‘The plan is to make Awash one of the top ten banks in East Africa’

Tsehay Shiferaw, President of Awash International Bank, leads the fastest growing private bank in the country. Last fiscal year, the Bank’s after-tax profit was ETB645 million, a 4.4Pct growth from the previous fiscal year net profit.
Having taken the helm in June 2011, Tsehay has set his eyes on global excellence. He hopes that Awash will become one of the top ten banks in East Africa by 2025. To that end, he is leading the Bank through the development of a succession plan that will also help the company grow, especially as it pertains to its technological capacity, overall structuring and human resource development.Despite its promising future, Awash faces challenges regarding staff turnover, technology expansion and foreign currency shortages. However, its president says that the Bank is handling these difficulties and that won’t hinder its ascent to the upper echelons of East African banking sector.
Tsehay has served Awash for 10 years. Prior to becoming President, he was the Bank’s vice president of credit. He holds a BA in economics and Masters in International Business. In connection with the Bank’s recently concluded General Assembly Meeting, EBR’s Fasika Tadesse spoke with him about the Bank’s performance and its future.

Awash is the first private bank in Ethiopia, but it lags behind in profits. Dashen Bank has been leading in almost all the years it’s been operating.
We are the second [most] profitable private bank [in Ethiopia], but what is important for me is the Bank’s [growth rate] for the last five consecutive years. The figures show that Awash is the fastest-growing private bank in the country. For several reasons Awash was the second-fastest growing bank a few years ago, but now we are leading in terms of growth rate.
Profit is not the only metric to justify the growth of banks; we should consider other measurements such as deposits, which Awash reached ETB3.4 billion; loan disbursements, which is ETB1.5 billion for us last year; and branch expansion, which made us the leader among private banks, because we opened 52 branches last year. The other major measurement is paid-up capital, which the Bank increased by ETB383 million and reached ETB1.9 billion. These measurements make Awash the leader within the industry.

I know the Bank is working on a 10-year strategic plan. What are its major targets?
Yes, we are about to start implementing a 10-year strategic plan, which is entitled “Transforming AIB, Vision 2025”. The major target of the plan is to make Awash one of the top ten banks in East Africa in terms of capital, loans and advances, and deposits within 10 years. By 2025, AIB will grow four times its current capacity.

Will Awash surpass other domestic banks in the 2015/16 fiscal year?
Our Bank’s vision is not to [solely] come ahead of other domestic banks. That takes us nowhere. We want to be one of the top ten East African banks by 2025. Competing with domestic banks will be failing short of our vision.
To that end, the Bank is investing on technology, people, and in the process of our operations. In terms of technology, Awash was lagging in the past. However, within the last three years, we have invested more than ETB200 million in technologies. We have upgraded and started using our core banking system. We have licenses in mobile, agent and internet banking, and we are about to start. We are also implementing anti-money laundering software. We are also investing in our human resources to create and diversify our middle level management professionals for the succession of our plan. We are the only bank that is working on a succession plan.

The Earning per Share (EPS) of the Bank has been declining for the past five consecutive years. Would you explain why?
Yes, it is declining. As you know, EPS is a derivative of capital, so when the capital increased obviously the EPS would decline. The EPS of Awash is good when compared to the industry. The capital of all banks is growing currently, so within the coming years, the EPS of all banks will decline.

EPS is variable – it can grow one year or may decline the next year. With our shareholders we decided to push our paid-up capital to ETB3 billion. In doing so, we convinced the shareholders that the EPS can decrease by a small rate; by explaining to them that it is for the long-term advantage of the Bank.

The performance report of Awash for the 2014/15 fiscal year shows that the Bank disbursed the majority of its loans to domestic traders, while the government’s policy is to support the manufacturing sector. Why did that happen?
Yes, but that will change soon. In line with our strategic plan, we are planning to work [more] with manufacturing industries and exporters. We decided to provide the majority of our loans to these sectors following the government policy of supporting the manufacturing sector. We included that in the strategic plan after reaching an agreement with the Board of Directors. So for [the next few years], the majority of loan disbursements will go to these two sectors.

Currently the National Bank of Ethiopia (NBE) is working on drafting a law that will require the paid-up capital of all banks be ETB2 billion in 2020. What are your thoughts about this?
The size of a bank is justified based on its capital, but not its deposit and liability. When the capital of a bank increases, its ability to persist risk will increase. Each risk management measurement is against capital, so when the NBE pushes all the private banks to increase their paid-up capital, that is the [correct] action.

If foreign banks were allowed to operate in Ethiopia, the local banks would not be competent with lower capitals. The major method of persisting risk shock is capital, so I personally believe the paid-up capital limit should not be stopped at ETB2 billion, it should be increased even more.

There is a shortage of foreign currency at a national level. Even the foreign currency earning of the Bank declined from 11Pct of the total income in the 2013/14 fiscal year to 9.6Pct during the 2014/15 fiscal year. What kind of coping mechanism has Awash prepared to handle this problem?
Our main problem is not only the decline of foreign currency earnings, but also the surged demand for foreign currency from our customers. The country’s economy is growing; many industries are expanding [in tandem with that growth]. These industries need foreign currency to purchase machinery and raw materials from abroad. Because of the shortage of foreign currency, we were prioritising our customers. We gave priority for those engaged in the manufacturing sector and those who import pharmaceutical products, baby formula and milk. As a sustainable solution in line with the government policy, we tried to encourage and work with exporters to increase our foreign currency earnings.

Within the last five years, AIB has spent ETB5.4 billion towards the purchase of NBE bills that amount to 27Pct of loans the bank issued. How has this affected the liquidity of the Bank?
I cannot say the purchase of the NBE bills affected our liquidity, because our capital is increasing significantly. During the past year, our deposits increased by ETB3.5 billion, so the amount we spent for the NBE bills is equivalent to the amount of deposits we can generate within two years. Therefore, I believe the NBE [regulation] encourages private banks to mobilise deposits by expanding their branches. The NBE also helps us by providing loans if we face a problem with liquidity, so we are not facing the challenge that much.

Last year, some banks faced high turnover and reshuffling of high-level management. Awash was also challenged by high turnover of low-level workers. Why did that happen? How has the Bank dealt with the issue?
Yes, we were challenged with low-level workers turnover. Many of them left the company without even serving for one or two years. That happened because the banking sector is expanding and more branches are opening, so the workers are revolving within the industry.

This creates competition among banks to raise salaries in order to maintain the workers and ultimately it inflates the expenses of banks. To overcome this problem we are hiring and training many workers, as we cannot stop them from leaving the company. In fact, it is a new phenomenon to the sector as it is growing exponentially. Still, the attrition rate is less than 10Pct, which is smaller than that of other African countries.

Some banks in Ethiopia are established along ethnic, religious and gender lines; their human resources, customer base and leadership pool reflects that. Such a tendency to avoid diversity inhibits innovation and narrows the customer base. This could potentially work against the corporate interest of any business. As an aspiring bank to be among the top 10 banks in East Africa, is Awash guilty of lack of diversity?
I do not agree with this claim. People who have come from the same region [of Ethiopia] may establish companies, but it will be very difficult for banks because it needs huge capital to establish a bank and you need to raise capital from wide pool of resources. Our shareholders are from all over the country. You can see that Awash Bank’s shareholders [come from] every corner of the country, from Adgirat to Moyale and from Asossa to Togochale, so we have had diversified shareholders from the very beginning.

To speak truthfully, if there is a most diversified bank in every aspect in Ethiopia, it is Awash. Because of the political situation in Ethiopia 25 years ago, people from the same origin have initiated the idea and established the bank. Even then, there were different ethnic bases among the 486 founding shareholders from Amhara, Tigray and Oromia regions.

Until now, Awash Bank has never floated a single share for the public after the initial years. The founding shareholders have been buying shares when Awash floats by reinvesting their dividend. If individuals want to buy our share, the only way to get it is if the existing shareholders want to transfer their shares, which we will facilitate for them.

I have been with the Bank for the last 10 years and no shareholder has asked to sell shares to external people. This might be because Awash is profitable, because it is growing and has bright future. Recently, it decided to raise the paid-up capital to ETB3 billion. We never looked for external buyers. If there is a share available for sale, existing shareholders are given the priority before external buyers.

Of course, Awash is not an extension of the House of Federation and that every ethnic group should be represented, but a disproportionate number of your shareholders come from Oromia Region. You even lean to that tendency during employment. Isn’t that true?
You do not have to be surprised to see 30Pct to 40Pct of shareholders in one bank if they come from a certain region. However, you can go and check our human resource list. You will learn that all Ethiopian ethnic groups work for Awash. Diversification is also in our vision. Unless we work on diversification, we know that we cannot grow in the future. In all our branches, we hire only local people. This is one of our policies [to diversify].

With all its organisational reforms and more than 200 branches, insiders say Awash is a centralised bank. If you take the Commercial Bank of Ethiopia (CBE) for example, it has district area offices, even in Addis Ababa. Why did Awash fail to decentralise its working process and empower the lower management?

Next to CBE, I believe Awash has worked on decentralisation more than any bank. First, we have already had two area managers for Addis Ababa and regions. For example, I do not have to approve loans that are less than ETB20 million. You cannot see this in any other private bank. In terms of foreign currency, I exceptionally deal with approvals if it is more than USD500,000 only. Tell me, which other bank has done this?

So does this mean establishing area district offices does not matter?
Our bank is the only one that provides ETB1 million loans at the branch level. Our area managers give loans up to ETB5 million, the credit director gives up to ETB10 million in collaboration with a committee established for this purpose, and the vice president can approve loans up to ETB20 million.

We have worked hard to create area managers in the meantime. This is why we decided to evaluate the activities of the Bank through an external consultant. We have hired KPMG, an experienced and world-class consultant group, which has managed to bring noticeable changes to banks operating in Kenya and Nigeria.

Some banks, particularly CBE, invest hugely in their human resources in the form of trainings. What is Awash doing in developing its employees?
Awash Bank has close to six thousand employees, of which 3,800 undergo trainings every year. There is no such bank that gives training for 65Pct of its employees in a year, except [perhaps] the CBE. We are also working intensively on external trainings. The management [participate in] external training at least once a year.

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 Awash ‘whose fingers will be cut,’ so to speak?
I do not think so.

Were you alarmed by this statement?
The important thing for me is we have to go back and check our system. We have to create a transparent system. We do not want such rent seekers to exist in our bank. However, I cannot say that there is no such problem in the sector as a whole, because I do not have evidence to say otherwise. Working with caution is needed and we are doing that. EBR

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