More than 350 million Br paid-up capital has been collected by the bank that is under formation, Dallol, according to its organising committee, nearing the half a billion Birr requirement of the National Bank of Ethiopia (NBE) to open the 18th commercial bank in the nation.
The amount is almost equal to the paid-up capital of one of the late entrants in the banking industry, Debub Global, which was instructed by the central bank to achieve the minimum capital requirement within two years after its establishment but failed to do so.
Founded by academicians, medical professionals and commercial bankers and entities under the auspices of the Ethiopian Orthodox Church, the organising committee of the Bank officially started selling shares two years ago after getting the green light to collect capital for its formation.
“Since then, we have been approaching potential investors,” said Nebyeloul Debebe, project manager assigned to oversee the selling of shares with a par value of 1,000 Br by the organising committee.
With veteran banker Tilahun Abay, once president of Commercial Bank of Ethiopia (CBE), in an advisory role, the Organising Committee includes its head, Mesfin Araya (MD), a specialist in mental health, and his deputy, Munyelet Kassa, who used to be a board member of Bank of Abyssinia (BoA), and other individuals.
They will share 10pc of the Bank’s profit as founders of the company based on the commercial code of the country. But, the promoters’ fee, according to Nebeyeloul, will be decided after the formation, bucking the industry’s trend where the founder’s earning are worked out during the formation of any company.
The organising committee, in its prospectus that is not open to the public yet, plans to open 10 branches during the first year of operation. It is also undertaking a study to set detailed goals for its first-year of operation.
Aiming to open its doors in two to three months, the bank has already hired three individuals experienced in human resource, finance and IT.
“Hiring of employees, administering of the finance, and building the information technology infrastructure of the company will be handled by the hired experts,” said Nebeyeloul, who has 13 years of banking experience.
The organising committee, using a portion of the five percent premium it collected from a share, has rented an office in a building owned by the Holy Trinity Theological College for 402 Br a square metre.
Thus far, more than 100 individuals and entities have bought shares from the Bank.
“I believe no business is as profitable as banks in our country,” said a businessman who was buying 200,000 Br worth of shares.
The Bank is attempting to join an industry that has seen a 37pc spike in deposits and a 47.6pc increase in loans to 135.6 billion Br, resulting in an aggregate profit of eight billion Birr in the past fiscal year alone.
The rate of growth registered in operational activities, such as deposit mobilisation, was the highest in eight years.
As of now, 35 microfinance institutions and 17 commercial banks are operational and regulated tightly by the central bank. These firms have opened more than 31 million accounts.
The banking industry has shown a huge growth over the past decade. Deposit mobilisation alone showed a 50-fold upsurge compared to the rate registered in 2008.
However, a consultant and financial expert with decades of experience thinks the growth has come with costs.
“Major sources of income for almost all banks are transaction based,” he said. “Instead, the banks should have earned much of their earnings from interest on loans. Thus, Dallol should take a lesson.”
Enat Bank is the last one to join the banking industry. Since its establishment, Enat’s profit overshot by five folds to almost 100 million Br in the past fiscal year. Commencing operation with a paid-up capital of 123.6 million Br, it now has over 13,600 shareholders with an investment capital of 800 million Br.
Its predecessor, Debub Global, has also registered a positive profit for three consecutive years after registering a loss of 14.3 million Br during its first year of operation. In the past fiscal year, the Bank amassed a profit of 51 million Br – showing a slight drop from 2015/16.
Source : Fortune