Financial pundits offer high praises on the stretch way to opening up of the financial sector, as phased based liberalizations is advised by majority.
Experts that expressed their views on the latest edition of the iCapital Institute’s financial summit that gathered different stakeholders from the country and abroad said that the sector opening up would have both positive and negative outcome on the local actors, however appreciated the government decision.
Melaku Kebede, President of Hibret Bank and part of the speakers on the panel session under the title: ‘the impact of liberalization of the financial sector in Ethiopia’, said that the opening up of the financial sector would have multiple effects on the industry.
“For me it has a positive impact to the banking industry, at the beginning we might have some challenges like the experience that we had in Kenya 20 years back but later on I strongly believe that the local banks will have local trust,” he said.
Yared Molla of Nyala Insurance has also supported the idea of opening up of the sector for more competition, by reminding that the insurance business is by default an international business, “we all need to support the opening up of the industry, since already 16 percent or more than that of our businesses is being covered by the international insurance insurers.”
Experts said that the sector liberalization shall follow some processed path by adopting the experience of others in order to realize better outcomes on the decision.
“Let’s say that entry should not be like what happened in certain countries in the past. I think the two countries that are most mentioned are Philippines and Argentina in their overnight liberalization of the whole sector. The financial sector is a sensitive sector. Even when untapped a nation has to have some degree of control over its financial sector,” Zafu Eyesuswork, prominent expert on the industry said, adding, “Resources are to be directed in priority sectors of development.”
“Well thought out, planed, phased and sequenced liberalization. Let’s allow non-Ethiopians to invest in Ethiopian financial sector companies. Let’s say up to some percentage for some given years and after that the capital market will do its job,” Zafu expressed his views.
He added that the process will be followed by players buying and selling their shares, while in the coming years the smaller banks which cannot afford to fulfill the requirements may come together for mergers and acquisitions.
Yared said that the opening up of the industry is a very important issue, but it has to undergo a step by step and phased approach, “we don’t have to just invite everyone and every aspect to the industry. For instance, it’s better first to introduce life insurance because we are not good at life insurance. We have a broken track record on it.”
Yared welcomed the idea of competition whilst he opined, “it is even good for customers.”
“We should not forget that those foreign banks will have their own strategy to work together with local banks which will bring certain capital increase, technology adoption and also advancement in human capital,” stated Melaku.
He added that this phenomenon will affect private bankers and government central bank and policy banks.
“For private banks it’s rather an opportunity that would create a good competitive platform because it was closed for a long period of time,” Melaku said, adding, “some of them have contacted us, with preference of working collaboratively as opposed to a stand-alone operator.”
In his view more challenge shall be seen on policy banks that are protected by the government on different instruments against private players.
“I expect more challenges will come to the government’s center bank and those policy banks. I would say the central bank has to manage somehow the mindset, the capability and the like. Government banks might need also sometime to bring new ideas from others,” Melaku explained.
Zafu also recommended the formation of a centre of excellence that would help the sector to be fit on the way to be a part of the global players.
With regards to the establishment of the Ethiopian Institute for Financial Studies as a center of excellence for the country, Zafu mentioned that it was proposed to the National Bank of Ethiopia (NBE) a year ago, “We submitted the preliminary concept note to the governor of NBE in May 2021.”
“We should have it since it will serve as a PPP product. We have to start it,” he stressed.
Belay Tulu, Director of Insurance Supervision Directorate at NBE, recommended local players to be prepared for the upcoming new phenomenon but declined to give the timeline when the sector is going to be opened, “I don’t think it would take too much time, but it’s not the right time for me to advise the insurance what to do and what not to do while our guests prep themselves to join the market.”
“In any case, the first thing is to draw a realistic strategy. So we need to understand the urgency and every company has to make the right decision and draw realistic strategies. I don’t want to go through into the details but it’s time to think about that, is the major concern of every company and it is also applies for the insurance supervision, we have to be prepared,” Belay said.
Frezer Ayalew, Director for Banking Supervision Directorate of NBE, on his part said that all players in the ecosystem have to prepare “for those different strategies and the mechanisms.”
Yet no decision has been made on the timeline of liberalizing the sector and the entry modality for foreign investors.
Hibret Bank president said, “I would say it will be ideal for the roadmap to be laid down for the sector opening up.”
He added that the banking sector has to be ready including the consideration of mergers to create a synergy.
“The issue of consolidation of banks if when the market is liberalized, I think it all depends on the entrance modalities that the government is going to act through,” the Hibret bank head opined.
“I don’t think that the government will adopt the kind of modality where the local banks will be wiped out by international competitors,” Frezer said.
Richard Ketley, Director of Genesis Analytics who came from South Africa, shared his view about the impact of the financial sector liberalization by showing the experience of other African countries.
He said that increased competition mainly on high value corporate clients shall be seen when the sector is opened, while collaboration can become an opportunity especially for well established institutions with large networks.
According to Ketley, technological dynamism and merger and acquisitions shall be seen on the way to include global players on the sector.