20 April 2017

Ethiopia: The Mushrooming of Banks in Bolstering Saving Culture

editorial

As experience amply demonstrated, getting a foreign-lone free from strings is unlikely, for creditors could use lone to pull a string and shape the attitude and action of debtors. Therefore, to execute one's ambitious plans by one self insulated from impositions from outside, nations must cultivate citizens' saving culture.

It is in cognizance of this fact Ethiopia allowed a go ahead to the sprouting of Private Banks by Ethiopian investors along the public ones.

The financial system is the artery of a nation's development. The whole trade and investment and foreign activities of a nation should lean on this system.

In this regard, nation's effort to nurture the sector is taking shape. It has kept doors ajar for the private sector to be involved in banking.

Certainly, the Bank industry is growing rapidly in Ethiopia. Currently there are three state owned and 18 private Commercial Banks. Yes, the Commercial Bank of Ethiopia is the largest, controlling the majority asset of the industry.

According to National Banking Business Proclamation No. 592/2008, to engage in banking business all banks have to be licensed by the countries' financial regulatory body, the National Bank of Ethiopia. Banking, micro credit and saving businesses are areas of investment exclusively reserved for Ethiopian nationals. Foreign nationals or organizations fully or partially owned by foreign nationals are not allowed to acquire share of Ethiopian banks, open banks or offices, or subsidiaries of foreign banks in Ethiopia.

In line with directives, more than 18 private banks have joined the industry. They are allowing trade, investment, construction, social activities as well as service sectors to boom.

Yes, the government should set strict regulations on lending quota, bond buying, windfall tax and increased capital requirements; banks are reporting strong profit and paying high dividends.

The follow up should be intensified in a bid to harness their positive impact in the nation's development endeavours.

The results recorded are commendable and should be sustained as well as controlled. Nine private banks are building own complex outlaying more than four billion birr, that could be seen as a step ahead to build safe transaction and offer services to customers as per the clients demand. This in turn could build trust on debtors .

The expansion of the private sector banking should be prioritized and encouraged in a controlled manner to increase the capital of the country. Expanding private sector banking should be encouraged to improve the national savings rate; existing Ethiopian banks must expand their networks and other forms of financial inclusions. Existing lending task has to be more equitably distributed between the public and private sectors.

The tentacles of these banks should go down to each nooks and crannies to enhance saving. Also the fierce competition among the private banks should be shaped in line with nation's development agenda but not the private banks self-driven agendas.

Finally, CBE has been playing a prominent role in the economic development of the country for over 70 years. The Bank has now aggressively expanded its presence in all states of the country. Currently, CBE alone mobilizes a larger segment of the total deposits in the country. Based on the figures, private banks deposits mobilization effort would only get tougher as per CBE's aggressive expansion.

The government's policy towards the bank investment is encouraging and gives an opportunity to banks to open new branches, which had been handled by only three public banks previously. The increase in number of private banks and their branch network expansion have made significant contribution toward saving, resource mobilization, investment and socio-economic growth. Moreover, private banks could increase the availability of finance to the banking industry. This implies that the role of private banks towards the socio-economic growth is significant.

The banks should come up with new products and well-organized ways of money transfer.

Finally, the development of a vibrant and active private banking system complements existing public banks. The work is considered important to nation's economic progress and key to the success of the government's GTP II, an ambitious five-year development plan to assist the country in reaching "middle income" status.

Truly, Ethiopia's public and private banking systems positively affect the development of the national economy, with particular reference to anti-money laundering and countering the financing of terrorism vulnerabilities. The global financial crisis had posed some important questions. It has shed light on the fact that uncontrolled banking industry development could end up the system. Ensuring the sector is bolstered by genuine and committed investors and also governed by the rules and regulation of the nation should be given focal attention.

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