The Construction & Business Bank (CBB) will end a 40 year journey when it is incorporated into the Commercial Bank of Ethiopia (CBE) by the end of this fiscal year.
It will also mark an end of a long saga in Ethiopia’s banking history, which involved nationalization, mergers, and restructuring.
What had once been a housing mortgage bank will add just 122 branches to its giant sibling, which currently has 992 branches as of December 22, 2015. The Government Financial Enterprises Agency (GFEA), whose decision it was to merge the banks, told journalists on December 22, 2015 at the head office of CBB that its intention was to create one giant bank that would be competitive in Africa and worldwide. The CBE now has only one international branch in Juba, South Sudan. Its unaudited gross profit for the past fiscal year, which ended on July 7, 2015, was 12 billion Br.
Before passing this decision, the Agency had conducted a study on how the public financial institutions, CBE, CBB, the Development Bank of Ethiopia (DBE) and Ethiopian Insurance Cooperation (EIC) should be structured in implementing the second Growth & Transformation Plan (GTP II).
A source close to CBB told Fortune that the Bank had been unable to improve its ailing financial performance, leading to the latest decision. For the past six years CBB has been going through a reform programme intended to enable it to stand on its own two feet, according to this official. Capital injection was one of the options the Agency considered but a plan to inject 1.5 billion Br was later dropped, according to a senior official. This bank had been identified as one of five least performing banks in Ethiopia up to five years ago, according to this official who spoke anonymously.
One of CBB’s problems could be a lack of mission that differentiated it from CBE, according to Abdulmenan Mohammed Hamza, accounts manager at Portobello Group Ltd., a London based holding company.
“Although the bank does not want to disclose figures of either their loans or deposits, it is not as it is expected which has scared the Agency. It is not going to be an easy thing for the Agency to support two state-owned banks that have the same features,” Abdulmenan added.
It would have been good to redirect the CBB to the mortgage business, for which it was initially established, he suggested.
News of the merger was no surprise for the management, but for the employees, who heard the information suddenly, it has been worrying.
Sintayew Woldemichael, director of the Agency, has assured staff that there will be no layoffs, with all the CBB personnel continuing in their jobs. The Bank has 1,993 employees working in its 122 branches.
Both CBB and CBE are using the CORE banking solution supplied by Temenos. CBB’s, which was procured for 306.9 million Br, was inaugurated on November 14, 2015.
“Since our technologies are similar, other tasks, like transferring accounts and updating them to the new version will be a matter of a single night’s work,” the CBB official claimed.
This official is not sure what his fate under the CBE will be, but he says no layoffs are going to happen. The management of the Bank have known for a while that the larger bank was going to take theirs over, but for the majority of the employees the announcement was breaking news. Some employees have expressed their fear that the new management could decide to shed some employees, while for CBB’s public communications officer, Abay Sime, there is only the odd feeling of having to work under a different management after eight years with the Bank.
“There may be a shift of workers to the different branches in redundant places but still there should be no fear with the employees,” the senior official told Fortune, adding that loss of job is not a risk as the industry needs more branches in the future.
The concern has, however, been shared by customers as well, some of whom were observed closing their accounts with the CBB.
One client, Sileshi Aweke, was at the bank the day after he learned the news from the social media. He had an account with CBE for the past five years.
“I was never sure about this bank,” he said.
He had delayed decision, but now he is not clear what is going to happen to his account.
“Even the accountants do not know what is going to happen from here onwards,” he said. “I do not want to risk my money.”
According to an unaudited report, CBB has total assets of 7.6 billion Br, a drop in the ocean compared to CBE’s 276 billion Br. Its paid-up capital was also 500 million Br. The senior official Fortune talked to, claimed that CBB’s competitiveness was at the level of Awash and Dashen banks, whose latest reports show assets of 23.8 billion Br and 24.7 billion Br, and capital of 1.7 billion Br and 1.2 billion Br, respectively.
In 1975, CBB came into being following the year the socialist regime took over, with the merger of the Savings & Mortgage Corporation and Imperial Saving & Home Ownership Public Association, forming the Housing & Saving Bank with a working capital of six million Birr. This bank later changed its name to the Construction & Business Bank, with a mandate of import financing, export financing, non-resident accounts, loans, mortgages, saving deposits, investment and money transfer services.
CBE came into operation on January 1, 1964, with capital of 20 million Br, by taking over the commercial banking activities of the former State Bank of Ethiopia; the remaining part of the bank became the National Bank of Ethiopia, Ethiopia’s central bank. Later, in 1980 CBE took over Addis Bank, the addition of which increased its capital to 65 million Br. Addis Bank itself was the result of a merger between Addis Ababa Bank, which was nationalized, and the Ethiopian operations of the Banco di Roma and Banco di Napoli. Addis Ababa Bank was an affiliate of National & Grindlays Bank.
In the 1970’s the Khartoum government nationalized a branch the State Bank of Ethiopia had opened there. When Ethiopia’s civil war came to a close in 1991, the Commercial Bank of Ethiopia also lost its branches in Eritrea, which became the Commercial Bank of Eritrea.
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