Tuesday, February 20, 2024

Ovid Betoch Bank emerges as a promising financial institution

Photo by Anteneh Aklilu

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By our staff reporter

After nearly three years since the minimum paid-up capital requirement for banking businesses was increased tenfold, Ovid Betoch Bank has emerged as a promising financial organization in the making. Initially, there were about 18 banks in the process of formation when the National Bank of Ethiopia (NBE) issued Directive No. SBB/78/2021, the fourth revision to the minimum capital requirement for banks, in April 2021. However, most of these banks abandoned their plans to establish a financial institution.

Since then, there have been no new attempts to meet the central bank’s requirement of a minimum paid-up capital of five billion birr for banks, as outlined in the 2021 directive. However, a new bank is now seeking to address the significant demand in the mortgage market and aims to raise five billion birr within six months from a total proposed subscribed capital of twenty billion birr.

Ovid Betoch Bank has recently started selling shares to raise the necessary funds for its operations. The bank intends to transition into a housing finance company. In its prospectus, the bank announced the offering of 20 million shares at a price of 1,000 birr per share. Shareholders are required to acquire a minimum of 200 shares, amounting to 200,000 birr. The maximum limit for an individual’s share purchase is one million shares valued at one billion birr, which represents five percent of the total shares offered.

Investors are expected to pay a minimum of 25 percent of their total investment upfront, with the remaining amount to be settled over a two-year period following the establishment assembly. The bank aims to mobilize the necessary investment within six months to commence its operations.

The prospectus acknowledges the growth of Ethiopia’s financial industry and economy and emphasizes the need for greater focus on the housing and construction sectors. Ovid Betoch Bank explicitly states that the construction sector, particularly the development of residential homes and industries, has not received the required attention from banks. The document expresses hope that the government’s direction will modernize the industry and effectively facilitate the structural transformation of the economy to prevent a shortage of residential housing.

It was discovered that the existing banking services were insufficient to meet the government’s demands. Recognizing this gap, the organizers believed that additional banking institutions were needed to support the government’s efforts. Reports indicate that more work is required to acquire and provide financial resources for investment purposes and to make home finance services inclusive and accessible.

The government has expressed its intention to double the number of residential homes from the current four million within the next ten years. A study conducted by the Ministry of Urban Development and Infrastructure (MoUDI) in the 2020/2021 budget year revealed the need for one million residential homes in the capital alone. As part of the ten-year economic growth plan, it is projected that 471,000 new homes will be built annually in both urban and rural areas during the first five years, followed by 486,000 new homes annually in the second half of the plan.

The MoUDI aims to double the current number of residences in the country, which stands at 4.4 million, through various housing development schemes over the next decade. However, data from the MoUDI indicates that over 30 percent of existing homes are subpar, and 74 percent require significant renovations.

Ovid Betoch Bank, in line with its strategy, aims to contribute to the government’s efforts in addressing the severe housing shortage in the country. The bank, closely affiliated with Ovid Group, a prominent construction company that has successfully completed several large-scale housing projects in the capital, intends to provide potential shareholders with the opportunity to secure their own homes. The prospectus states that, in addition to pursuing profits, the bank will take steps to help potential shareholders become homeowners, provided they meet the necessary requirements when the bank begins operations in the future.

Currently, Goh Betoch Bank is the only mortgage company in the nation. However, industry participants seek further policy support from the government to achieve success in the industry. It is worth noting that Ethiopia is the fifth least urbanized and the second most populated country in Africa. According to the government’s definition, only 21 percent of the country’s 120 million inhabitants reside in urban areas, which is significantly lower than the Sub-Saharan average of 40.4 percent. Ethiopia is home to over 950 towns and cities.

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