Storm at Oromia Coop Bank

What might be an industry-wide forex and letters of credit malpractice in the country’s financial sector, as well as tardiness to respond to warning letters from the central bank has cost the Cooperative Bank of Oromia (CBO) S.C. its highest brass. Its chairman of the Board of Directors and top executives were suspended last week en masse, and are now under probe by auditors from the National Bank of Ethiopia (NBE).

Auditors are now investigating gaps in reporting the utilisation of foreign currencies, with a discrepancy showing between the currency CBO has in hand and the sum reported to the central bank, people close to the case disclosed to Fortune. CBO reported to the central bank a foreign currency amount it did not have in reserve, without confirmation that hard currency would be obtained from its clients in the export sector, the sources revealed.

CBO has heard repeatedly from the central bank over its practices of opening letters of credit (LC), without having sufficient foreign currency at hand to be paid to overseas clients of importers, according to industry sources.

“The Bank was not being negligent, but attempting to make the services more convenient for customers,” said a staff member at a mid-level managerial position.

The practice, however, has caused delays of up to three months before suppliers abroad could recover their money. There have been complaints from Chinese companies and intermediary banks such as Commerzbank of Germany, Barclays and Citibank, according to these industry sources. These complaints over the practice among Ethiopian banks has been growing over the past four years, with some company and bank representatives visiting the central bank to lodge their complaints in person, an importer told Fortune.

The problem in the banking industry in general worsened over the past year, due to the depleted foreign currency reserve of the nation. At 2.7 billion dollars last year, Ethiopia can only cover less than two months of its imports, according to the IMF. Authorities at the central bank have been struggling to increase this sum to three billion dollars this year, hoping that additional revenue from the export of coffee, following the decline in exports from Brazil, could be earned.

Several bank executives have got into the habit of opening letters of credit to their clients, anticipating future foreign exchange incomes, an expectation that has proven to be costly to both banks and the country, according to industry analysts.

“Opening LCs with expectations is something common in the industry,” said a banking expert who wanted to remain anonymous. “CBO might have done it excessively.”

Such feelings of excess could be behind the central bank’s decision to suspend CBO’s executives and Board.

On September 22, 2015, Abera Deressa (PhD) was suspended from serving the bank as chairman, after the bank allegedly found itself unable to meet its obligations worth tens of million dollars to international traders. A former state minister for Agriculture & Rural Development under then Minister, Addisu Legesse, Abera has spent much of his time in research and running regional organisations based in Nairobi before he joined CBO as a director.

CBO is a commercial bank established in 2004 with 300 million Br capital, after promoters raised equity from members of cooperatives in the Oromia Regional State. Other entities of the regional administration have also bought significant shares in the bank. The bank has seen four presidents since its foundation, including Wondimagegnehu Negera, who is now suspended from office. At 36, Wondimagegnehu, a former vice president for Operations at the state owned Commercial Bank of Ethiopia (CBE), was the youngest CEO in the finance industry.

Suspended along with him last week were, Tollosa Beyene, vice president for Core Services Management, and Banteyhu Kebede, head of the International Banking Division. Abebe Tilahun, vice president for Resources & Service Management, had already been suspended by the CBO itself before the central bank took measures against the senior executives. Tadesse Meskela, chairman of the largest coffee cooperative in the country, had left earlier, of his own accord, from the position of deputy chairmanship.

It is not the first time that authorities at the central bank have suspended executives and board directors of banks. Back in 2010, they had suspended senior executives at Awash International Bank, including Bekele Nedi, board chairman, and Mitiku Abeshu, vice president, in relation to probes in handling of LCs.

The private sector, however, feels the decision has come too late.

An importer of electronic utilities and vehicles told Fortune the central bank has acted very late, after the damage has already been done.

“Many business relations have already been broken because of such practices,” he said.

The central bank’s decision could have come late but the mid-level manager from CBO wanted its regulators, to “knock the doors of other banks; not only our bank.”

Officials at the central bank remain unprecedentedly quiet, despite the enormity of their decision and pending investigation targeting a financial institution.

However, what is left of the Board of CBO met on Friday, September 25, 2015, to appoint new executives in acting positions. The half-day meeting, chaired by Dagnachew Shiferaw, deputy board chairman, and held at the head office of the bank inside Odda Tower, on Tito Street, was “shadowed by feelings of sadness and anger,” according to a senior manager of CBO who attended the meeting.

“Most of us were arguing on challenging the decision,” the manager told Fortune. “However, later we came to terms with the fact that the suspension was irreversible.”

The Board of Directors has elected Belachew Huressa, an agricultural economist with vast experience in livestock, to serve as an interim board chairman.

Belachew told Fortune that the remaining directors are of the view that the bank’s contract “with these people” is no longer effective. Muluneh Disassa has been appointed as an acting president; and Fiyera Ejeta and Gezaw Hailu, as acting vice presidents for Resources & Service Management and Core Services Management, respectively.

The newly installed Acting President, Muluneh, is a graduate of Alpha University in Development Management, and had served CBE for 27 years before being employed by CBO.

The bank will recruit replacements for the open positions after selecting new directors during the general assembly which is scheduled for November 2015, directors told Fortune.


Published on Sep 28,2015 [ Vol 16 ,No 804]



With a reformist administration in charge of the executive, there has b...


The new electricity tariffs that became effective on December 1, 2018,...


Who it is that midwifed the rapprochement between E...


Desert Locusts have been costly to combat, because efforts are made aft...


A recent photo between Prime Minister Abiy Ahmed (PhD) and George Soros...


The future is bleak. Millennials and younger generations who will inher...

View From Arada

There is heated debate on the propriety, decency and morality of breast...

Business Indicators


Editors Pick