Banking Boom:A Veteran’s Disagreement With Liberalisation

Most private banks have completed auditing their books for the last operational year, 2012/13, and have announced significant profit margins. They are also awarding their shareholders with high Earnings per Share (EPS). United Bank, however, has witnessed a decline in net profits. The reversal of its robust performance swept United against the backdrop of a challenging operational environment, marred by strict regulatory requirements and stiff competition. But its former president, Berhanu Getaneh – who has just retired from his position, while still leading the Ethiopian Bankers Association (EBA) – foresees a rather bright future for the fast-growing bank. A veteran banker with about 20 years of experience in the sector, Berhanu sees the progress tied with the mushrooming of some high-tech services. Born in August 1964 in Addis Abeba, Berhanu graduated with a Bachelor’s Degree in Management from Addis Abeba University in 1985 and received his Master’s Degree in Business Administration from the Open University, United Kingdom, in 1998. Berhanu worked as deputy manager of the Human Resources & Administration Department of the Construction & Business Bank (CBB) from 1995 to 2000 and the Credit Department of the Bank of Abyssinia (BoA) from 2000 to 2003. He has been the president of United Bank since 2005, after briefly serving as its vice president. In this exclusive interview with BINYAM ALEMAYEHU, EDITOR-IN-CHIEF OF FORTUNE – his first after assuming the post of corporate advisor in the Bank – Berhanu reflects on the challenges and opportunities facing the banking industry.



FORTUNE: The banking industry has gone several miles. But financial inclusion is not improving in Ethiopia. Ethiopia is even falling behind the level achieved in Sub-Saharan Africa. Where does the problem lay?

Berhanu Getaneh: The picture is not all gloomy. Financial inclusion is progressing, as far as I see it. It is evolving with time.

In the past, Ethiopian banks were limited to traditional banking. But we cannot deepen financial inclusion unless we transform our banks into modern ones. We need to introduce electronic banking, like SMS, mobile and internet banking, ATM and PoS, among others.

The effort from banks should not only be limited to branching out so as to reach more customers and expand their services. This is not overly beneficial for financial inclusion. Therefore, in order to increase financial inclusion, we should embark on improved financial services. We should introduce modern banking. It is my hope and expectation that with changes made in the banks, financial inclusion will soon materialise.

Q: Most financial experts suggest that the participation of foreign investors ought to be permitted so as to bring about improved financial inclusion.

I agree and disagree. I disagree because I do not think this is the right time to allow foreign banks to operate in Ethiopia.

Everywhere you go, countries don’t open the banking sector too fast. It just takes time. But then, it should not remain closed forever.

Ethiopia is bidding to become a member of the World Trade Organization (WTO). Until the local banks are strengthened in terms of expertise, technology and capital base, we need time. Later, however, it should be opened.

Q: How much does the protectionist policy help create competitive banks in Ethiopia? Some experts see it differently.

Well, we are not far behind catching up with others in this regard. There is a favourable environment to establish a bank.

The minimum requirement is 500 million Br, which is a small amount. As a testimony to the conducive atmosphere, there are now 16 private banks and three state-owned ones. Hence, I say it is not the right time for opening the sphere to foreign banks.

Q: The National Bank of Ethiopia (NBE) has issued a directive which orders private banks to buy Bills amounting to 27pc of their annual loan disbursements. The International Monetary Fund (IMF), in its latest report, claims that this has considerably reduced the lending capability of banks.  Do you think the  directive ought to be annulled?

I personally agree with the idea, because the Great Ethiopian Renaissance Dam (GERD) is one of the mega-projects expected to transform the country. Banks are corporate citizens. Thus, they must participate in financing these development projects.

Later on, we are going to benefit. That is why we must support infrastructure projects. I, as well as the Ethiopian Bankers Association, which I lead, agree. But if you ask me about the percentage, I feel uncomfortable because it only creates liquidity constraint on banks. In fact, that effect has already been observed.

My suggestion is for a reduction of the percentage. Reducing the maturity time is my other suggestion. As it now stands, the maturity period is four to five years. Reducing it to two years, at least, is what I recommend. Different means of reducing the liquidity strain could be applied and it is my hope that this will be done.

Q: But to what extent should the government intervene in the banks’ own decisions of delivering their social responsibility?

As far as I am concerned, there must be a mechanism where citizens and corporate citizens participate in the country’s development program. It is the positive side of it that people must focus on.

As far as it does not have much strain on banks, they should participate in such programs.

Q: Is that also the stance of the Association you lead?

Yes, it is. We have discussed this several times. We have also produced a research for the government. So we see eye to eye with them on the development issue.

Q: Ethiopian banks are more backward than most of their African counterparts in adopting new technologies. Does that stem from a policy challenge or do they simply want to maintain the status quo?

It is only about 19 years since private banks have been allowed to operate in the economy. Prior to that, we used to be under a command economy. Only state-owned banks were allowed to operate.

The oldest private bank is Awash. However, private banks in several African countries have existed for decades.

But then some of the significant strides of Ethiopian banks should also be appreciated. Take the infrastructure, for instance. We did not have mobile, for example. New products and services have now been availed through branches. My hope is that we will catch up soon.

Q: Most branches of private banks are based in are urban centres, while a large proportion of the economic potential resides in rural areas. Is it because the market is not there?

Banks are engines of growth. Whenever the issue of expanding banks is raised, we should remember that there is the development and the profit aspects to be considered.

You can take the Commercial Bank of Ethiopia (CBE), for example. This bank, though widely branching out, is focused on commercial towns and centres.

You can also take private banks. These are not development banks. It is true that these banks take part in supporting development projects. But they are banks established for business. We are not development banks.

But still for deposit mobilisation and the like, we should further penetrate rural areas. But this should be done with the modern technology. Mobile banking, internet banking, agent banking and other technology-based services could be used to reach farmers at the grassroots level. United Bank is doing that.

Q: Banks face a high staff turnover. Experts attribute it to a severe shortage of training institutions in the sector. What do you suggest?

It is true that the staff turnover has proved to be a threat to banks. They try to thrive under this challenge. Many trained professionals simply switch to other banks for an improved salary, benefits or appointments.

As it now stands, the working environment at banks is conducive. Banks are not being threatened by turnover to non-bank sectors. The benefit package, salary and sundry other measurements are good.

That being as it is, I personally believe that training is necessary. People should strive to professionally develop themselves. The EBA has established a good working relationship with Commerzbank and some others and has sought assistance in resource and expertise. We draw participants from all member banks and give them exposure to new ideas.

Q: The involvement of private banks in some of the bigger schemes, such as the 40/60 housing scheme, is negligent. What is the impact?

My answer is short. We are talking about grand projects, requiring huge finance. I seriously doubt the capacity of private banks to involve in such projects. This is something that needs serious assessment and study.

Q: But should they be prevented from taking part? Isn’t it actually by allowing them a share in these projects that they could be encouraged to strengthen their capacities?

Well, I would say that those who believe they have the capacity should be allowed.

Q: Experts also claim that individual and company interests dominate the banking sector. Board and management are not separate; there is little check and balance. What is your view?

Sound corporate governance should prevail in each company. And it should not be compromised. The shareholders have their power and authority. So do the management.

In the case of United Bank, we have no problem. We have been practicing it.

Promoting corporate governance is necessary. At the national level, there should be an institution, a chamber or a business community, to create awareness on the importance of corporate governance. But people should also stand for their principles.

Q: You have recently left your position as president and assumed the position of corporate advisor. Looking back at your days of presidency, what kind of management style did you adopt?

My leadership style is encouraging participation. I create a conducive environment for everyone so that they could bring out their potential for the success of the Bank. That is the secret of my leadership.

Q: Are you happy now that you have retired having been the President of one of the youngest banks in the country?

My retirement is far from sudden. It has already been on the agenda of the Bank’s leadership. We already had a succession plan and have discussed it for a long time.

I asked to be relieved, not actually for retirement. I only asked to be relieved from the position of CEO. We discussed this as far back as two years ago.

My health condition did not allow me to go on being the CEO of the Bank.. My doctors advised me to avoid stress.

Since then, we have embarked on restructuring and training people. It was only then that I was allowed to leave my position. And now I am serving as corporate advisor. My experience could be used for the benefit of the Bank in several ways and positions, not just as a CEO.

When I first held the position, it was because there was a sudden leadership gap.  I was the vice president, but then the president died. I was totally new and unprepared. The other two vice presidents were leaving the Bank. I was new and nobody knew me.

Back then, we had only 13 branches. Everything was manual. The Bank was paying only five percent dividends every year. That is when I took over. Now it is so big, modern and much more efficient.

Q: Do you believe you have accomplished all of your goals?

I can say yes. But still two things still remain unaccomplished. I wish I made those things happen before resigning.  But these two things are not necessarily concerning the United Bank.

One is the Eth-Switch SC, where the NBE and all other banks are shareholders. I am a board chairperson there. The Eth-Switch is a company established to ensure inter-operability of the ATMs  and PoS of all banks. We are in the process of establishing that. We have progressed a significant distance.

However, not all obstacles have been passed. I wish that process was completed, while I was still holding my position as the president of the Bank. But it will succeed very soon.

The other is the check standardisation project at the national level. The NBE holds the chairmanship position, while I am the vice chairperson.

The project is destined to change the country’s payment and settlement system. It has been coming along well, but I wish it reached its final stage before my retirement.

Q: But some of the services, like Eth-Switch, ATM and PoS, are taking too long to realise.

It requires the full and unreserved commitment of all member banks. That guaranteed, I see no reason why it fails to mature as well as it should. But given we have so far passed so many ups and downs, the signs of success are out there to see.

Q: Some who know you at United Bank describe you as less encouraging to participation. They claim that you are more affiliated to the Board.

I do not know why this bothers some people.

Is it a bad sign that you have a good working relationship with the Board?

By the way, the Board changes fairly regularly. During my tenure as president, I met more than 30 board members. I want them to give me an environment where I can deliver.

The Board changes every three years.

Should I have been quarrelling and engaging in bickering with them, as is the case in some other places?

The important thing is that the Bank has been delivering; there are results.

Q: But how was that relationship viewed by the management?

The members of management were comfortable with the way I worked with the Board. I was relieved from the post of presidency, but I now work as corporate advisor. Now, I work under the management.

Could that have been possible had they held grudges on me or were uncomfortable with the way I handled the Board back during my presidency?

No way!

Q: The robust performance of United last year has been reversed during the year ending 30 June 2013. Several performance measures reveal that United has slipped back in its financial performances. Profit after tax has gone down by 5.34pc to 281.96 million Birr. Earnings per share (EPS) have also declined to 47.7 Br from 52.8 Br. What happened?

I would say that there is no rule that says profit should always exceed that of the previous year. So performance differs. It is not a straight line curve always.

But this is not limited to United. This has also been the case with some other banks. One source of revenue for banks is foreign banking. But due to the decline in the price of export commodities, the income we expected to generate from this also declined.

The paid-up capital of the Bank has gone up from 600 million to one billion. As capital increases, earnings per share (EPS) drops.

It takes time until revenue increases. Net capital has gone up, but for revenue to catch up with it, some time is needed.

But to realise this, we have been working in different areas. We have been working with new products and services.  We are expanding fee-based services too.

Published on Nov 17, 2013 [ Vol 14 ,No 707]



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