Finance expert urges merger of local banks to compete with foreign counterparts

By Yared Nigussie

Merger of local banks is very crucial to compete with the foreign banks, which are expected to join the Ethiopian market following the financial liberalization decision by the government, a renowned financial expert urged.

The total capital of Ethiopian private banks was not more than $1.2 billion in 2021/22 fiscal year. “A single foreign bank having a huge chunk of capital can buy all these banks if there’s no restriction,” Zemedeneh Negatu, Global Chairman of Fairfax African Fund, told Origins Business.

He added: “Consolidation of local banks such as merger of five local banks will make these banks stronger and competitive with their foreign counterparts”.

The Council of Ministers approved the long-awaited policy that allows foreign banks to operate in Ethiopia earlier this month.

The government repeatedly told local banks to get ready for foreign competition.

Zemedeneh on his part aspires that the decision to liberalize the banking sector will have a good opportunity for Ethiopia’s financial sector. “Transformational change is on the horizon for the sector in the next two years,” he said.

The global economy has been reintegrating with Ethiopia, which could be taken as an advantage to the country, Zemedeneh says. He, however, warned that, “Emerging economies such as Ethiopia should be meticulous on how to liberalize the banking sector.”

He insists that the liberalization should follow gradual and meticulous process. “The foreign banks can initially join the local market through joint venture,” he suggests.

Zemedeneh also says that there are significant merits of the banking liberalization decision. He mentioned that the foreign banks would bring expertise into Ethiopia and further accelerate competition in the industry.

He went on to say that foreign banks entry will help to realize transparency in the sector and significantly contribute to flow of foreign direct investment.

“Though Ethiopian banks have been hammering on expansion of technologies, still you can’t even find banks that provide credit card services,” he said recalling that such banking tech was developed 60 years ago.

He considered fintech services such as Telebirr and private providers as positive disrupters in the digital financial sector. “Due to the emergence of disrupters, local banks should be ready for the upcoming challenges,” he recommends.