profit and dividend might be declined hence, looking in to their future is better.
The Ethiopian Herald 18 October 2022
