By AklileTsige /ABN/
In Ethiopia all banks are owned by the local people as the country has not yet liberalized the market for foreign banks. Even though for many years there have been many interests from foreign countries to enter the banking sector of Ethiopia, the government didn’t open the sector so far.
The banks have faced several challenges, including foreign exchange-related issues and local political unrest. Despite the problems, the domestic banking sector posted its highest growth rate in six years, along with accelerated branch expansions.
One of the private banks in Ethiopia, Berhan Bank has shown a magnificent growth in all banking service outputs in its decade journey; Aklile Tsige, ABN Editor-in-Chief speaks to the Bank’s President, Abraham Alaro,regarding ten-year-journey of the Bank.
Emergence of Modern Banks in Ethiopia
History has it that the first bank in Ethiopia, the “Bank of Abyssinia”, was established in 1905 based on the agreement signed between the Ethiopian Government and the National Bank of Egypt, which was owned by the British. Its capital was 1 million shillings. According to the agreement, the bank was allowed to engage in commercial banking (selling shares, accepting deposits and effecting payments in cheques) and to issue currency notes. The agreement prevented the establishment of any other bank in Ethiopia, thus giving monopoly right to the Bank of Abyssinia.
The Bank, which started operation a year after its establishment agreement was signed, opened branches in Harar, Dire Dawa, Gore and Dembi- Dolo as well as an agency office in Gambela and a transit office in Djibouti. Apart from serving foreigners residing in Ethiopia, and holding government accounts, it could not attract deposits from Ethiopian nationals who were not familiar with banking services.
The Ethiopian Government, under Emperor Haile Sellassie, closed the Bank of Abysinia, paid compensation to its shareholders and established the Bank of Ethiopia which was fully owned by Ethiopians, with a capital of pound Sterling 750,000. The Bank started operation in 1932. The majority shareholders of the Bank of Ethiopia were the Emperor and the political elites of the time. The Bank was authorized to combine the functions of central banking (issuing currency notes and coins) and commercial banking. The Bank of Ethiopia opened branches in Dire Dawa, Gore, Dessie, Debre Tabor and Harrar.
With the Italian occupation (1936-1941), the operation of the Bank of Ethiopia came to a halt, but a number of Italian financial institutions were working in the country. These were Banco Di Roma, Banco Di Napoli and BancaNazionaledelLavora. It should also be mentioned that Barclays Bank had opened a branch and operated in Ethiopia during 1942-43.
In 1963, the State Bank of Ethiopia split into the National Bank of Ethiopia and the Commercial Bank of Ethiopia S.C. with the purpose of segregating the functions of central banking from those of commercial banking. The new banks started operation in 1964.
Berhan Bank President, Abraham Alarorecalled that the first privately owned company in banking business was the Addis Ababa Bank S.C., established in 1964. 51% of the shares of the bank were owned by Ethiopian shareholders, 9% by foreigners living in Ethiopia and 40% by the National and Grindlays Bank of London. The Bank carried our typical commercial banking business. Banco Di Roma and Banco Di Napoli also continued to operate.
Thus, until the end of 1974, there were state owned, foreign owned and Ethiopian owned banks in Ethiopia. The banks were established for different purposes: central banking, commercial banking, development banking and investment banking. Such diversification of functions, lack of widespread banking habit among the wider population, the uneven and thinly spread branch network, and the asymmetrical capacity of banks, made the issue of completion among banks almost irrelevant.
Following the 1974 Revolution, on January 1, 1975 all private banks and 13 insurance companies were nationalized and along with state owned banks, placed under the coordination, supervision and control of the National Bank of Ethiopia. The three private banks, Banco Di Roman, Banco Di Napoli and the Addis Ababa Bank S.C. were merged to form “Addis Bank.” Eventually in 1980 this bank was itself merged with the Commercial Bank of Ethiopia S.C. to form the “Commercial Bank of Ethiopia,” thereby creating a monopoly of commercial banking services in Ethiopia.
After the downfall of the Dergue regime by the EPRDF, the Transitional Government of Ethiopia was established and the New Economic Policy for the period of transition was issued. This new economic policy replaced centrally planned economic system with a market-oriented system and ushered in the private sector.
Berhan Bank: Birth and Development
Registered and licensed by the National Bank of Ethiopia on 27th June, 2009 with an authorized capital of Birr 300 Million and subscribed capital of Birr 154.7 Million, Berhan Bank was inaugurated and launched its operation on October 3, 2009, opening its first branch in Bole, Addis Ababa.
According to the Berhan Bank President,Abraham Alaro, the 10-year journey of the Bank could be viewed from three different eras: the first one, 2009-2013 was an establishment period that saw aggressive marketing and promotion activity,andfoundation for the Bank was laid. The second era, 2014-2016 was a take-off timeby which refined strategy for market penetration was attempted. The third era, 2017 to the present is a period that the bank has shown a splendid achievements and relative maturity in the industry.
The Bank has managed toraise its income for years. The Bank’s deposit has shown a remarkable growth which stands 14.964.3 million Birr in 2018/19 from 238 million Birr ten years ago
Abraham indicated that in the past ten years the Bank has stretched its wings to various regional states across the country, and enabled to raise the number to 200 branches from five branches ten years ago, showing an exponential increase annually.
TheBank’s profit has been showing significant increase since its establishment a decade ago. Indeed, a profit surge is witnessed in 2018/19 fiscal year; gross profit of the Bank stands at 580.1 million which was 410.9 million Birr a year ago.
On the other hand the Bank’s assets reached over 19.2
billion Birr, which is an increase of 33.5
percent compared with the preceding year’s 14.1 billion Birr.
For the year Berhan’s capital strength continued significantly, in 2018/19 the total paid-up capital reached 2 billion birr from 1.7 in 2017/18 fiscal year.
“We have achieved the goals of our strategic plan three years before the time set despite the various challenges our Bank hasfacedregarding foreign currency mobilization and some directives of the National Bank,”
The President noted that Berhan Bank is the first Ethiopian private Bank to attract over 15,000 shareholders while the number of depositors reached 657,027 in the 2018/19 fiscal year.
Over 4000 employees of the Bank have currently been working in a very conducive and encouraging working environment that has enabled to bring about increased customer satisfaction and impacts on the development of the national economy as well.
Abrahamsaid the Bank had spent two years before its establishment ten years ago, and had gone through lots of ups and downs to secure the required start-up capital at the moment.He further added that the dedicated and committed founders of the Bank had shown their selfless personality to realize the establishment of the Bank.
Moreover, Abraham statedthat ensuring whether relevant banking rules and regulations put in place, aggressive marketing and promotion undertaken by the founders of the Bank as well as equipping and staffing theBank with appropriate and relevant logistics and human resources were some of the major activities carried out to establish the bank.
Berhan Bank has initially taken into consideration its values so that it could make impacts on the country’s banking industry and its customers. It has been known for its integrity and commitment, and remained role model for other businesses around.
Berhan Bank is also known for its being the first private Bank to launch core banking solutionfully automating and networking its branches in the country. This made the Bank exemplary for other banks, and then the National Bank of Ethiopia has declared that the launching of core banking system is mandatory.
The Bank displayed an amazing boom in its financial transaction and number of customers in 2014/15, andithad to embark on expansion of a high-tech data-base at a cost of 77 million Birr that could accommodate the ever increasing service demand. This obviously upgraded the various banking products such as internet banking mobile banking, school pay, and mobile top-up.
“We have achieved the goals of our strategic plan three years before the time set despite the various challenges our Bank has sufferedregarding foreign currency mobilization and some directives of the National Bank,” Abraham noted.
Berhan Bank has mainly worked on maintaining an open and transparent working environment; “A South African company has conducted a survey on the bank and found out that there exists a good working atmosphere for both its customers and employees” said Abraham, adding that for this remarkable achievement the Bank was awarded a certificate of recognition by this South African company.
As a socially responsible company Berhan Bank has been taking part in several community development programs. In favor of this, Abraham said,” The Bank strongly believes that it has moral obligation to directly or indirectly contribute its share to efforts to alleviate societal challenges.”
Thus, the Bank has donated one to five million Birr financial support to various governmental and non-governmental institutions, including the Great Ethiopian Renaissance Dam (GERD), Sheger Beautification Project, and Ambo Youth Center Project. Furthermore, it has played a pivotal role in the rehabilitation of displaced people in Amhara, Oromia, Somalia and Tigray Regional States as well as supporting the purchase of educational materials for students in Addis Ababa City Administration.
It has now become so common to name the area located at ‘Senga Tera” in the Capital, Addis Ababa, “Sheger Wall Street” where several private banks are erecting their magnificent headquarters buildings.Berhan Bank has made relentless effort to secure land for the construction of its headquarters in this financial site.
“Re-brandingrendersuswith an opportunityto come up with a new, innovative and unique customer services. So we are now waiting toofficially launchthis rebranding endeavor.”
It was indicated that the Bank has been waiting for a response from the Addis Ababa City Administration for itsland request for more than four years, and it alsomade attemptspreviously to buy plot of land from individuals for the same cause.
With regards to its international remittance business, the Bank haspartnered with Western Union, Dahabshiil, Taran Express and other international remittance service providing companies. Profit figurescontinued to soar, registering a remarkable growth in gross profit year in year out.
In connection with its 10th year anniversary, Berhan Bank has embarked on rebranding its company, changing its logo, motto and image. “This renders us with an opportunity to come up with a new, innovative and unique customer services. So we are now officially launching this rebranding endeavor.” Abraham noted.
“We have now closed the first chapter which brings us to this successful path, and we also have to reposition ourselves in a new and better image that would help us serve our customers more efficiently and effectively.” Abraham said,
Some of the Directives of the National Bank of Ethiopia (NBE) are said to be bottlenecks forthe operation of private banks.Nevertheless, very recently the NBE has lifted a long-running mandatory bond purchase Directives in which private banks were obliged to purchase a bond accounting 27% of every loan they extend to borrowers. This, according to Abraham, will help banksto reach out to the credit requests of their customers in a better way.
With regard to the ongoing discussion pertaining to opening the financial industry to foreign banks, ThePresident said, “preparation to open the industry for foreign banks should be treated meticulously, and our financial institutions need to be prepared andgiven opportunity to enter into foreign country markets as they would do here.”, adding that the Ethiopian Government needs to look into ways of facilitating bilateral issues that help these institutions be players in foreign markets.
Speaking of the Berhan Bank’s future, Abraham indicated that the Bank will mainly focus on expanding technology-based services, enhancing quality of customer service and competitiveness, building employees’ capacity and expandingitsasset base.
While future banking industry in Ethiopia seem to be promising as challenging government financial policy and regulations are being amended, Berhan Bank, in its ten years journey has successfully achieved what it had intended to achieve; the founders should be proud of what they have done in the past ten years. Hence, the Bank with its re-branding move and technological advancement will undoubtedly keep going, rising and booming.