Alelegne, 23, a student at Addis Abeba University
(AAU), was excited when she received her automated
teller machine (ATM) card from Commercial Bank of
Ethiopia (CBE), the largest and oldest state owned
She regularly receives money from her elder brother residing in the
United States (US) and goes to the bank twice a week
to withdraw money from her account.
She was issued the card following CBE’s implementation of a centralised,
online, real-time, electronic (CORE) banking
solution system, as ordered by National Bank of
In order to implement modern payment infrastructure (replacing the old
manual system), NBE is automating its payment
All electronic interbank money transactions are to be integrated into
NBE’s new national payment system (NPS). All banks
would need CORE banking solutions to be able to
transact with it, as of June 2011, and were ordered
by the central bank to install it by that time.
Following this order, CBE paid Temenos Group AG over 70 million Br to
implement the system in all of its 219 branches, in
With CORE banking, Selam is able to withdraw and deposit money from any
of the branches of the bank where she has an
account. These transactions are immediately relayed
electronically to the bank’s server as all bank
branches have access to applications from
centralised data centres.
To date, only nine banks have connected all of their branches. They are
CBE, Dashen Bank, Wegagen Bank, Zemen Bank, United
Bank, Awash International Bank (AIB), NIB
International Bank (NIB), Lion International Bank
(LIB), and Berhan International Bank (BIB).
However, Selam complained that the ATMs are hardly functioning, forcing
her to continue carrying cash around in her purse.
Banks such as Dashen Bank and CBE have had trouble with their ATM
services continuously failing, an expert told
Fortune on condition of anonymity.
Earlier this year, some Dashen Bank customers discovered their deposits
had increased, overnight; in some cases with
thousands of Birr. The bank denied the occurrence
that was attributed by experts to a software
Oracle Flex, the leading information technology consultancy firm, was
contracted by Dashen Bank, Zemen Bank, United Bank,
and Abay Bank to set up their CORE banking systems.
Along with CBE, Bank of Abyssinia (BoA) and
Construction and Business Bank (CBB) purchased
software from Temenos Group, the world’s third
largest international software provider.
BoA and CBB, along with Development Bank of Ethiopia (DBE) as well as
Cooperative Bank of Oromia (CBO) are installing
their CORE banking systems, while Oromia
International Bank (OIB) has put the system in place
only at its head office, to date.
“The central bank is confident that most banks will complete the
installation of their CORE banking solutions before
the deadline,” Alemayehu Kebede, director of change
Management and communications at NBE, told Fortune.
“The remaining ones will finish since many of the
banks are in the implementation stage. Only a few
have not started the process.”
NBE is to go online with its automatic cheque clearing house (ACCH) and
real-time gross settlement (RTGS) services, which
transfer high value interbank payments without
cheques on May 27, 2011, Fortune has learnt.
These services will clear cheques online by recording the deposits in
real time, eliminating the current practice of
physically taking cheques collected from the bank’s
branches to the central bank to manually clear them.
Using the NPS, both high value and low volume transactions are cleared
and settled right away while low value and high
volume transactions are cleared and settled in the
next clearing cycle, told Fortune.
“Clearing cheques online will also reduce the number of bounced cheques
from transactions,” Alemayehu said.
NBE will not impose fines on banks who do not meet the deadline of June
2011, but it would be to a bank’s own detriment not
to be online, sources told Fortune.
“Although the deadline will not be extended, the situation will be
reviewed by the central bank,” Alemayehu said.
The NPS Proclamation that has been proposed by the central bank is yet
to be approved by Parliament before the system can
NBE expects the proclamation to be ratified in the coming two weeks,
sources inside the bank told Fortune.
Not only are new banks installing CORE banking, but the ones that
previously had the system are partially or totally
migrating from their previous systems to upgrade
With the aim of transforming its CORE banking system to delivering new
services, Wegagen Bank has purchased new software
from Infrasoft Tech at a cost of two million
dollars. It previously installed software from
Transitional Computer Technology in 2001.
Each bank has paid over one million dollars to install the system in
their respective banks.
The price of the purchase depends on the system’s features and vendors’
brand, with the minimum being 800,000 dollars for
the purchase and implementation in a small number of
branches, according to Melaku Kebede, vice president
of technology at Zemen Bank.
Banks have installed the system with the support of the vendors, local
IT consultants, and their staff members who are
experts in information technology.
Zemen Bank saved over three million Birr by installing the software
itself, using its staff members, Melaku said.
For the money banks spent to implement the system, CORE banking offers
more than only sophisticated ATM use.
It would enable banks to provide Internet banking with which customers
like Selam can view their balances, transfer funds,
and pay bills online. Banks could also offer mobile
banking services through which Selam can check her
balance and transfer funds by short message service
(SMS), as well as phone banking to check balances
and make account inquires by phone.
However, some experts in the banking industry speculate that
underdeveloped telecommunications facilities may
hinder the visibility and practicality of the CORE
“The existing network continuously fails due to the poor Internet
connection,” Solomon Mammo, director of information
systems at BIB, told Fortune. “The bank has only one
Internet line, and we are considering increasing the
number for a better connection.”
However, Bahirenegash Belete, a private consultant, believed that the
connectivity problem will only come to the fore once
the volume of transactions between local and
international banks increase along with the CORE
banking services offered locally.
“The current connection will be sufficient to support the new NPS and
CORE banking services banks are providing,” he told
The government is planning to increase the availability of reliable and
affordable Internet by launching a better
connection, which is essential to support CORE
banking, with the new management of Ethio-Telecom,
Fortune has learnt.
The Credit Information System software records transactions and customer records in
addition to calculating interest on loans and
deposits as well as balance of payments and
“The CORE banking system allows a bank to check a customer’s background
with other banks in servicing loans before approving
new ones,” Alemayehu said.
Customers are also able to access current interest rates and the
transfer of funds through the system which reduces
time and manual work.
The CORE banking technology will allow customers to conduct their
banking transactions from their computer, according
to Zemedeneh Negatu, managing partner of Ernst &
Shortening the time it takes for transactions to clear will make money
available for use in the economy.
“The NPS will contribute a lot to the growth of the country’s economy
since banks will be able to provide technology
oriented services,” Zemedeneh told Fortune. “It will
also enable banks to provide credit and debit card
services alongside efficient services and reliable
Ethiopia is set to become the third largest economy in Africa in 15
years with a projected GDP of close to one trillion
dollars, according to EY, which implemented the NPS
with Motran, a US software company, at a cost of 2.2
million dollars donated by the World Bank (WB).
The entire project included capacity building and the procurement of
hardware and software and cost nine million dollars,
sources from the WB told Fortune.
The investment may pay off once the CORE banking system is deployed, as
the financial sector’s contribution to the GDP will
scale up to between five per cent and six per cent
over the next 10 to 15 years, according to a
forecast by EY.
In Ethiopia, the sector contributed close to two per cent of the GDP
last year, a figure that is set to remain the same
this year, according to the Ministry of Finance and
Economic Development (MoFED) annual report in
The financial sector’s contribution was 10pc in the United Kingdom
(UK), around seven per cent in Kenya, and six per
cent in the US in the 2010/11 fiscal year, while it
contributed more than 22pc to South Africa’s GDP in
2009, according to Zemedeneh.
However, using the system poses unique challenges as it openes the
sector up to online crime.
“The NPS and CORE banking have built-in security features that are
highly secured to prevent unauthorised persons from
gaining access,” Zemedeneh said. “However, it needs
robust and sophisticated security to continuously
check the system.”
Bahirenegash agrees with this as it is difficult to say the NPS is
100pc safe from security risks despite being
provided with its own security and password
Yet, these concerns are not at the top of the priority list of bank
customers like Selam, who looks forward to an
improved service in accessing her money.