Banking in Ethiopia remains promising in the face of adversity

Banking in Ethiopia remains promising in the face of adversity

Finance

The banking sector in Ethiopia remains promising through it has been changed by both infrastructure and stringent policies and regulations, says veteran banker.

“Ethiopia is still under-banked countries event compared to Sub-Saharan African countries. We don’t have more than 5,000 bank branches in a country with more than a 100 million population. One branch is expected to render its services to 20,000 to 22,000 people. This ratio is very high when compared to other African countries,” Belete Dagnew, Vice President for Corporate Service at Abay Bank Share Company.



“The fact that we have over a 100 million population by itself makes the banking sector in Ethiopia promising. There is a big opportunity for the existing banks or new entrants to the market for extending their service for the unbaked segments of the society with the help of technology,” he says.
Meanwhile he mentioned infrastructure and stringent regulations as the major challenge for the banking business in Ethiopia, especially the poor telecom network and power outage.

“We have only one telecom service provider in the country, which even can’t sign service level agreement with the banks. But if we go to neighboring countries such as Kenya, we find three or four different telecom operators. I hope liberalization of the telecom sector, which the government is now planning, can help address those challenges of the banks,” he said.

Commenting on how the banking sector is being regulated, Mr. Belete suggested some kind of policy relaxation. “There are some stringent policies put in place by the financial sector regulator of the country – the National Bank of Ethiopia. Even though some of the strict regulations are necessary for the sector, there should also be some kind of relaxation on policies to let the market paly based on supply and demand,” he suggested.

In order to expand financial inclusion in Ethiopia and serve the unbanked, the existing banks need to use technology to serve these unbanked segments of the society, according to Mr. Belete, who has been in banking business for about two decades from government’s Commercial Bank of Ethiopia to Bank of Abyssinia.

Currently the minimum paid-up capital to set up a new bank in Ethiopia is half a billion birr (around $18 million). Mr. Belete believes that because the sector is closed for foreign investors securing that much paid-up capital has been a challenge and discouraging.

He hopes that if the banking industry of Ethiopia can be opened for foreigners in the future and the existing banks start using more technologies, the currently under banked people of the country will have access to financial services.

Even though the existing private banks in Ethiopia has been advised by the regulators to increase their capital and prepare themselves to compete with foreign banks coming into Ethiopia, the country has not yet set a clear time frame when the sector will be liberalized.

There are now 16 private banks and 2 government banks in Ethiopia. As return on investment in banking is on average around 20% and the investment is one of the safest, many people are interested to increase their shares in the existing private banks, according to Mr. Belete, who stated that Abay Bank’s priority is excelling its services.

Established in November 2010 having over 4,000 shareholders, Abay Bank is the only bank in Ethiopia serving customers till 9 pm in the evening.

Abay Bank has half a million customers and 170 branches with more than 2,700 employees. Other than providing loans and mobilizing deposits, Abay Bank’s services include, issuing guarantees for different projects, as well as providing unique services such as, children, youth, women and student accounts, among others, according to Mr. Belete.