Central Bank Needs to Issue Directives that Enables Local Banks, Build Capacity, Say Private Bank Representatives

October 29/2022/ENA/  The National Bank of Ethiopia has to set up directives that help local banks to cope with competition from foreign banks and manage the sophisticated instruments of foreign banks, local private bank representatives said.

Enabling local banks to be competitive at the highest level in the sector, improving loan supplies, bringing advanced technologies, creating jobs, bringing foreign currency are among the benefits expected from the entrance of foreign banks into the Ethiopian financial sector.     

In an exclusive interview with ENA, Nigatu Wolde, Amhara Bank Marketing and Economic Research Director suggested a gradual opening of the industry to foreign banks so that local banks could get time to enhance their capacity and get ready for   competition.  

The process has to be gradual rather than allowing them all at once to give local banks the chance to learn and share the experience they will bring to the sector, he said,  adding that “our banks have to also work on technological advancement and get equipped with able human resources.”

Nigatu, who stated that foreign banks are very much sophisticated when compared to local banks, proposed the need for strong regulatory, monitoring and controlling mechanism.

Highlighting that Ethiopia cannot be isolated from the global community, he noted that this is the  time of globalization when the world has become one village and the financial sector cannot be outside of such reality.

Nigatu further stressed that “it is important for our country to integrate with rest of the world, but  the question is at what speed and when should foreign banks be allowed to enter Ethiopia.”

According to him, government policy makers, National Bank and all stakeholders have to have sufficient discussions about how to make the engagement of foreign banks in Ethiopia a success.

Nib International Bank Vice President Lulseged Nigussie said on his part that the decision to bring foreign banks to Ethiopia will contribute high technological capacity, digital banking, and bring foreign currency that help enable the banking industry to grow.

For the local banks to be more competitive and cope with foreign banks, they have to increase their capital and technological advancement by merging, he added.

However, the vice president noted that preparations are crucial before foreign banks actually join the sector in all aspects.

National Bank directives that encourage local banks to enhance merger of capital and modalities that help them to increase their competitiveness need to be prepared and issued, he stressed.  

Similarly, Hibret Bank President, Melaku Kebede said the decision to allow foreign banks enter  the banking sector is a big move which has its own benefits.  

So, working on maximizing benefits is pivotal from all stakeholders. Like the private and other state-owned banks, the central bank has to also develop its capacity.

"As the incoming financial instruments are so sophisticated, the National Bank of Ethiopia has to develop a capacity to cope with such challenges," he underscored.

It is to be recalled that the Council of Ministers decided last month to open up the banking sector to foreign investors, which was only allowed for local banks.