Nation Bank of Ethiopia (NBE) to Enforce Mergers Among Local Banks

Ethiopia’s central bank is stepping up efforts to force mergers and acquisitions on local banks in order to ensure their survival during the country’s impending entry of foreign banks. According to H.E Yinager Dessie (PhD), Governor of NBE, in a meeting with these banks last week, the regulatory institution is in the process of designing policy instruments to help these locals hold their own in the face of outside competition, wrote Dawit Taye of The Reporter.

The total number of banks in the nation has risen from 18 to 30 within just last year, following NBE’s new banking proclamation that allowed the establishment of interest-free banks and the evolution of MFIs into banks. This amounts to an average of one bank established per month.  According to the Reporter, this number would’ve amounted to much more if 13 additional banks hadn’t failed to enter the market as they could not meet the new, or even the old, minimum paid-up capital requirement, which are ETB5 billion ($120 mn) and ETB500 million, respectively. Some of these institutions could not even mobilize over ETB30 million.

The Governor addressed this by emphasizing that having a few strong banks trumps having several feeble ones. Whilst 30 banks by no mean amounts to being sufficient for Ethiopia’s large population, their capital fulfillment, rather than their number, is the crucial matter at hand. Even further, he reportedly added, banks that can support each other, and not tear each other through rivalry is what is needed in the face of the banking sector opening up to foreign entrance.

The President of the Commercial Bank of Ethiopia, Abie Dano, had a different thing to say about the matter. As per the Reporter, the influx of so many local banks to  is already stirring up trouble in the human resource arena. There is a high turnover in existing banks because the new ones, according to him, are taking trained employees through higher and more attractive salaries. The former banks, in response, are hiking up salaries which is increasing their operation costs significantly.

The President further argued against the recent decision by the Ministry of Revenue to tax all recapitalized dividends to-date, with only a first year exemption and without any specification as to whether the corporations or the shareholders will be liable for the payment. This action, according to him, will erode the capital of these banks, as well as the stockholders’ confidence. Concerning this matter, the Bankers’ Association, headed by Abie, has lodged a complaint with NBE. The latter is reportedly discussing with officials of the Ministry of Revenue and Ministry of Finance to decide whether this tax should be paid or exempted.

Source: The Reporter