The central bank has levied 40.1 million Br in fines on seven banks for failing to invest two percent of their expense on staff training last financial year.
In a letter sent to the Ethiopian Bankers’ Association two weeks ago, the National Bank of Ethiopia (CBE) ordered the Association to report bank account where the fine will be deposited, before October 30, 2018. Bankers’ Association is also ordered to craft a staff training manual for all 18 members financed by a fund raised from the penalty.
Dashen received the lion’s share of the fine at 11.8 million Br, followed by Abay and Nib banks, which are compelled to pay 10.9 million Br and 6.89 million Br, respectively.
The state policy bank, the Development Bank of Ethiopia (DBE), has also told to settle 4.39 million Br that was supposed to be invested in human capital development. Berhan, Bunna and Cooperative Bank of Oromia are also expected to deposit 4.89 million Br, 1.31 million Br and 420,000 Br, respectively, in the account to be facilitated by the Association.
“These banks should properly utilise their budgets in delivering proper training to their board of directors and employees this fiscal year,” reads the National Bank’s letter signed by Solomon Desta, director of banking supervision at the central bank.
Two years ago the National Bank ordered bank and financial institutions to spend two percent of their expenses, excluding capital expenditures, on human resource development. The bank designed the guideline with the main aim of reducing employee poaching, a severe issue among banks, and enabling the industry to have capable and competent professionals.
During the last fiscal year, all of the 18 banks combined invested 629 million Br to train their 140,464 employees. Out of the trainees, 137 and 651 of them were board members and top-level management, respectively.
Gemechu Waktola (PhD), a human resource development expert; a lecturer at Addis Abeba University, College of Business & Economics; and managing director of iCapital Institute believes that human capital development has to be the sole responsibility of the banks.
“No one should remind and regulate the banks to invest in talent development,” Gemechu told Fortune.
However, the recent inspection report of the central bank has revealed that over one-third of the banks did not invest the required amount to train their staffs.
The report from the central bank does not fully show the real picture, according to bankers.
“Expenses of some banks are not clear,” said one senior bank executive. “Some of the big banks have allocated a lower amount of budget, while the smaller banks have allocated a higher amount.”
The central bank also did not reconcile the banks’ budgets with their financial statements, according to this executive.
Gemechu believes that the banks should also stop considering staff training as an expense that needs to be minimised. Instead, they should consider it an investment that should be maximised.
“Beyond that, they should have a well-designed strategic plan for human resource development as they have for management and technology,” he said.
After receiving the letter, the Association called the seven banks for a meeting last week. During the meeting, two proposals were forwarded on how to resolve the issue, according to sources familiar with the issue.
Relieving the banks from the payment or else making them invest the money in their staffs in the current fiscal year were the two options discussed during the meeting.
“The banks have also expressed their concern questioning why all of the banks will be included in the training scheme, while they trained their staffs utilising their budget,” a source close to the case, told Fortune.
The Association has formed a committee with three members to assess all the issues and table the findings and recommendations to the board of the Association for approval, according to the same source.
“We will have a meeting with officials of the central bank next week to resolve the issue,” Adissu Habba, president of the Ethiopian Bankers Association and Debub Global Bank, told Fortune.
Though the seven banks were fined for failing to invest the appropriate amount in their human capital development, some of the banks are reported to invest more than what is expected of them. The state giant, Commercial Bank of Ethiopia, has invested 271 million Br over the mandated amount. Lion and Wegagen banks follow CBE with 18.3 million Br and 11.16 million Br above the two percent investment threshold, respectively.
For the sake of making the banking industry competitive, the two percent has to be increased even to five or seven percent, according to Gemechu.
“It should also even connect to the tax system to make the banks cautious,” he said.
The National Bank should also check whether the banks have used the budget properly to bridge the knowledge and skill gap, Gemechu recommends. For this, the central bank should have an impact-based measurement.
“Rather than analysing the number of staff trained and the expense for the training,” said Gemechu, “the central bank has to review the certificate the trainees get and their efficiency at work.”
Tiruneh Mitafa, vice governor of the central bank, did not respond to questions from Fortunebefore this paper went to print.
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