sSA: Ethiopia : Construction and Business Bank S.C

I. Background of the Bank

Construction and Business Bank S.C. (CBB) is a wholly government–owned public enterprise and successor of the Housing and Savings Bank (HSB) which was formed in 1975 through the merger of two financial institutions namely, Imperial Savings and Home Ownership Association and Savings and Mortgage Corporation of Ethiopia which were nationalised at the on-set of the socialist era of Ethiopia.

HSB started operation with Birr 6.0 million paid up capital and its main declared objectives were granting long-term loans for residential housing and commercial building construction, purchase and renovation. Its financial resource bases were deposits mobilised through ordinary savings and time deposits and long-term borrowings. HSB’s lending focused on known government preferences mainly lending for housing to individuals and housing co-operative societies.

For about twenty years since 1975, HSB has made important contribution to the development of housing in the country in which it hitherto enjoyed the reputation as a household name. However, the specialisation in housing finance restricted the Bank to rely on limited resources and lend to limited sectors which in turn limited its ability to distribute credit risks, maximise profit and gain expertise in other banking operations.

Following the market-based economic policy of the country and the ensuing economic reform programmes initiated by the government in 1992, HSB was reconstituted as Construction and Business Bank in September 1994 by regulation No. 203/94 with an authorised capital of Birr 71.8 million of which Birr 63.9 million was paid-up. The regulation gave CBB the mandate to provide universal banking services, albeit, focusing on construction financing. In line with this, CBB has ventured into commercial banking operations stage by stage maintaining construction financing as its core business.

CBB has repositioned itself as full-fledged universal bank since 1995 E.F.Y taking the advantage of the emerging private sector as a new market under the emerging competitive business environment. However, based on the government's decision to privatize the Bank and to pave the way for the execution of same, commencing September 2000 it has been converted to a share company in accordance with the Ethiopian Commercial Code. At this time, again CBB’s capital was raised to Birr 79.0 million through the restructuring of its balance sheet.

Despite changing circumstances such as repetitive change of business name and mandate without commensurate capital, the Bank has managed to survive as an entity with fair rapid growth.

CBB’s total assets, loans and advances and deposits grew to Birr 2,588 million, Birr 1,581.5 million and Birr 1,833.6 million as at June 30, 2009 it is 6,296 million, Birr 510.0 million and Birr 356.9 million in 1994 respectively. The Bank’s number of loans and advances and deposits accounts has reached 4,157 and 131,119 respectively as at end of June 2009. Moreover, in the last fiscal year (2008/09), international banking transactions were 2,097.0 million in the form of Letter of Credit and other services involving a sum amounting to Birr 2,689.3 million, which enabled the Bank to generate revenue amounting to birr 77.1 million as at June 30, 2009. On the same note, the Bank has also generated revenue amounting to birr 4.3 million from about 130,872 payment transactions through the Western Union Money Transfer Service. Total staff strength of the Bank at the end of June 2009 stood at 994, while its full-fledged branch network reached 33 and 3 dedicated Western Union money transfer service centres.

II. Vision, Mission and value Statement.

Vision

CBB's vision is to become customers’ first choice bank in Ethiopia.

Mission

CBB's mission is to render long-term construction loans for residential and commercial buildings, medium and short-term loans; and all other domestic and international banking services by deploying honest and motivated staff and employing state of the art technologies and thereby meet the interests of all stakeholders.

In support of this mission CBB is committed to:

• Treating customers with utmost respect, dignity and impartiality
• Delivering quality service at affordable price
• Observing moral, ethical and professional standards
• Providing employees with equal opportunity for career developmentand personal growth
• Ensuring peaceful management-labour relationship
• Remain loyal for community development initiatives
• Sustainable growth and organisational excellence

III. Main Products and Services

1. Domestic Banking Services

• Accepting savings, time and demand deposits
• Providing loans for:

Construction sector activities

- Business activities

- Building /buying residential and commercial buildings
- Investment
- Hotels & tourism
- Covering educational costs
- Purchasing durable consumer goods
- And other economical & social activities

Guarantee

- Performance Bond
- Bid bond
- Advance guarantee bond etc.

Local Money Transfer Service

2. International Banking Services

• Import financing through:

- Letter of Credit(LC)
- Cash Against Document (CAD)
- Advance Payment

• Export financing through:

- Letter of Credit (LC)
- Advance Payment
- Consignment
- Cash Against Document (CAD)

• Guarantee
• Incoming fund transfer
• Outgoing fund transfer
• Maintaining NR/NT foreign currency accounts for embassies, diplomats etc.
• Maintaining non-resident accounts for Ethiopia nationals & persons of Ethiopian origin
• Purchase of financial instruments

- Checks
- Drafts
- Travelers check

• Buying and selling of foreign currencies
• Providing Western Union Money Transfer Service.

IV. Peculiarities

1. Demonstrated knowledge and skill in financing construction projects: - the Bank has taken over the rich experience in construction financing from its predecessor Housing and Savings Bank (HSB), and further developed it through experience gained in financing huge and complex business construction projects and it is an experience competitors haven't yet fully developed.

2. Rich experience in administering special housing fund (International Development Association (IDA), United Nation Capital Development Fund (UNCDF), and Federal Home Loan Bank of Boston (FHLBB):- the Bank has been administering large sum of special housing funds, channelled through the Ethiopian government and has acquired rich experience in the technical and other expertise needed in the area. If the Ethiopian government manages to obtain such financing schemes in the future the Bank can easily take-up the financing arrangement and processing in a better way than most of the other domestic commercial banks.

3. Good public image: - the Bank has enabled a good number of the society, especially government employees, to have their own residential homes by encouraging them to save and financing their projects. This helped the Bank to have good public image.

4. Significant scope for cross selling banking products/services to existing and new customers: - the Bank can sell other products and services without much difficulty and incurring additional costs because the existing construction projects already financed by the Bank could easily be used as collateral for their additional financial needs.

V. Projects Under Implementation:

• Core Banking Software Selection and Implementation Project
• Business Process Reengineering (BPR) Implementation
• Own office buildings in different parts of the country

VI. Main Clients:

• Individual and Corporate Depositors
• Loan Clients for Different Purposes
• The Business Community
• Importers and Exporters
• Travellers
• Users of the Local Money Transfer Service
• Western Union International Money Transfer Service Users