I understand Abdulmena Mohammed Hamza lives in
London, hence too far away to see what goes on
inside Ethiopian private banks. I have lived here
for years, and I am a shareholder in one of the
private banks as well as a student of their
Boards of directors are appointed not because of
competence. They are there for one of two reasons or
Being a director is a highly lucrative job that pays
anything between 100,000 Br to one million Birr
annually for attending a maximum of 50 uneventful
meetings. Large shareholders place their own person
on the board to ensure they have agents to guarantee
them a constant flow of millions of Birr in loans
These are granted without any serious questions of
adequate collaterals and sometimes fall outside
National Bank of Ethiopia’s (NBE) directives. There
is little or no regard for economic sense, bank
policies, procedures, or NBE directives in these
practices, which are not uncommon in private banks.
Sadly, Abdulmena’s assumption in his opinion
headlined, “Directors’ severe pay package can cost
banking talent,” (Volume 11, Number 560, January 23,
2011) that the best have been on the boards of
directors is far from true.
Large shareholders handpick the directors, sometimes
from among their own employees, but often from those
outside the shareholding community. They appoint
them with no regard for quality, integrity, loyalty
to the bank, or proof of any competence in positions
of leadership or finance related scholarship.
It is impossible to solve the problem of
remuneration through remuneration committees with or
without the board, as Abdulmena suggested. The
boards and large shareholders are one and the same.
Invariably, large shareholders (with as much as 20pc
of the bank’s subscribed capital) dominate anyway,
anytime, and anywhere.
Directors’ fees running up to one million Birr a
year are questionable on other grounds. Shareholders
are rumoured to have lost millions in the process.
The new directive from the central bank addresses
such problems as well as the important question of
checks and balances.
Directors at many private banks cannot possibly get
any worse. A number are controlled by a few
shareholders and their agents who regard private
banks as their private property in spite of holding
under three per cent of the bank’s assets.
Abdulmena needs to recognise that Ethiopia does not
have deposit insurance to protect its savers from
self-centred and reckless directors where short-termism
is a real threat. Unlike in the UK, Ethiopia’s banks
are not private limited companies, but share
companies with shares held by members of the public.
NBE’s recent protection measures should be
congratulated and further strengthened.
His fear of the loss of talent is unwarranted for
competent professionals rarely existed on the board
of directors. Yet, the few that are there do not
always go after money. Such professionals may now
have the opportunity to come in and make a
Authorities at the central bank should further
reshape the environment with new directives to
guarantee the independence and competence of
directors and external auditors; limit large
borrower shareholders from appointing their own
agents as directors; and limit large shareholders
from dominating such appointments through cumulative
shareholdings in a plethora of their private limited