The Commercial Bank of Ethiopia (CBE) was the sleeping giant in the financial sector of the country for decades. Its operating procedure was highly bureaucratic. Often, its staffs used to leave the Bank in search of better prospect to grow. Many senior managers in Ethiopia’s financial sector are in one way or another has an opportunity to work in CBE. They used think that it has nothing new to introduce. Now, that seems thing of the past as the bank is in the process of implementing drastic changes in the way its handles its business in the past six year. The work the bank is currently undertaking seems restoring hope that was once lost for its more than 22,000 employees. EBR’s Pawlos Belete dig deep into what CBE is doing and what it means for the rest of the financial sector.
Gethun Bayu, a businessman in his mid-thirties, has been the customer of the Commercial Bank of Ethiopia (CBE) for almost two decades. He vividly remember what happened ten years ago when he went to one of the branches of CBE located in Merkato, the largest open market in Africa, to open a personal account for the retail business he used to run in Mesela Woreda, located some 400 kilometer to the south east of Addis Ababa in West Hararge Zone of the Oromia Region. He was unable to open the account he wished for simply because he didn’t have an identification card that testifies he lives in Addis Ababa.
By then carrying an identification card issued by a local of small town like Mesela do not qualify to open an account in one of the branches of the state owned financial institution operating in the capital. This is despite Mesela was one of the towns vibrant with coffee and merchandize business trade. As the result, people who used to live in small town like Mesela were forced to hide extra cash under their pillow.
This anecdotal story partly paints how the financial sector in general and CBE in particular used to operate for years. CBE, which started operation more than seven decade ago, was a sleeping giant in the financial sector of the country for many years. Its service procedure was lengthy while its service quality was dissatisfactory. Its staffs were dissatisfied with the prospect of professional growth. Those private banks that opened their door for service just two decades ago were quick enough to build their business model on the weak side of CBE and hence fast to bourgeon.
Now, it seems that the CBE has turned the table around by introducing customer friendly services, heavily investing on financial technologies and human resource it once lacked. “In the past it is the people that come to our bank,’’ recalls Ephrem Mekuria, Communication Manager of CBE. ‘‘Now, it is CBE that is going to the people.’’
But, industry insiders say the achievement of CBE partly came due to the fact that most private banks are starting to lose ground. Asfaw Alemu, President of Dashen Bank, agrees that CBE has progressed but refute the fact that strengthening CBE means losing ground for other banks.
“Although CBE is progressing, private banks are also enjoying reasonable growth,’’ Asfaw told EBR. ‘‘There are data which shows that the private banks are registering progress in terms loan disbursement, profit, branch expansion and technology advancement.”
Unlike Asfaw, Anduale Hailu, Planning and Business Development Division Manager of Awash International Bank see CBE’s aggressive move from two different perspectives. “CBE is the commercial arm of the government since all government account is served by it despite the fact that the Ministry of Finance and Economic Development (MoFED) has passed a decision to open an account in private banks,’’ Anduale argues. ‘‘This is one of the leverage CBE has over other banks.”
In another perspective, according to Anduale CBE is in a massive transformation stage. ‘‘It is in the process of redefining its business process, customer service, human resource development, and introducing basic score card, he says. ‘‘I think this is a good lesson for those of us in the financial industry.”
Despite the differ arguments, Just recently, the CBE announced that it has registered more than ETB9 billion gross profits in the past nine months of the current fiscal year while the 16 private banks operating in the country collectively reported ETB3.9 billion gross profit in the past 10 months. In fact, CBE’s level of achievement is registered despite lifting some of its traditional means profit optimizing methods like transfer fee and export processing service charge.
Experts applaud such measures taken by CBE. ‘‘In addition to discouraging customers such kinds of fees do little in terms of profit optimization,’’ argues Kibur Haile, Banking and Insurance lecturer at Unity University. Indeed, for practicing pundit in the financial sector of the country, the biggest income and expenses for any bank in Ethiopia comes from interest bearing activities but not from service charges.
Although such measurements contribute for the success of CEB, the human resource and ICT road map development strategies introduced by the Bank played major role.
‘‘The human resource development is at the core of CBE drive to excel in professional excellence and hence service delivery mechanism,’’ says Ephrem. ‘‘The Bank is now in the process of implementing the human resource development strategy that follow a tailored training approach by identifying training gap of its staffs in its bid to create a more competent staffs at all level of its operation.’’
For this reason, CBE has already decided its new G+13 complex located in front of Megenagna round about to be the center of excellence for its human resource development. The center which is named after Tefera Degife (PhD), the first Ethiopian to become branch manager of CBE, will be inaugurated on June 20, 2015.
In order to realize its goal of becoming a world class commercial bank by 2025, CBE also needed to invest in technology. Data obtained from the Bank reveal that CBE started its core banking service by connecting 35 branches out of the 220 it owns in 2008. Currently, 860 branches of CBE use modern core banking system out of the total 947 branches.
The Bank has also installed 627 Automated Teller Machines (ATM) while 600 more are in the process of purchase. It has already deployed 1,225 Point of Sales (POS) machine while 10,000more are in the process of deployment. The new technology platform created an opportunity to diversify its service packages including mobile and internet banking. More than 600,000 people have subscribed for mobile banking, according to Ephrem. Out the total mobile subscriber, close to 145,000 are active users.
While the CBE is almost two years in to the process of reengineering its service delivery mechanism and structure, the current economic plan of the country; the Growth and Transformation Plan (GTP), with huge appetite for financing surfaced. As major source of finance for government mega projects like affordable housing development, the Bank rushed to align its five year strategy with the need of the GTP. Thus, deposit mobilization became the banks top priority.
In its bid to mobilize deposit, the CBE engaged in an aggressive public education campaign by engaging peoples from all walks of life. This massive awareness creation activity is supported by both print and electronic media including LD Display. CBE is airing adds every single day on the state owned TV; Ethiopian Broadcasting Corporation (EBC) and the U.S. based Ethiopian Broadcast Service (ebs). In order to widen the public understanding about financial literacy and spur the banks image in the public mind. ‘‘The bank is about to air its own program, says Ephrem. ‘‘It has already employed the staff necessary for the job.’’
Although it took more than six decades for CBE to open 220 branches across the country, it took less than five year to open 727 more branches since 2010. This achievement is almost in line with its plan of opening 150 branches every year. Besides aggressively expanding its branch network, the bank introduced van based mobile banking service for mostly the rural community on market days in 628 sites.
The other thing CBE did in the course of the last five year was launching new products like children, women, youth and interest free banking. All these new products are linked with reward to encourage more saving. Even remittance is linked with reward unlike the trend observed in most of private banks.
In its nine month report, the Bank announced that it has managed to mobilize USD4.4 billion in foreign currency. While export contributes USD 456.1 million, the majority of foreign currency came as remittance, which stood at USD 3.63 billion. The remaining balance has come from hard currency deposits and other sources.
CBE also performed well in other areas of operation. The Bank planned in its five year strategy aligned with the GTP to increase its deposit mobilization form ETB 56 billion in 2010/11 to ETB 256 billion in 2014/15 budget year. Currently, CBE has already managed to mobilize almost ETB 221 billion.
In order to meet its plan, a significant branch expansion was undertaken by CBE with 124 branches, which constitute one fourth of the branches opened in last fiscal year alone. CBE was followed by Oromia International Bank with 44 branches, Awash International Bank with 38 branches and Cooperative Bank of Oromia with 31 branches, according to the data obtained from the National Bank of Ethiopia. Dashen Bank and Bunna International Bank also opened 30 branches each.
During the 3013/14 fiscal year, all banks operating in Ethiopia opened 480 new branches raising the total branch network in the country to 2,208 from 1,728 a year before. As a result, bank branch to population ratio declined from 1:49,826 people to 1:39,402 in 2013/14.
Spurred by remarkable branch expansion, deposit liabilities of the banking system reached ETB 292.8 billion reflecting annual growth rate of 23.5Pct over last year. Despite the opening of 244 new branches by private commercial banks in 2013/14 fiscal year, the share of deposit mobilized by private banks decreased marginally to 31.5Pct from 32.3Pct in the previous fiscal year. CBE alone mobilized 66.4Pct of the total deposits due to expansion in its large branch network.
Despite such evidences, one has to go beyond what the statistics portray in order to understand what lies behind CBE’s awakening and what seems to be the reason for declini9ng competitiveness of the private banks.
Stakeholders say that most private banks are experiencing some degree of inefficiency in utilizing their resources in the phase of expanding their operations. Besides, the lack of properly maintaining the quality of service and service innovation private banks once known for is contributing its share to the weak competitiveness edge of private banks over CBE.
‘‘In the past, it was the CBE that started ATM but it was Dashen which caught the public attention,’’ argues an analyst who worked for CBE previously and currently working for a private bank. ‘‘I think, that has been changing now in favor of CBE.’’
Other attributes the NBE-Bill introduced in April 2011 to mobilize resources from private banks and finance priority sectors that are identified as key for long-term growth as a cooling factor for private banks operation. Since then, the total NBE bills purchased by the banking sector have reached ETB 26.0 billion by end 2013/14.
However, for the senior managers of CBE, the huge public trust the Bank enjoys is because of the improvement in service provision, the aggressive branch network expansion, the massive investment on technology and human resource development.
Coupled with it is the Bank’s drive to expand its geographical presence outside Ethiopian boarder. CBE has an operating branch in South Sudan while it’s in the process of reopening its Djibouti branch. It is conducting a study to open its door in America, Middle East and South Africa, according to Ephrem.
All these new developments are making CBE the bank of the future with high prospect to growth both for its staff and the economy as a whole. However, its managers are far from being convinced about it since the competition ahead is global. “Global competitiveness is a work in progress and for that we are building our capacity,’’ says Ephrem.
Passing the hurdle of time, thought and system, Getahun is now one of the 10.1 million customers who have an account with CBE and his hometown, Mesela, built on the waist of mount Awisherif, with its fogy and muddy environment became among the beneficiaries of CBE aggressive branch expansion in the past five months. EBR
3rd Year • June 16 – July 15 2015 • No. 28