We know that the Bank of Abyssinia was established almost three years ago. Could you give to our readers a brief historical background of the Bank of Abyssinia, as well as your own professional experience?
The Bank of Abyssinia, opened its doors for business on the 3rd of August 1996. It will be three years old in August. The Bank of Abyssinia took its name from an old bank, which was established by the Emperor Menelik the second of Ethiopia in February 1906. The founders of the new bank of Abyssinia, which it 100% private, wanted to go back to what was actually a largely private, and international bank. The shares of the old bank of Abyssinia were sold in London, New York, Berlin, and Addis Ababa, among other places. There were many shareholders, including Ethiopians. It was an international bank, but not 100% private, because although the shareholders overseas were private, on the Ethiopian side, the government also had some shares.
Could you give us status of your financial results?
The Bank of Abyssinia, when it was established, had a subscribed capital of 25 million birr. At the annual meeting of last December, the capital of Birr 25 million was increased to 100 million; we increased it about four times. This was essential, because the old capital was small and a bank always needs a large capital base; and this for a variety of reasons. For confidence building, and for giving meaningfully large loans because loans are typically tied to the size of capital. The maximum loan one can give today is 15% of capital, and if your capital is small, the loan you give is also going to be small. Additionally, to protect the bank in bad times, and to expand the bank, large capital is needed. We hope in 2-3 years, our capital will increase 200 million Birr.
You must have faced lot of problems in the beginning to establish the bank. How did you manage to challenge the problems, that were raised in the early stages of your establishment?
When the bank was established, we had four basic strategic goals. I think it is good to see challenges in that contest. The first strategic goal was credibility, as people should have confidence on us. The second goal was competitiveness. The third goal was dynamism, i.e. is grow. The fourth goal was efficiency. Each of these major goals gave rise to challenges. Credibility is gaining public confidence. We did it by hiring first of all experienced staff. We started with a nucleus of staff who had previously worked in banking. These were our key staff. We also employed young people, from the colleges and the Universities, and they went through a period of training. Mobilizing the senior management staff, and the junior staff was one way, of gaining public credibility.
Concerning the main guidelines, where do you see the best opportunities in the future growth of the Bank of Abyssinia?
We are not even three years old. We are trying to find our feet in the various sectors of the economy. It is only then, that we could say that the future growth for the Bank of Abyssinia would be in this section or this area. Today, we do regular commercial banking, with no particular area of specialization. After a while, it will be clear to say this is our special area.
Do you have branches throughout the country, or are you mainly based in Addis Ababa?
We are mainly based in Addis Ababa, but we have recently established two branches, one in the north and the other in the south. In total, we have seven branches, but we intend to open more branches in Addis Ababa and outside Addis Ababa next year. We are not a bank which opens branches just for the sake of opening branches. We do it prudently, we take time to locate where potential branches should be established, and them do detailed examination of the business environment in the locality. It is after we have satisfied ourselves of the need and prospects of banking business that we go ahead and establish a branch.
Among the private banks, you need to have competitive advantages to raise more market share. What is your main competitive advantage, over the private banks, even if the Commercial Bank of Ethiopia owns 90% of the market?
This is a good question. The Bank of Abyssinia likes competition, and we have shown some encouraging results in this respect. I think the best area for us to compete is our services, the quality and promptness of our services. For instance if somebody wants a loan, he has to get a positive or a negative answer within a very short period of time. This is one area. Secondly, we compete in introducing new services (in the Ethiopian contest, but not in the world context). Ethiopia was isolated from global banking for many years. Today global banking has expanded in very significant ways, and the financial products that you see in the world are not well known in this country. We are doing very well in this respect. We do what other banks do not. For example, we were the first to introduce payment of interest on a monthly basis. (Traditionally in Ethiopia it is six months). That means interest is compounded every month, and at the end of the day our effective rate is higher. Secondly, we are the first to offer what is known in the US, and in Europe, as a money market account, i.e. a combination of a saving and checking account. Like a saving account you earn interest, and like a checking account you write checks (but only a limited number). No other bank is doing this. We also offer banking services through the telephone. These are the areas in which we are competitive. We have won four successive bids for banking services. The US embassy in Addis Ababa wanted banking services and invited bids that involved six banks. We won. The US embassy in Paris wanted to open an account in Addis Ababa, six banks competed, and we won. It is the same with the European Union. The Association of Airlines and travel agencies in Ethiopia wanted a clearing bank, and we were selected. There are areas where we can not compete with the Commercial Bank of Ethiopia. They have a large network of branches, and they give fairly large loans. We can only give loans to a maximum of 15% of our capital. But we do compete in other areas.
How do you evaluate you position within the private banking sector?
In terms of subscribed capital, we are the highest. We are now at 100 million birr. I would like to think that we are the most innovative and flexible. Thinking that you are the best in a given area keeps you going, competing, trying to maintain your position of eminence. It is a good approach to banking, and perhaps other areas of business. If banks think this way, the banking industry will be the beneficiary. It will be strong, competitive, and dynamic. And that is not bad.
I know that you have some problems in the port of Assab. What has been the impact of the Ethio-Eritrean conflict in your business activities?
We had financed merchandise which was coming through the port of Assab. One day, we were told it was not accessible. This of course affected us like all the other banks. The government is taking measures, and the banks are taking measures. I would think that it is not a lost case, and I hope some day some solution will be find. | Could you tell me more about your partners in the banking system?
The partners we have are only the correspondent banks. The banking industry is not yet opened to foreign investors, so we do not have partners who are investors. We only have corespondent banks.
Do you support foreign investors projects in Ethiopia? if yes, could you elaborate it more?
That there is curre a law in the books of Ethiopia, which says foreign direct investment is not allowed in the banking industry. I suspect the government may have a reason when putting this law, but that was about only 3-4 years ago. Today I do not believe, that the government has a good reason for preventing private foreign banks to invest in this sector. As I told you earlier, the banking industry in Ethiopia was isolated from the world banking for twenty years. the technology and the know-how of the world banking have grown in these two decades. If the banking industry is open to foreign direct investment, it will open a door for an entry of technology and know-how. Secondly, if foreign banks and city banks come here, some American businesses might follow. Foreign banks have a tendency to bring with them investment from their respective countries. This is a poor country, that is still untouched. This government should leave most momentum to encourage investment. Investment creates job, and will help the government to fight poverty. I do not know the exact reason why this law was put in the books, 3-4 years ago. From what I hear, there are basically two reasons. One is to protect the small private banks from competition, and the second is to give the central bank of Ethiopia, time to develop a supervisory capable bank, because private bank supervision takes time. However, I think at this stage if foreign banks were to come, it does not seem they will set up their branches and compete immediately. Most probably, they will come and buy shares in the private banks, until they familiarize themselves in the banking environment. They will become shareholders, and that will be very appropriate for us. We will gain more capital and know-how. They will not establish their own branches and destroy local banks. This is very bad, politically, as well as economically. After a while they might establish their own branches, but why not. I am sure by then, we will be competing very well and maybe win in most cases. Secondly when these private banks will arrive, they will be supervised by the central bank of Ethiopia, but you do not have to give the central bank of Ethiopia unlimited time to improve its capability. You just have to say, we are going to allow private foreign investment in the banking industry in two years time, and please be ready. The government has the responsibility to develop and to have a crash program for this central bank to develop its capability, in the shortest possible time. You may not get the same idea from the others banks, but I believe competition is good.
As a more personal question, could you give us your own professional experience, and background?
I do not like to talk too much about myself. I use to be in this country prior to 1977, then the situation changed, I also changed, and left the country. I was in the cabinet of the Emperor, and left when the Mengistu regime came to power. I went to the African Development Bank, and stayed there for many years in the research area, and the finance area. Before I became Minister, when I was in Ethiopia I was running the Ethiopian development bank back in 1967. I was also in the Commercial Bank, and the national bank. I came back after many years.
What has been your most satisfying personal achievement, since your are in this bank?
The most satisfying thing is that we have been creating jobs. Once, I was conducting an interview with some people, and there was a girl who was about 28 years among the candidates. They decided to employ her. I asked about her previous experience, as she was young. They told me she left secondary school, when she was 20, and for eight years she stayed with her parents without founding a job. I was so ashamed, that I was completely ignorant. I said, you should employ her, because she does not have previous experience. I can not tell you the personal satisfaction to give somebody that has stayed for 7-8 years without finding a job, the first opportunity. There is an excitement to see a baby grow, but above that the opportunity of job creating for the people, who lived in the dark is the most exciting. Another lady turned out to be excellent, and we promoted her to telephone operator. She speaks and writes English very well. All this time, she was reading, and now we are going to promote her to secretarial post. I remember her father who came here, saying he has no pension and was unemployed. He asked us to give an opportunity for his daughter to come and work. I told him, I can only give her a chance to come to an interview, but I can not employ her by my own. In the interview she came up to be the top. Now, when I see her, it gives me a great satisfaction.
As a final issue what will be you final message to our readers?
I know the image of Ethiopia has not been good, for the last 30 years. There were critical problems, and war. I think there is another side of Ethiopia, that the international readers should for time to time remind themselves, that this country is not that bad. It has positive aspects. It is a country with a long history, and a rich culture. Secondly, people should see, that efforts have been made. People are now trying to lead productive lives. Again, I should say to you that part of the culture that we have inherited from the past is a very high work ethics. People like to work, being in proper leadership, and management, despite the fact that work ethics in this country which is very high was seriously weaken during the period of the communist regime. In those days you were judged not by what you did, or by what you did not do. If you were working in a bank for instance, it was not your work as a banker which determined, whether you were going to be promoted or not. The important thing was the loyalty to the political regime at that time. If you were a member of that party, or if you had friends who would save and rescue you whenever you have a problem, you might survive. People turned away from work, and from attending customers. They only make sure that they survive, one day to the next. This has left a scar, but it is just a spot. The work that we have inherited is still there. In the colonial countries, people saw the government as an enemy, and were not motivated to work. Ethiopia was also occupied, but the period of occupation was not enough to kill the sense of public service, and that is still a good tradition in Ethiopia. We have also inherited public services. |
BANK OF ABYSSINIA