The Public Financial Enterprises Supervisory Agency (PFESA) approved 15 million dollars the state owned Commercial Bank of Ethiopia (CBE) has requested to open a branch in Juba, South Sudan. The Agency has given the green light for CBE's request last Monday, January 12, 2009.
South Sudan banking regulations require a minimum of 15 million dollars establishment capital for foreign firms to enter the industry in its territory, according to knowledgeable sources.
Named CBE-Southern Sudan Limited, the new branch will provide foreign exchange, deposit, and Letter of Credit (LC), import and export transactions from end of February, 2009.
Operating with 15 staff, the Bank expects to generate 100 million dollars revenue in the first two years of operation in the oil-rich South Sudan.
"After four to five months work which involved feasibility study in Juba, we are finalizing preparations to open the branch," Bekalu Zeleke, president of CBE told Fortune.
In addition, the Bank is currently negotiating with Khair Al Seid, a Sudanese businessman, to rent a two-storey building for 20,000 dollars a month to house its main branch in the semi-autonomous region.
CBE will send a team of negotiators to Juba on Tuesday, January 20, 2009, to finalize the negotiations, according to Bekalu.
CBE's South Sudan branch will be the first to operate outside Ethiopia's territory following the closure of the one in Djibouti in 2004.
The move by Ethiopia's oldest and biggest commercial bank to expand its business into neighbouring countries may lead to controversy if the host country demands reciprocal establishment of its own bank branches in Ethiopia. How the Ethiopian finance industry and investment authorities would handle such demands has also to do with the country's desire for World Trade Organization (WTO) accession, according to experts in the industry. One of the requirements for WTO accession is opening up doors to international investors; but Ethiopia's Licensing and Supervisions of Banking Business Proclamation No. 84/1994 of does not allow foreign citizens to run banking businesses.
"No foreign national shall undertake banking business in Ethiopia," reads Article 4(2) of the proclamation.
Nonetheless, CBE officials argue that their expansion to South Sudan would not be an obstacle to Ethiopia's desire for WTO accession.
"This would not create any irregularity since CBE's investment is based on the bilateral relations South Sudan and Ethiopia have," Bekalu explained. "We do not believe that it has any association with the country's accession to the WTO."
But private banks, on the other hand, see the situation as an opportunity.
It would be good if foreign banks are allowed to invest in the country, a senior official at a private bank told Fortune on condition of anonymity.
"We would then have strong partners as well as competitors," the official said.
The branch under establishment will compete with already established banks in the region including the Agricultural Bank of Sudan, Ivory Bank, Nile Commercial Bank Limited, Kenya Commercial Bank - Sudan Limited, Buffalo Commercial Bank - Sudan Limited, Speed Bank Limited and Mountains Trade and Development Bank.
It will also contend with foreign exchange bureaus such as Speed Exchange and Juba Trust.
Established in 1942, CBE claims to be the pioneer of modern banking to Ethiopia. With its 205 branches in different parts of the country, 45 being in the capital Addis Abeba, the Bank owns assets worth 49 billion Br in the last budget year that ended in June 2008.
Currently it has about two million account holders. It has a correspondent relationship with 50 renowned foreign banks, in addition to a Society for Worldwide Inter-bank Financial Telecommunication (SWIFT) service and bilateral arrangement with 500 banks.
Employing more than 8,000 staff across its braches, the Bank is also the first to introduce Western Union Money Transfer Services and Automated Teller Machines (ATMs), although the latter are just installed and have been there without actually rendering the services they are meant to. CBE is yet to install the IT infrastructure and solutions, along with other technologies, to launch the card based payment system that the younger private bank, Dashen, has pioneered.