Bank executives, scholars debate over foreign banks entry to Ethiopia

Executives of local banks and scholars have debated over the entry of foreign banks to Ethiopia at the business panel discussion focusing on “Opening of the Domestic Banking Sector to Foreign Banks: Opportunities and Challenges”, organized by Addis Abeba Chamber of Commerce and Sectorial Associations (AACCSA).

The panel discussion held on Friday at Hilton Hotel.

Pertaining to the merits of foreign banks entry to Ethiopia, Asfaw Alemu, President of Dashen Bank Share Company listed out that these banks would bring product innovation, high marketing skills, and corporate governance outlooks.

He hopes that if the foreign banks entry implemented in a joint venture modality it would be “advantageous for local banks.”

Asfaw, however warns “Possibilities of economic shocks in case these banks left the local market after their entry due to internal problems similar to what they did in other countries.”

Melaku Kebede, President of Hibret Bank Share Company also argues that liberalizing the sector for foreign banks is beneficial to the inflow of foreign currency.

“Banking as usual will not work anymore,” he says.

Melaku recommends the possibility of synergy among local banks”.

 “Amicably solving the challenges is also vital,” he said.

For other bank executive liberalizing the banking sector will host some challenges.

Eshetu Fantaye, President of Ahadu Bank Share Company said: “These banks would be more beneficiaries than the local ones due to their experience in money and foreign exchange markets management.”

Eshetu also downplayed some scholars view on financial liberalization.

“I hear some scholars arguing that entry of the banks as a panacea for all the problems, which is a wrong outlook,” he stressed.

He further argues that foreign banks shouldn’t be allowed to work on exporting activities. “We have been expediting export-related activities in our banks, and we’re not tired of doing it,” he disclosed.

Eshetu further proposes: “Atomized, stylized, and sequential entry of the banks.”

Emphasized on the problems of liberalizing the banking sector a renowned Economist Alemayehu Geda (Professor) classified the challenges into three categories of macroeconomic, institutional and the banking sector sides.

He mentioned inflation, shortage of foreign currency and effects of the war in Ethiopia as macroeconomic demerits of opening up the sector.

Alemayehu also raised problems related to the National Bank of Ethiopia in the institutional category.

Last but not least, he put local banks gap in credit risk management as a disadvantage of allowing the banking sector.

Alemayehu recommends East Asian nations type of banking liberalization characterized by gradualism approach.

Yared Haile-Meskel, Managing Director at YHM Consulting on his part said that he is in favor of liberalization.  He added: “We’ve to bring attitudinal change regarding liberalization.”