Banks Stretch Balancing Expenses, Staff Retention

The modern banking industry in Ethiopia is relatively young. Following National Bank directives to banks to invest in human resource development, banks have been competing with each other in terms of salaries and benefits to their employees, from entry level upwards. Investments in human resources often lead to higher returns from employees. However, the human resource management reforms that some banks are putting in place may only be a skin deep solution that isn’t sustainable in the long run. Higher salaries may even have the opposite effect to what banks intend, as DAWIT ENDESHAW reports

Wondem Berhane, 35, is one of the 28,000 employees of the Commercial Bank of Ethiopia.

He was a part of the Bank’s multifaceted reforms in its human resource management. During his short stay at the Bank his salary increased from 2,934 Br to 4, 354 Br. In spite of how grateful he is, he always looking for bigger and better things, which means and looking into private banks that pay more.

However, Wondem values his career at CBE on the basis of the salary and benefits the bank provides him with. For instance the Bank has an annual bonus scheme; on average each employee gets 2.5 months of their salary in yearly bonuses.

The bonuses at his bank are given on a yearly basis, based on the branch’s performance. Bonuses are given at the team or branch level. The bank has no individual targeting system.

As far as restructuring human resources is concerned, CBE has been implementing reforms for the past couple of years. Prior to that, the bank commissioned a study of its human resource management in 2011 from Frankfurt School of Finance & Management. The planned reforms have been in implementation since 2014.

“What we are doing is designing the HR strategy of the bank with the overall business road map or strategy of the bank in mind,” Seifu Bogale, Vice President for Human Resource Management at CBE told Fortune.

The Bank has a vision of becoming a world class bank by 2020.

Issues like performance management, human resource management and succession plans were also part of the commissioned study. Moreover, armed with a plan to create a more capable and skilled Human Resources department, CBE has created a center of excellence for both newcomers and those already on the job.

But there is still a huge attrition rate. “Private banks give salary increases as well as grade promotions and benefits,”, said Wondem.

However Seifu counters this argument.

“The numbers nowadays are insignificant,” said Seifu. “During the first quarter of the current fiscal year close to 224 employees left the bank. Out of those who resigned, most of them left the bank purely to get more benefits.”

Looking at the salary range of CBE, on an industry level, it is almost in the middle. The bank paid from 3,000 Br salary for entry level employees to 42,000 Br for its President.

At the moment, the bank is still working on a comprehensive reform of its HR management, according to Seifu.

Such incentives in the industry are being used as one way of keeping staff and it is becoming a customary practice.

The banking industry in Ethiopia seems to have undergone some shift when it comes to the well being of their employees. Just recently, a couple of Ethiopian banks have adjusted their staff salary in order to stay competitive in the industry.

Not only that, but following the National Bank’s strict regulatory directions to encourage investment in their human resource, institutions are seen training their staff. NBE has ordered bank and financial institutions to spend two percent of their expenses on human resource development.

Along with reforms and restructures, salary adjustments are also common.

Despite a huge increase in total income, the profit after tax growth of banks is almost half of the total income increase due to soaring expenses. This trend is not limited to few banks. For example, in terms of the increase in interest, salaries and benefits and general administration expenses, in 2015 , the least growth was reported at Nib International Bank, which reported a 26pc increase whereas the highest growth was recorded by Enat Bank, at 129pc. The same period Provision for doubtful debts has also shown a phenomenal increase. It went up by 65pc to 302 million Br. Half of that number was accounted for by Cooperative Bank of Oromia.

The average monthly salary per employee in the country’s private banking industry in 2015 was 8,585 Br, five times higher than the average monthly salary of civil servants.

A few months ago Bank of Abyssinia S.C (BoA) put itself in the top list of highest paying banks with a top salary of 100,000 Br.

Front desk junior clerks at branch offices of BoA get an initial salary of 3,400Br to between 7,000 and 10,000 Br; customer service officers or assistant branch managers earn 16,000 to 20,000 Br; branch managers see 20,000 to 34,000 Br and district managers up to 42,000 Br. Clerks at the department level get 15,000 to 16,000Br; principal managers of departments see 26,000 to 37,000Br; directors of departments are paid 37,000 to 42,000Br and vice-presidents get up to 60,000 Br.

Other Banks like Cooperative Bank of Oromia S. C and Bunna International Bank S.C have done the same.

Such moves in the industry are split between experts into two categories: banks who react to changes in the industry or look into their competitors and banks who lead the changes, with salary and benefits adjustments aligned with their strategic goals.

Looking at the first category there are a handful of banks such as BoA, Awash International Bank, CBE and Wegagen Bank who have made overall reforms of their structural forms, with salary and benefits adjustment as one component.

In this respect these giant banks have outsourced studies of their structures to international consultants, mainly Deloitte and KPMG. These studies envisioned how the bank should look in the coming few years. They also touch upon vast areas such as structure of power and function, of which human resource management is one component.

The reform in Awash is still expected .

“The pattern especially with related to human resource management is considered to be premature and sometimes misunderstood,” according to Kemal M Rashid, Director of Human Capital at Deloitte.

“The current reforms and studies are usually only focused on elements of structure, job description and salary study, instead of the bigger picture,”Kemal added

“The expense is huge,” said Addisu Hababa, President of Debub Global Bank S.C and chairperson of the Bankers Association.

Looking at its balance sheet, in 2015 Debub spent close to 32 million Br in salary and benefits. By that time the bank was employing 376 staff across its offices in the capital and the Southern Regional state. On average, including bonuses, the bank paid 85, 106 Br per person in a year.

The salary and benefits took almost half of the overall expense.

“It is common to see banks making moves as far as increasing salary and benefit is concerned,” said to Addisu.

In 2015, the income statement of the Debub’s expenses of salary increased by 60pc. It spent almost half of its expenses on salary and benefits. On average Debub provides 7,061 Br per employee as monthly salary and benefits.

“It is very expensive for a small bank like us to back an exhaustive study by an international firm,” said Addis. “But we definitely did commission a study by a local consultant.”

Salary and benefit raises should be just one component of human resource development, commented Kemal. It should not be an end in itself and not sustained. The moment banks raise salaries, bank employees know that they have alternatives.

A senior bank manager at a private bank whose name was withheld on a request agreed with Kemal’s argument.

“In fact exaggerated salary ranges which we are seeing in some banks might have a negative impact,” said the manager.

Given the salary and benefits they get, bank employees might be forced to produce cooked numbers and resort to illegal actions,” he added. Banks prefer either to be leaders, competitive or followers when it comes to paychecks.

Such preferences have their own cost implications and those have to be aligned with the return the banks plan to get, Kemal added. Human Resources best practices can incorporate ways to evaluate each individual at the Bank via number schemes.

Last year, the highest return from employees was registered by Zemen Bank. The bank’s 438 employees brought in 203 Br for every 100 Br expense on themselves. Zemen was also the highest paying bank with a 14,000 Br monthly average salary for every employee while the lowest payer was Brehan Bank at 5,275 Br per month. Moreover in terms of return, the lowest return was registered at Bunna Bank, at 118 Br for every 100 Br expenditure on employees.

“It might take a time and can very sensitive to connect rewards with each individual based on performance,” said Bogale. However it will be implemented in the future

Despite differences in their approaches all actors in the banking industry seems to agree on the significance of human resources and the changing trends of HR development. It is an industry that employs close to 60,000 individuals.


Published on Nov 23,2016 [ Vol 17 ,No 864]



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