Ethiopia draws banking interest

Lenders are lining up to establish a presence in Ethiopia, one of Africa's fastest-growing and most under-banked economies. Now they need the government to let them open their doors. Over the past two years, Standard Bank Group, Africa's biggest lender by assets, and KCB Group, Kenya's largest lender, have joined the likes of Citigroup, Commerzbank and Ecobank Transnational in setting up representative offices in sub-Saharan Africa's second-most populous country. The lenders are hoping the government will eventually start granting licences for fully fledged branches. They are wagering that the country's ambitions to join the World Trade Organisation (WTO), coupled with increasing demand for capital to support the economy, will lead the government to open up an industry that has been closed to investors since a Marxist junta nationalised banks four decades ago. Still, they will be investing in a country that has cracked down on political opponents, with the benefits of faster growth yet to trickle down to the majority of the population. “It has the potential to become one of the most exciting banking markets in the region,” said Robert Besseling, Johannesburg-based director at Exx Africa, which advises companies on risks and business risks on the continent. “Government has hinted at liberalisation and even privatisation of state-protected sectors.” Exciting market The prize is a $62bn economy of 105-million people that has grown faster than any other in sub-Saharan Africa over the past decade and may expand 7.5% this year, according to IMF data. Only 22% of adults in Ethiopia have access to a bank account, compared with 70% in SA and a sub-Saharan African average of 34%, according to World Bank statistics. The country's two state-owned banks, Commercial Bank of Ethiopia and Development Bank of Ethiopia, account for more than half of the industry's assets, with the rest split between 16 other lenders, while about 11 foreign companies have been allowed to open representative offices. These so-called rep offices allow the lenders to meet clients operating in Ethiopia and advise them on issues such as cross-border trade while learning more about the economy. With just a rep office, the foreign lenders cannot take deposits, open branches or offer full-service banking. Total capital in the banking system increased by 26% to 46.4-billion birr ($2.04bn) in the three months to end-September, compared with the year-earlier period, according to the central bank. The value of new loans granted during the quarter was up 20%. In comparison, South African banks, the continent's largest, control assets of at least R4.8-trillion. “We're optimistic that the financial regulations in Ethiopia will continue to evolve to deepen financial inclusion,” said Lawrence Kimathi, chief financial officer of Nairobi-based KCB Group, which opened a representative office in the capital Addis Ababa in 2016. The government's growth and transformation plan for the five years to the end of 2020 does not allow for the sale of stakes in local banks to foreign lenders, or for those wanting to enter the market to start their own operations. National Bank of Ethiopia governor Yohannes Ayalew referred only to that document when asked by Bloomberg on February 10 if rules might be relaxed in 2017. Retain control “I doubt they'll do it,” said Maurice Oduor, a money manager at Nairobi-based Cytonn Investments Management, when asked if Ethiopia would give full banking licences to foreigners this year. “But if they do, it won't be 100%, they will likely want to control employment terms and things like profit repatriation.” Ethiopia is not without risk. The government declared a state of emergency in October to deal with protests by ethnic communities who said they were being pushed off their land. As a result, foreign direct investment dropped by a fifth in the first half of Ethiopia's fiscal year that began in July. Much of the country's continued growth has been due to the dominance of the state. The state has previously said that the opening of vital industries will not occur until the government is able to regulate them effectively and domestic businesses can compete with foreign companies. “We have seen increasing interest from investors in Ethiopia's economic growth,” said Standard Bank spokesperson Kate Johns. “We have key clients who are currently operating, or seeking to establish themselves, in Ethiopia.” Nigerian lenders will also be keen to expand in Ethiopia as economic growth slows at home, according to Doyinsola Afolabi, a banking analyst at Afrinvest West Africa in Lagos, citing Guaranty Trust Bank, Access Bank, United Bank for Africa, Zenith Bank and FBN Holdings as likely investors. “The closed banking sector could be eventually be opened up for foreign investment,” said Besseling.BLOOMBERG

Ethiopia draws banking interest

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Namibian Sun 2025-04-25

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Ethiopia draws banking interest

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Namibian Sun 2025-04-25

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