Consolidate or fall, private banks warned of coming trends

Ethiopian banks seriously consider consolidation within the next five to six years, if they are to compete in the financial sector, says a symposium of prominent figures of the banking sector in Ethiopia at a gathering in celebration of Dashen Bank’s 20th anniversary.
According to Zemedeneh Nigatu, Managing Partner of Ernst & Young Ethiopia, the 17 private banks that are currently in Ethiopia are too small.
“Consolidation is among some things that are going to happen in the banking sector in the next five years. At the moment, we have 17 private banks, with the exception of a few, most are very small. It is our conclusion that, considering what is coming, we do not believe that Ethiopia should continue with 17 small banks. Our view by 2020 is there will probably be or should be five or six private banks, at best,” he stated.
Looking at global trends, tougher competition and regulatory environment often leads to small banks coming together to form a stronger bank that withstand shocks, and according to Zemedeneh, this will also be the fate of Ethiopia’s small banks.
Another trend to be expected over the next half decade is the rise of a capital market in Ethiopia; “We expect there will be a capital market in Ethiopia within the next five years, both in bond and equity markets. Given the size of the Ethiopian economy today, the time has come for a capital market,” he stated.
He also said that most of the incoming multinationals in Ethiopia are willing to list their stocks locally, as they do in other African markets such as Nairobi, Lagos and Johannesburg.
Another recommendation made for the banks was to open branch offices across regions. “It is very important for all of you, especially the bigger private banks to start thinking regional. You can’t just be an Ethiopian centric institution; you cannot compete if that is the way you want to go,” he said.
Giving the example of Bank of India, a state owned institution known to open branches where there are a large number of Indian diaspora such as the United States, Europe and the Middle East.
“I was in Juba three years ago and on the main road I see a big sign that says Kenya Commercial Bank (KCB) on a big building. Much has changed after that, but I remember asking where the Ethiopian banks are. I had to go look for Commercial Bank of Ethiopia’s (CBE) branch office, it was very small. I think they have reformed since then but CBE in my view, and this could apply to other banks, should be opening offices everywhere in the Horn of Africa with an intention of being a dominant player,” Zemedeneh said.
He further suggested that banks should look into opening offices in the Middle East, where a huge number of Ethiopian diaspora currently reside.