‘Dashen will maintain its leading Position’

For years Dashen Bank has been a leader among private banks – and last year is no exception: it registered the highest after-tax profit of all private Banks, ETB729 million.
The Bank’s president, Asfaw Alemu, has only been at the helm since May 2015, but already has plans to help the Bank to further growth. Under his guidance, the Bank is in the process of reworking its organisational structure, including opening eight district offices. He says this will decentralise power and strengthen employees’ decision-making capacity.
Prior to becoming President, Asfaw served the Bank in various positions, most recently as Vice President for Operations. His rich portfolio includes services at the Development Bank of Ethiopia, Wegagen Bank and at an academic institution where he served for three years as a vice president for business and development at Unity University. Despite his years of experience as a leader, Asfaw took the leadership of Dashen at a tough time – a period that other private banks, primarily Awash International Bank, are fast catching up to the successes Dashen used to enjoy for so many years. However, Asfaw seems determined and prepared to handle any competitors – and says the Bank will maintain its leading position in the sector.
Asfaw has a BA in economics and an MA in Economic Management. In connection with the recently held annual General Assembly meeting of the Bank, EBR’s Fasika Tadesse spoke with him to learn more about the Bank’s overall performance last fiscal year and what the Bank has in store for the future.

As it is your first year as President of Dashen, how do you assess the performance of the Bank under your leadership?
I can say it has been a good beginning for me. The Bank’s net profit increased by ETB18 million from last year’s net profit, the paid-up capital also increased from ETB1.06 billion to ETB1.2 billion. I can say it was a good year for the Bank and for me too. In addition, the feedback from the shareholders [I received] during the General Assembly meeting was positive towards the overall performance of the Bank.

I know that Dashen is working on an organisational model that will totally restructure the Bank. What necessitated this reform and at what stage are you in developing the new structure?
Yes, we are working on a new organisational structure and we are done with the first draft of the new structural model. We [will soon] start reviewing it to develop it more before approving it for implementation. We need the [restructuring], as the Bank is growing and expanding in terms of size. The new structure will help us to administer the Bank effectively. It is too early to disclose the details of the new structure, but for sure it considers and incorporates our succession plan.

Currently there is a foreign currency shortage at a national level. Even your Board Chairman, Teka Asfaw, said while addressing the shareholders that the Bank was providing foreign currency to its customers turn-by-turn, as it faced a shortage of foreign currency. How is Dashen Bank coping with this shortage?
The demand for foreign currency increased significantly as the total imports entering the country increased, while export performance was smaller last fiscal year when compared to the import amount. There was imbalance and we were facing a shortage of foreign currency for that reason. In order to cope with this problem Dashen targeted and worked to attract more exporter customers. Additionally, we strengthened our relationship with the international money transfer agents to bring more foreign currency to the country.

We have done assessments to learn what our clients in the export sector want. Because of this, the number of exporters working with us is increasing in the first quarter of the current fiscal year compared with the previous year.

We are doing well but the demand for foreign currency is dramatically increasing. The gap is widening. Government has also set a goal to strengthen the export sector from this year forward. Therefore, we might fill the gap if improvements come with that.

Dashen’s performance report for the 2014/15 fiscal year shows that the Bank provided a large amount of loans for its customers who are engaged in domestic trade. However, the government’s plan and strategy is to assist and provide loans for companies that are engaged in the manufacturing and export sector. Why did this happen?
As you said, the amount of loans we provided for domestic traders is greater when we see it under the DFS (Domestic Fair Service) category, which includes hotels and wholesale trade. However, when we see it in terms of sectors, the manufacturing sector accounts for the major share of Dashen’s loan portfolio, with 25Pct.

Therefore, I can surely say we are working in accordance with the government’s policy of providing the majority of loans to the manufacturing sector.

During the past five years the Bank spent nearly ETB6 billion towards purchasing National Bank of Ethiopia (NBE) bills that amount to 27Pct of the Bank’s loans. One could reasonably assume that this amount of money would affect liquidity. Has Dashen faced challenges in spending this amount of money towards NBE bills and what is being done to minimise the impact of this regulation?
I see it from two perspectives. The first one is the money will be used for the growth of the country’s economy, as it is used to finance the sectors that are selected as a priority areas by the government. We are happy to be part of this accomplishment by contributing … money. On the other hand, we are paying [this money] from our account and it is affecting our liquidity, so to overcome this we are working on deposit mobilisation by expanding our branches. I can say that this 27Pct NBE bill initiates all of the private banks to mobilise deposits aggressively. Therefore, I see mainly the positive effects of the bill rather than its challenging parts.

Currently the NBE is working on drafting a law that will require the paid-up capital of all banks to be ETB2 billion by the end of the second Growth and Transformation Plan in 2020. As an industry insider, what are your thoughts about this law and what will it mean for the country’s banking sector?
I believe it will have a positive impact on the overall banking sector of the country. The central bank is working on this law to strengthen the development of the sector. In addition, the main indicator of development in the banking sector is capital. With smaller capital, we cannot persist [vis-à-vis] local or international competition. So in order to strengthen the local banks the NBE’s decision to set the paid up capital of banks to ETB2 billion is essential and acceptable.

There are claims that Dashen is highly dependent on the transactions of companies that are members of MIDROC Ethiopia Technology and Investment Groups. Is this a fair assessment?
The Bank’s figures do not support this claim. There is a single borrower limit that is set by the central bank and it specifies how many loans a single borrower can obtain from a certain bank. The percentage of loans of these companies is specified in number and lies on the single borrower limit set by the NBE. This means that we cannot give them loans [amounting to more than] 15Pct of our capital. Here we are talking about more than 9,500 borrowers and 1.4 million depositors, so in this case we are not working with a specific group of companies. Furthermore, the law and regulation of the banking industry as well as the norms of the industry will not allow us to operate in that manner.

There is a perception among some that Dashen’s Board of Directors interfere in the decisions of the management. Do you feel this is happening at Dashen?
This is not true. As management, we are performing our duties independently without interference from the Board of Directors.

But a few months ago, there was disagreement between the Board of Directors and the management of the Bank, which finally ended up with the resignations of the President and two Vice Presidents.
I do not believe that there was a disagreement between the management and the Board of Directors. However, the board and the management have their own strategies to meet the goals of the Bank. There might be differences in ways of moving forward to meet the goals. So we cannot say [it was] a disagreement [as opposed to the way things normally work].

The Earning per Share (EPS) of the Bank has been declining gradually for the last 4 consecutive years. Why is that happening?
Yes, EPS has declined from ETB670 in 2013/14 fiscal year to ETB589 during the 2014/15 fiscal year. The decline is occurring as the capital of the bank has increased from ETB1.06 billion in 2013/14 to ETB1.2 billion in 2014/15. So when dividing earnings for the number of shares, it will decline as the number of shares increase.

Recently, Prime Minister Hailemariam Desalegn said that the government has learnt that some bank officials give foreign exchange permit at a commission rate of USD1 for ETB3 as a bribe. He warned that ‘government will cut the fingers of those involved,’ figuratively speaking. Do you think there will be anyone at Dashen ‘whose fingers will be cut,’ so to speak?
No, we are working according to the law.

Dashen Bank has been the leading private bank for the last 20 years in terms of technology, capital, and total assets. However, currently other banks are catching up quickly. Within the next few years, tough competition is expected to take place between Dashen and those banks, especially Awash International Bank. Are you prepared for the competition?
There is always the chance of getting up, down or remaining close to others when you are in competition. [With that said,] we are preparing different strategies. Of course, the competition in the banking sector is getting tougher. There might be getting close to each other and overtaking, but Dashen will maintain its leading position.

Dashen started agency, mobile and Internet banking later than even the newest banks. Why?
We have started agency banking late. There are advantages when you are a latecomer, because the road is already paved. There are difficulties in this work, especially when working with vendors. The good thing is we have both Internet and mobile banking services now.

Since you came to Dashen, the Bank has been implementing a new organisational structure, which led to the creation of new positions and management organs. To that end, you also introduced eight new district areas to help manage various branches, similar to what the Commercial Bank of Ethiopia (CBE) did in the past. What is the importance of such changes?
The natural growth of the Bank has necessitated such changes. When the Bank became bigger, it became difficult to carry forward with the former structure. We must respond to clients, we must boost the decision-making capacity of our employees and not every decision must come to the centre. We have to be able to give quick responses and align our goals with the [second phase of the Growth and Transformation Plan].

Therefore, we have opened eight district offices. Four of them are in Addis Ababa, while the rest are outside [the capital]. Of course, it might be similar with CBE; but Dashen did it because of its growth. Directing more than 167 branches from one office is not possible. Therefore, we had to decentralise power; we have to add on the employees’ decision-making capacity in order to facilitate the Bank’s and its employee’s success. We will continue working in this manner in the future by checking whether our structure is capable to respond to the growing task.

The operating cost for opening new branch has become very expensive. This is especially true for Dashen because you pay relatively higher rates compared to younger banks. How do you see this challenge?
If it were four years ago, this would be true. However, we managed to cut the operational cost we spend to open a new branch. Of course, the rent expense in the sector has increased in recent years. Currently, we are opening 30 branches a year and it is very difficult to do so while the operation cost is increasing. Therefore, we have designed a model for opening sub-branches, which has decreased our operational cost significantly. We have changed our business model to lower that and decrease our cost. Still we chose to stick to standard facilities.

You have worked in an academic institution, right?
Yes, I used to work at [the then] Unity University College for three years including as vice president for administration and business development.

Mostly academicians are research-oriented and they are not fast in decision-making when they work in operational businesses. Since the sector you are working in currently is so dynamic, have you ever faced challenges because of that?
I was on administration and business development position at the then Unity University College, and I was not more of an academician. Since I left Unity, I have been in the banking sector in administration, finance and business development positions as vice president. Business development goes with dynamics and I have no difficulties. EBR

4th Year • December 16 2015 – January 15 2016 • No. 34