Central Bank Fair Game for Its Fallout with Native Ethiopians

I am an Ethiopian by origin with a different nationality now. Despite my interest, I have no investment so far in any of the financial institutions in Ethiopia, which were instructed by the National Bank of Ethiopia (NBE) to auction shares held by Ethiopians of foreign nationalities.

To some of us who have the same profile and interest as these misfortune investors, if not the general public, this has been a shock. Particularly, the way the shareholders were required to surrender their holdings caught my attention. I am using the term “surrender” because native Ethiopians of foreign origin were forced to sell to respective banks at a very cheap rate than market rates dictated and witnessed during the tender process.

The legally registered financial entities – the private banks and insurance firms – are the ones who sold these shares to the public at large, including to these shareholders. Responsibility from any wrong doings or foul play must be but on the shoulders of the companies which sold them in the first place.

If these banks were to indulge themselves in transacting foreign exchanges in the parallel market, wouldn’t they take the burden and get penalised? Or is it the buyer who buys from a registered entity who rather takes the blame?

Let us examine the evidence taking the case of the two largest private banks: Dashen Bank and Awash International Bank. If we were to look closer to the shareholders’ account section of the respective financial statements for the fiscal year 2016, – incorporated here – we could draw a number of conclusions.

One significant observation is that there is a vast sum of money with the central bank in the form of reserves, which is part of shareholders money. These amounts are part of shareholders’ assets, including investors from the Diaspora, profit value that banks are required to set aside before profit sharing.

We can determine the actual value of shares with these banks, dividing the total amount by total shares. Awash International Bank had 3,934,354,124 Br in total shareholders’ funds, which can be divided by 2,242,721 Br worth of shares. At current market value, the most realistic value of each share with this bank should thus be at 1,754 Br. With the same calculation, Dashen Bank’s 3,357,826,341 Br in shareholders’ funds gives as 2,250 Br market value for a share when divided by 1,492,331 in total stock values of those put up for auction at par value of 1,000 Br.

Ironically, what the market offered for shares of these banks goes as high as 14,000 Br Awash and more than 5,000 Br a share for Dashen. The central bank has obliged banks and insurance firms not to compensate shareholders of foreign nationals, but to send the balance between what the market gives and the original per value to the treasury.

I believe the central bank needs to address some of the irregularities created as a result.

Banks should take the burden of selling the shares to foreign nationals of Ethiopian origin, and not the latter.

Very often government issues orders, which gets enforced retroactively. An example of this could be the windfall rule, which went as far dated as five years. Private banks had faced the issue when they were forced to surrender their profits, following the devaluation of Birr.

Could this be a similar incident?

I am not certain, but nonetheless, banks should know and address the outcome as entities than shareholders as an investor.

Through the auction process, banks were allowed to collect fees from handing out the tender document, at 100 Br for a document. They are the source of this drama; thus the practice amounts to me no different than rent collection. Banks should have carried this burden on their own, not the buyers, for they were the initiators of the transactions.,

The central bank in the meantime is enjoying the windfall, a.k.a rent collection, from these purchases. As the government itself is against rent collection, which in fact labelled it as detrimental to healthy economic growth, the least the central bank should do is to be a part of this. It would be but hypocrisy to do so. Good governance means leading by value and action, not by word.

What did the NBE think when it makes the treasury amass all these differential amounts; rent collection?

I would also argue that the central bank has no jurisdiction in managing shareholders, but financial entities. Hence, it should not impose penalties on shareholders if it thinks it is doing just that.

It is not the shareholders who handled the matter, but instead the financial firms and their regulators at the central bank. It should be the banks and insurance firms, which take responsibilities for their actions and interpretations of the laws of the land, including facing the consequence late.

Native Ethiopians of other nationalities who acquired shares with financial institutions ought to be compensated from proceedings these auctions yield. It is the assets they have as investments with them. For the actual value of their asset is what the market offered during the auctions, I believe they have a legal case to make in their bid to recover their losses.

The government should not look down the impact the flow of foreign currency from the Diaspora has in the form of remittance. Whether it comes in the form of family support or significant investment, it has been and still is a vital source of foreign currency to finance the development of the country. Native Ethiopians of other nationalities just did that through a preferred and secure investment route, shares with banks and insurance firms.

Their intent should not be taken as wrong as it should be to the best interest of the government to encourage them. I am not saying rules should not be followed; rather, fair and appropriate assessments should be done, and the issue of accountability should be addressed at all levels.


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