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When Begziabher Alebel, owner and general manager of
Ultimate Consultancy, decided to invest in the newly
opened Access Bank SC, he did not expect to see
significant returns in the first year. He invested
in the bank, he says, because he believes its
strategy will eventually make it a market leader.
"I
did not buy the shares looking for an immediate
return," Begziabher told Fortune. "I bought
them to give opportunities for the realisation of
the innovative ideas of the promoters."
Access Bank has had ups and downs in its quest to commence
operations, but seems nearly ready to open its doors
to clients after raising the minimum 75 million Br
in capital required by the National Bank of Ethiopia
(NBE), Ethiopia's financial sector regulator.
Begziabher was one of 2,400 shareholders that helped
Access to reach the critical threshold.
Launched in April 2007 by a group of entrepreneurs
led by Ermyas Amelga, Access hopes to debut in the
fledgling banking sector after its shareholders sign
the Memorandum of Association at the Public Notary
Office. The bank, which has received pledges from
shareholders for an additional 53 million in
capital, aspires to beat its competitors with
hitherto unoffered services, according to its
directors.
One of the ideas that impressed Begziabher is the bank's
plan to disburse loans without collateral for
businesses with a demonstrated track record of cash
flow, though at an otherwise higher interest rate.
Access is one of five new banks - Buna International
Bank, Oromia International Bank (OIB), Berhan
International Bank and Zamzam International Bank -
hoping to tap into the record profits being made in
the financial industry. The NBE has given a green
light for these entrants to publicly sell shares in
a bid to meet the minimum capital requirements, as
Access has done.
So far, OIB is leading the pack in share sales and has
already announced that it has raised 110 million Br
in capital, surpassing the minimum capital
requirement by 35 million Br. With its headquarters
located inside Dembel City Centre, on Africa Avenue
(Bole Road), this bank's opening is being led by
Yemiru Nega, developer of Dembel and majority
shareholder and general manager of Yencomad
Construction.
Meanwhile, Buna has sold shares worth 45 million Br,
and expects to meet the minimum capital set by the
regulator in January next year, sources told
Fortune. The bank, which has largely attracted
shareholders from among coffee exporters, has
offered investors a minimum of 5,000 shares at 100
Br per share for a single buyer.
Berhan has recently begun its public offering of
shares, while ZamZam has yet to start.
Many observers, however, fear the current slow-down in
deposits among the 11 state-owned and private banks
in Ethiopia could stifle the ambitions of the new
banks unless they come up with innovative services
to attract clients.
During the second quarter of the 2006/07 fiscal
year, the banking system reported 1.6 billion Br in
new deposits, 49.8pc lower than during the preceding
quarter, according to the latest quarterly bulletin
issued by NBE. Excluding state-owned banks, deposits
grew by 697.4 million Br, representing a 34.6pc drop
in the deposit rate for private banks compared to
the first quarter.
New deposits dwindled even after the governor of the
financial brigade of the country, Teklewold Atnafu,
announced a percentage point increase in the savings
rate to four per cent. To partially alleviate the
liquidity crunch, private banks accepted a time
deposit of 350 million Br each from the largest East
African bank state-owned Commercial Bank of Ethiopia
(CBE) five months ago.
Though the interest margin in Ethiopia is one of the
highest in the world, double-digit inflation means
that depositors actually lose money, forcing many
would-be savers to instead spend more on consumption
or investment.
"Had our market been as responsive as those of the
developed countries, the banking system would have
completely collapsed," Mulat Demeke, a lecturer at
the Addis Abeba University (AAU) Faculty of Business
and Economics, told Fortune.
Ethiopia's economy has grown for four years
consecutively, at an average pace of 11.3pc,
adjusted for inflation. Nonetheless the subsequent
rise in the consumer price index(CPI), which the
government says is a side-effect of the growth, has
discontented the urban poor, thus forcing the
authorities to contemplate policy measures like
doubling the required legal reserve commercial banks
put at the central bank and raising interest on
deposits.
Despite the challenges posed against the banking sector by
the debilitating inflation, private banks are
reaping unprecedented net profits. Looking at the
188 million Br net profit Dashen Bank SC announced
last week, one is bound to wonder if the sector can
remain as rewarding as it is.
However, some suggest that the forthcoming banks
could overcome such threats by developing more
advanced services to boost resource mobilisation.
"The ones under formation will have no difficulties
to compete with the existing banks as long as they
provide modern and customer satisfying services,"
Elias Loha, reserve management and foreign exchange
department head at NBE, remarked.
Another challenge for the new banks is the shortage
of skilled human capital. Finding a qualified
president is expected to be an especially daunting
task for these banks. Following the issuance of a
directive by NBE last year, which puts a requirement
for a president of a bank to have at least ten years
of experience in top management level as well as a
BA degree, some of the already established banks
were struggling to find one.
However, a source at Buna disclosed that the bank
has already found qualified candidates for the
presidency.
Following the financial liberalisation of the mid-1990s,
Ethiopia's banking system is portrayed as one of the
sources of economic strength. As the colourful
annual reports of nearly every bank attest, the
formerly gloom of non-performing loans (NPL) has
given way to a roaring growth and skyrocketing
profits. Yet, the country's banking services,
according to a banking expert at CBE, is still
conservative in Ethiopia, showing only a moderate
change when it comes to adopting new forms of
banking, especially those that utilise technology.
New forms of services like electronic banking
(e-banking) and commodity financing, among others,
could be used as an extra source of profit.
However, though local banks are equipping themselves with
the necessary platform, fully networking their
branches, the lack of legislation to enable
e-banking exposes banks to new risks and threats.
"It is unfortunate that there is neither legislative
support nor coordinated effort to create a conducive
legal environment for the full implementation of ICT
in the banking sector," Berhanu Getaneh, president
of United Bank, told Fortune. "The civil
aspect of the electronic transactions are not
sufficiently regulated."
E-banking is the process by which a customer may perform
banking transactions electronically without visiting
a brick-and-mortar institution. The introduction of
Information Communication Technology (ICT), has
revolutionised the world banking system making it
easier for both customers and banks to make
efficient and fast transactions.
According to article 903 of the Ethiopia's Commercial Code,
a customer can make transactions with banks only
with a written document. A "cyber law", which would
make electric records legally accepted, does not
exist in Ethiopia.
"It is high time for the government to consider
promulgating cyber laws," Berhanu reiterated, though
he commended the government's effort in making
electronic signature acceptable in ratifying a
proclamation for the commodity exchange market, one
of the potential new avenues for the financial
sector.
At
present, a critical evaluation of further efforts to
improve the functioning of markets in Ethiopia is
underway. The premise of this evaluation is the
recognised need for an integrated, rather than a
piecemeal, approach to market development. One such
integrated approach under consideration is the
development of an Ethiopian Commodity Exchange (ECEX),
under the guise of which the key market institutions
needed, such as market information, grades and
standards, contract enforcement, regulation and
trade and producer groups, mutually reinforce each
other.
Commodity markets are markets where raw or primary
products are exchanged. These raw commodities are
traded on regulated commodities exchanges, in which
they are bought and sold in standardised contracts.
The ECEX, which is expected to get underway next
month, depends on the functioning of "allied"
sectors like banking. Once open, farmers will have
an opportunity to store their crops in warehouses,
getting a warehouse receipt in return, which can be
used as a collateral when farmers need immediate
liquidity.
"This will create an important opportunity for both
the existing and new banks in the future,"
Eleni Gebremedhin, head of (ECEX)
Project-International Food Policy Research Institute
(IFPRI), told Fortune.
Even if the banking sector continues to stick to
practising the current form of banking, the ratio of
population to bank branch, which is currently
165,560 to one, is one of the lowest, even in
sub-Saharan Africa. The ratio in India, the second
most populated country in the world, is 16,000 to
one, which implies that beyond the current credit
crunch, there still vast room for growth in
Ethiopia's banking sector.
The decision to buy shares from any new bank seems
to be as wise as buying the shares from the already
entrenched ones. Shareholders like Begziahber
should, therefore, sit back and wait for their
investments to pay off, though not soon.
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