Ethiopian finance industry saw something of an unusual development

Last week, the Ethiopian finance industry saw something of an unusual development. Touted as the first of its kind, two state-owned banks were made to join each other.

Rhetoric aside though, the “merger” between the Commercial Bank of Ethiopia (CBE), the largest financial firm in the country, and the Construction & Business Bank (CBB), its junior sibling, is the second in the history of the finance industry. The first, since the reformation of the industry in the mid-1990s, was made in the early 2000s between the United and Anbessa insurance firms, a sort of marriage among companies that were not far off from each other at the time, gossip recalls.

Ironically, the CBB began in 1975 with a merger of Imperial Savings & Home Owners Association (ISHOA) and Savings & Mortgage Corporation of Ethiopia (SMCE).

It is very difficult to call last week’s fusion between the two state-owned banks a “merger”. It was rather an executive decision of the highest order, which led the CBE to virtually swallow the CBB, a company with capital of 79 million Br, an amount which changed little over 40 years. Not only has this frail capital base made the Bank one of the smallest, if not the only bank, in terms of capitalization. Come July 2016, CBB would have been one of the banks to face the grim reality of a deadline to fulfil the threshold capital of half a billion Birr; or risk forced merger and even closure.

There is also  irony in the face that CBB has been a state-owned financial institution that is, rather, an orphan, claims gossip. Not even those scavenging for state-owned relics put on sale by the privatization agency were sufficiently interested to consider buying it. A couple of attempts to divest the bank for close to 100 million Br brought no prospective buyer, despite the bank’s running no less than 100 branches and an asset – its headquarters in the prime location of the capital, on Ras Abebe Aregay St.

Changing its brand several times and lacking a clear mandate has always been the trouble with the CBB; but none of its problems match the crises it suffers from its weak capital adequacy. Neither have its successive managers from the late Admasu Techane, to Addisu Habba and the presiding Haileyesus Bekele, succeeded in persuading the authorities to inject additional capital enabling the Bank to reach at 1.5 billion Br. As recently as four years ago, the Ministry of Finance gave the nod to only one third of the capital the Board requested to give the Bank a competitive edge.

Like a bolt from nowhere, the Administration of Prime Minister Hailemariam Desalegn has chosen to take the shortcut of the three options tabled in its officials’ desperate effort to salvage the CBB. Unwilling to recapitalize it and reluctant to see the CBB liquidated, Hailemariam signed the executive order last week – no more than two lines – instructing the CBE to embrace the CBB, together with its liabilities estimated to reach seven billion Birr, gossip disclosed.

In a way, the absence of Bekalu Zeleke, president of the CBE, from the joint press conference called by Sentayehu W. Michael (PhD), chief of state-owned financial institutions agency, and Haileyesus to announce the “merger”, was revealing, claims gossip. There is little surprise if the CBE guys feel that this was a decision imposed on them, for, no one wants to take a problem child, orphaned by utter failure of successive state policies, according to gossip.

The Board of Directors at the CBE, chaired by Bereket Simon, would have loved to see CBB going back to its roots, claims gossip. It was a bank specialized in housing finance, granting medium-term loans for residential housing and the construction as well as renovation of commercial buildings.

Interestingly, CBE has a huge portfolio of financing the countrywide construction projects of low-cost and middle-income condominiums, a line of credit with which its managers have always been uncomfortable, claims gossip. They were hoping that with a bit of injected capital and transfer of this portfolio, CBB would have reclaimed its rightful place in the economy, according to gossip. Alas; it will now have a tangled role within the mammoth CBE, where none of the guys have been involved in the unblessed conflation, claims gossip.

Published on Dec 28,2015 [ Vol 16 ,No 817]



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