Banks are beating a path to Ethiopia's door – Business Live – Business Day (registration)

by Zelalem

They are wagering that the country’s ambitions to join the World Trade Organisation (WTO), coupled with increasing demand for capital to support the economy, will lead the government to open up an industry that has been closed to investors since a Marxist junta nationalised banks four decades ago. Still, they will be investing in a country that has cracked down on political opponents, with the benefits of faster growth yet to trickle down to the majority of the population.

“It has the potential to become one of the most exciting banking markets in the region,” said Robert Besseling, Johannesburg-based director at Exx Africa, which advises companies on risks and business risks on the continent. “Government has hinted at liberalisation and even privatisation of state-protected sectors.”

Exciting market

The prize is a $62bn economy of 105-million people that has grown faster than any other in sub-Saharan Africa over the past decade and may expand 7.5% this year, according to IMF data. Only 22% of adults in Ethiopia have access to a bank account, compared with 70% in SA and a sub-Saharan African average of 34%, according to World Bank statistics.

The country’s two state-owned banks, Commercial Bank of Ethiopia and Development Bank of Ethiopia, account for more than half of the industry’s assets, with the rest split between 16 other lenders, while about 11 foreign companies have been allowed to open representative offices. These so-called rep offices allow the lenders to meet clients operating in Ethiopia and advise them on issues such as cross-border trade while learning more about the economy. With just a rep office, the foreign lenders cannot take deposits, open branches or offer full-service banking.

Total capital in the banking system increased by 26% to 46.4-billion birr ($2.04bn) in the three months to end-September, compared with the year-earlier period, according to the central bank. The value of new loans granted during the quarter was up 20%. In comparison, South African banks, the continent’s largest, control assets of at least R4.8-trillion.

“We’re optimistic that the financial regulations in Ethiopia will continue to evolve to deepen financial inclusion,” said Lawrence Kimathi, chief financial officer of Nairobi-based KCB Group, which opened a representative office in the capital Addis Ababa in 2016.

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