Ethiopian Banking Industry Challenge and Prospectus

Ethiopian Banking Industry Challenge and Prospectus

????? I.??????????? Background:

Ethiopian Banking industry is at its infant stage partially due to as the economy is at developing stage. This can be attested by major growth metrics of total industry capital, total industry deposits, and total industry loans as well as total industry assets as compared to East Africa countries. Even though trend wise the figures are growing year after year in local currency, looking at all the above industry growth metrics in hard currencies as well consider the effect of the inflation and see it in real value terms, my point will be so clear to everyone.

?Even, the Banking industry has been liberalized partially to domestic private investors not more than three decades. It is not liberalized to foreign investors still now though Ethiopian Diaspora investors are permitted recently. The industry lion share is held by public bank. As the public enterprises and government affiliated uses public bank, the whole private banks roles are below half in the market in the major share measure. There is also low financial literacy rates in Ethiopia. The economic monetization is low and it is estimated that the large amount of cash circulate outside the Banking Industry.

Brief Banking Sector Stage

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F Imperial Stage: from Menlik II to Haileseliase Regime: Public Banks and Private Banks Operating in the Industry both local as well as international banks

F ?Derge Stage: Nationalization of Private Banks and operation of Public Banks only.

F Domestic Investor Liberalization Stage: Restarting Licensing, Regulation and Supervision of Banks

F Financial Inclusion Policy Stage:30% Branch Expansion

F Main Four International Consultant Consulting Stage: Market Segmentations and adding and expanding Organization Structure and Ladder as well as automation of customers management and resources management

F Diaspora Liberalization and Full-fledged IFB Policy Stage

Summing up, Ethiopian Banking Industry have passed the following stages in last three decades:

v? Domestic Investor Liberalization Stage

v? IFB Window Model Banking Stage

v? Financial Inclusion Policy Stage

v? Main Five International Consultant Consulting Stage

v? Ethiopians Diaspora Liberalization and

v? Full-fledged IFB Policy Stage

v? Ethiopian Financial Sector Labialization may happen announcement stage and discussion on the issues of Foreign Investors coming stage

Unfortunately, big Consultants Consulting Financial Sector and Loss of Dollars and Their 101 Recommendations are as follows are:

v? Frankfurt School of Finance and Management

v? Earnest and Young

v? Delloitte

v? KPMG

v? DAI

v? McKenna’s and Company

Big for Consultants in Ethiopia Banking Industry and their overall consultancy recommendations were:

a)????? Market or Customer segmentations and develop targeted products and services

b)????? Expanding the organization structure by making the ladder long and adding new units.

c)????? Automation of customers management and resources management operations

Regulator Top Ten Standard Questions at Entrance Meeting

Regulator Top Ten Standard Questions at Entrance Meeting raises the above recommendations in one way or another. If the Bank Managements were given them due attention to them, they would have done themselves without incurring huge hard currency.

Hence, their major recommendations were Market Segmentation, ERP for support business and CRM for operation as well as upgrade core banking.

F They are almost in Regulator Top Ten Standard Questions of Entrance Meeting.

?II.??????????? Ethiopian Financial Sector Policy and Macroeconomic Policy

Features and Characteristics of Ethiopian Macroeconomic Policy and Practices as well as Challenges

1)????? Foreign Currency and Foreign Capital Control Financial Policy:

v? Lack adequate foreign currency in the economy

2)????? Foreign Financial Investment on financial sector prohibited so far or still now.

v? Investments are limited in the sector

3)????? Partial Liberalized Financial Sector for Domestic Investors and Ethiopian Diasporas

v? Competition is low and low investment management and low technology utilization rate

4)????? Public Bank Dominated Commercial Banking Sector

v? Lack of equal level playing field and policy inconsistency as well as unpredictable policy

5)????? Public sector credit is substantial compared to private sector credit

v? Lack of incentives to resource mobilization and efficient uses of resources in the economy

6)????? High Supply constraint on real economy and high demand on the economy

v? Low credit extension and low saving rates

7)????? High inflation and uncontrolled

v? Low saving rates and incentive to save as well as negative real interest rates

8)????? Low saving rates

v? Inadequate resource for investment both for financial and real sector

9)????? High consumption trends

v? Low National Saving Rate

10)? Low financial literacy rate

*Lack of financial institutions fair competition and market rewards

III.??????????? Top Present Ethiopian Banking Industry Challenges:

1)????? High Salary and Benefits Costs Vis-Vis the Individual Employee Productivity

2)????? High Rent Costs Vis-Vis Branches and Offices Productivity in Operations

3)????? High Technology Costs and Acquired not based on individual feasibility and high outsourced maintaining costs

4)????? High Banking and Office Equipment’s Costs due to lack of smart offices and layout design problems and unproductive branches expansions

5)????? Low in amount and number of Net Lenders (Savers and Creditors)

6)????? High in Amount and Number of Net Borrowers ( Loaners)

7)????? Demand Driven Growth Market than Supply Driven Market (High Demand of Finance Uses than High Supply of Finances due to macroeconomic challenges)

8)????? High Regulation and Supervision Burdens ( Inconsistent and some time out of mandate instructions and orders as well as directives on supervised institutions)

9)????? Unfair Competitions and Market Practices ( Can be named Competition Wars)

10)? High Inflations and Living Costs due inappropriate lack of monitory policy and fiscal policy design and implementation

11)? Low Incomes and Diversified Incomes due unfairly distributed income distribution in the macroeconomic systems especial labor or household in not getting fair income share from economic growth.

12)? Low Nominal Saving Interest Rates and Negative Real Interest Rates

a.?????? As inflation is more than three folds of saving interest rates and even inflation rates are above lending interest rates. Current, saving interest rates make borrowers than savers. This one of the big challenges to mobilize real national savings than the growing nominal deposits.

13)? Improper Organization of Commercial Banks that is not commensurate as well as go align with commercial banking features. For example, loan providing process takes long times and it is like project loan financier they are providing the service.

?IV.??????????? Current Challenges and Problems Solutions

A.??? Banking Service Efficiency

v? Mastering Banking Policy and Procedure

v? Mastering Banking Applications

v? Mastering Keyboard

?? The Rationale are: Speed of Service increasing and Accuracy of Service Increasing

?? Front line customer service officer typing speed per minutes (word per minutes) seems very low.

?? This will influence number of transactions per customer service officer.

?? ?Then, it will affect productivity and customer satisfaction.

?? Hence, conduct baseline survey on? word per minutes typing of customer service officer in particular? and operation staff in general to come up with minimum typing speed per minutes for customer service officers and come up with proposal how to reach that level

v? Benefits of Mastering Keyboard

?? Improve Productivity/Quality in Terms of:

ü? Improve Methods/Procedures

ü? Save Costs by increase of Number of Customers Served Per Banker

ü? Improve Customer Service Speed and Accuracy??????

v? Overall Benefits

?? The bank will benefit by significantly reducing customer queues.

?? Reduce staff size in the branches.

?? Reduce customer complaints.

?? Generally, boost productivity and customer stratifications.

??? V.??????????? Applying Basic Principles and Fundamentals of Banking

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Applying Basic Principles and Fundamentals of Banking Theories and Practices are relevant to our country and developing countries. There may a chance of leapfrog in new banking areas. However, we cannot jump without evolve the basic development of banking stage that is based on the economic stage. Building Own Banking Industry Knowledge and Know-how Capacity Theme. Saving Losses of Scarce Hard Currency by International Consultants Theme. Protect the Industry from Consultants that are not familiar of the industry and depend heavily on Country Party Teams industry knowledge and data collections as well as cultural barriers from international consultants' theme.