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Zemen Bank SC, which aspires to be Ethiopia’s only
single branch bank, announced last week that it is
going to take the lead in implementing Basel II, the
second Basel Accord which was published in June 2004
to create international standards that banking
authorities can use when creating regulations about
how much capital banks need to put aside to guard
against financial and operational risks. To
introduce the framework to Ethiopian bankers, Zemen
Bank organised a one-day seminar on credit and risk
management on February 14, 2008, at the Sheraton
Addis.
The Basel Committee on Banking Supervision, revised
in 2004, is an informal platform for 12 Western
nations that promotes international standards in
banking operations and issues statements of best
practices in their supervisions. It is named after a
town in Northwest Switzerland where its secretariat
is located.
In a bid to hasten the adoption of the Basel
standard by automating its services, Zemen has
entered into a partnership agreement with both
eVentive, a US consultant company that will provide
the Bank’s IT system and Harland Financial Solutions
Worldwide providing the credit and risk management
software.
However, there are many criticisms of Basel II
including that the more sophisticated risk measures
unfairly advantage the larger banks that are able to
implement them and thus hitting developing countries
especially hard. Basel II has also been said to
disadvantage the economically marginalised by
restricting their access to credit or by making it
more expensive.
A veteran banker and economist also shares this
thought.
“The criteria and requirements needed to implement
Basel II are sophisticated such that it can hardly
be effectively implemented by a bank in a developing
country,” he told Fortune. “It is ridiculous
that a bank tries to implement Basel II without
first practicing the principles of Basel I.”
While Basel II uses a “three pillars” concept
– minimum capital requirements (addressing risk),
supervisory review and market discipline – to
promote greater stability in the financial system,
Basel I dealt with only parts of each of these
pillars. For example: with respect to the first
Basel II pillar, only one risk - credit risk - was
dealt with in a simple manner while market risk was
an afterthought; operational risk was not dealt with
at all.
The views of the veteran however stand in direct
contradiction with the certainty Ermyas Amelga,
board chairman of the Zemen, has over the expected
achievements of Basel II.
“Basel II is not merely a theory,” says Ermyas. “It
has very clear standards we believe Zemen can meet.”
Unmoved by the comments of sophistication, Ermyas
wonders, “Why can we not be more sophisticated than
Basel itself.”
The inclusions of the Basel principles also have
been recommended in the Business Process
Reengineering (BPR) being developed by executives at
the Development Bank of Ethiopia (DBE).
Supervisors of the Bank strongly argued for DBE to
restructure with segregation of duties and
responsibilities among the two departments, as
agreed by central bankers of developed nations in
Basel.
For Zemen, this is not the first ‘out of the box’
thinking that it planned to implement in the
Ethiopian banking sector. The Bank also envisions
amassing substantial profits with only a single
branch, which is to be re-located in Abebech
Metaferia Building in Kazanchis, old milk house,
from its current promotion office in Wello Sefer.
The partners of the Bank pushed for the adoption of
an automated system in their presentation at the
seminar. Mark Little, vice president and general
manager of Harland, a global software company with
over 7,000 institutional finance customers, made
presentations to the attendees.
Zemen is the ninth private bank hoping to tap into
the rewarding banking sector in Ethiopia. The
National Bank of Ethiopia (NBE) approved the article
of association and memorandum of association of the
Bank, giving its shareholders a green light to
submit their signatures to the public notary office,
the final procedure a bank has to fulfil before
getting a license.
Sources close to the bank told Fortune that
the registration of shareholders would take at least
six weeks. Zemen is at the brink of getting its
license from the central bank.
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