Banks and their succession plan

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It was a recently that Bekalu Zeleke was appointed as president Bank of Abyssinia (BoA). Right after his appointment senior professionals of the Commercial Bank of Ethiopia (CBE) followed their former boss to join BoA.
At the same time when Bacha Gina was appointed to lead CBE about two years ago he called his former colleagues that were working at Awash Bank, which he served as vice president.
The incident was discussed around the sector actors and viewed in different angles.
At one point experts said that the incident indicated that leaders may not be comfortable in a new atmosphere at their new organization. On the other hand experts argued that leaders may not have a capacity to develop a structure as per their interest and work culture or they don’t trust the staff that they joined.
Besides that experts claimed that taking an organization staff to another place is a good indication that the country doesn’t have ample experts in the industry.
“The two incidents may also describe that the banks were not working on the enabling environment and boosting their staff capacity, otherwise there is no reason to change almost all management staff when a new president is assigned,” one of the sector actor said.
Experts said that the situation created disappointment at the banks and some of senior staff left the banks.
“If you establish a business on a given circle and connection you may move with that circle at your new institution but there will be long existing professionals at your new office, while you replace them by your connection. A good example for this is BoA,” one of the banks president who demands anonymity told Capital.
The reason of replacing the existing executive should be seen in detail, the president said.
“Some time it looks like a cabinet reshuffle when new political leader come to power, but it is supposed to be well studied,” he added his view.
Most of the sector actors and experts, who Capital talked, agreed that the sector is facing serious skilled labour shortage that forced banks to fight each other for senior staff.
At the same time the booming of the banking industry is also described as the other new threat for the situation. Currently 18 banks including two stated owned banks operate in the market, while another 17 new banks are in the pipeline to join the financial industry.
“If the sector will not get ample attention the situation will be stiff,” one of the bank leaders described the upcoming situation regarding the human capital in the sector.
Sector actors said that when new banks are opened or when there is a branch expansion financial institutions are collecting professionals including lower level staffs from different banks and on the other side of the coin banks are forced to offer unreasonable pay rise to hold professionals.
“At the middle and lower level, staff move from one to another in relation with one motive, money. But when the management team entirely moves from one to another it indicated that there is no proper succession planning at the institution. If there is a succession plan at the institution there will not be such kind of major incident,” another president of a bank told Capital.
“Every institution has a board and management who lead the operation so if the management is replaced by new team it is demoralizing for the existing staff,” he said and explained the reason for massive reshuffle and changing offices.
According to sector experts, some time the new leader or the board of the bank may table the proposal of moving a team.
“When the leader at CBE was changed, some of the management were abandoned by the new leadership. That may give a chance for the BoA leadership to take them since it knows their capacity,” they said, “but this action may also throw away the existing potential and proven experience.”
One of the bank leaders remind that the problem will continue since some eight banks in the conventional and interest free sector are expected to open their doors in the near future and due to that the trend will continue.
“Definitely these new banks will be looking for talents because they are new and need experienced talents,” he says adding “they will give attractive positions and salary, which will shift your highly skilled experts. Otherwise you have to improve the salary and post to keep the talent.”
Dereje Zebene, President of Zemen Bank, has seen the narrative in wide range. He said that the financial industry growth in the past should be evaluated. “The situation ten years ago before NBE introduced NBE bill in 2011 that forced banks to purchase the 27 percent bond for every loan disbursement and after is different,” Dereje said.
He described the NBE bill was a turning point for the situation in the banking industry. “The economic growth was not similar before the bond and after and at the same time the financial sector growth path was also different in the two conditions,” he said.
“Before the NBE bills the banks growth and branch expansion was very limited. At the time the demand of labour force was not that much high,” Dereje added.
He explained that the situation has changed when the government introduced the bill that followed by the resource scarcity, which forced banks to work aggressively to mobiles deposit, “besides the bill, the economy has seen significant growth, and the public spending and loan demand has also increased, which accelerate the economic activity.”
Since then banks are expanding their branches swiftly and at the same time NBE gave a direction for branch expansion to be undertaken at least by 25 percent every year, which is also an instrument for sudden and high skilled labour demand.
“In this competition you don’t have time to give training for new graduates and assign for job, due to that the option shifted on moving trained staffs from one bank to another with attractive and competitive payment,” he said.
The bank president explained that this new situation changed the banks trend and instead of usual trainings, banks focus on the filling of their immediate demand. However NBE ordered banks in 2015 to allocate their 2 percent of recurrent budget for capacity building.
Most bankers and sector experts have doubt about the effectiveness of the two percent budget. “It is not supported by research and well developed human capital development strategy,” the sector actors said.
Regarding the human capital development Gemechu Waktola, Assistance Professor at College of Business and Economics at Addis Ababa University, said that it is the area the country should focus.
He said that human capital development as a nation is a major challenge. “If you go at the civil service, service sector or the private sector it is a mess. When it comes to the finance sector it is not only in the banking sector but the insurance industry is a disaster,” he described the situation.
“We are talking the banking industry because it is at least supposed to be the best based on their capacity,” Gemechu, founder and CEO of I Capital Africa Institute, a consultancy firm who supports companies including financial institutions on human capital besides organizing several events, told Capital.
“We don’t have a problem with number of people but in actual sense the talent that are engaged on perfect, discipline of time and level is very rare,” he said.
It is widely seen in the finance sector because it is affecting other sectors and it is relatively well structured and strongly regulated, according to the human capital development expert.
“Why professionals migrate from bank to bank and why leaders move with their crew? Basically it has multiple problems,” Gemechu said.
“At the initial point it is related with cultural. In the leadership if someone moves with his or her team there is a problem of trust or social capital issue. He may not believe the existing team and consider others are not capable and may not achieve their vision,” he added.
“On the other hand leaders may think that the existing culture may not accept them, due to that they bring their crew. This is the situation when an institution is not run by professionalism and science, sometimes it may imply that the industry has very few talented players that are moving them from one to other.”
“If it has a few change makers it shows that developing the human capital in the industry is not done properly either at the bankers association or every banks,” he added.
“If you are allowed by the board to come up with your entire crew, the board itself does not believe in its capacity and system or it is not working on talent development and succession that is questioning the board in the corporate governance angle,” he says adding “in general it is the issue of succession planning and a problem of internal system.”
“As per my knowledge; who has strong human capital development as a practice? The answer is zero except very few who are trying to develop it,” Gemechu added.
“Literally as a system there is no understanding of human capital development at banks. But if you asked them they may say they have but it is easy to measure. You have to ask them why they are hiring manger or top management from others, why the service quality is not improved at the required path and other gaps that are observed in the sector,” he asked.
Asfaw Alemu, President of Dashen Bank, said that this issue should be solved as soon as possible.
“In principle there is a perception that banks are using their two percent of recurrent budget to develop talent than taking one from another. Basically it is supposed to be looked to what extent and how banks are using the budget effectively,” Asfaw told Capital.
Forcing by the regulatory body to allocate a budget for training shows that the sector actors by themselves are not engaged in it, which is supposed to be done by them, according to Asfaw, “it shows the readiness of banks and their understanding for talent and skill development.”
“If all are working in this area seriously they will install succession planning and build talents properly when I see the principle in the big picture,” Asfaw said.
“This is not the situation to stop the trend on our SWOT analysis we have considered the talent shift,” he said. He said that it is difficult to halt it fully but you have to have a strategy to minimize the situation.
According to Asfaw, banks have to work on a strategy of succession planning to solve the challenge. Such strategy will give trust for staff and they will see futurity with their institution than migrate to other facilities with some amount of pay rise and position differences.
Dereje of Zemen Bank shared the view of Asfaw. He said that since you are not working on human capital development in your staff it reflects on executives that pushed banks to look for other institutions to hunt skilled professionals.
According to the Dereje trainings for bank executives should be given. “This is a common trend in other countries, for instance bank leaders in Nigeria get special and designed trainings for one or two months by well recognized international universities and consultants, but there is no such kind of practice here.”
The sector actors said business model, lack of creativity and the formation of family owned business culture is also the other gap in the sector, which makes banks to see their competitors.
“If you perform well in one place others will take you with better payment targeting to copy your business, take customers and implement your past culture than creating initiation to create your own business model and market, which is the result of lack of training,” Dereje said.
Gemechu strongly advised investing and hiring fresh graduates in different level to come up with new, competitive and transformative business in the sector than duplicating the usual business.
“If the new coming banks follow the usual trend and grab experts from others they will not come up with new business environment,” he says “at the end these new banks will be the banks that are still existing and only share the resource with others, because they don’t have new brain and perspective.”
Nassir Dino, founder and board chair of ZamZam Bank, accepted the idea of Gemechu about new blood but to some extent some leaders are needed at initial stage as a mentor.
Nassir reminded that about ten years ago in it’s under formation the bank has been also engaged on training for fresh graduates. “Because the sector was new at that time we have been providing training for our future staff by experts including those who come from abroad,” he reminded, before the government blocked the bank.
Now he said that there is skill in the sector and the practice expanded at least as a window, “we may not have similar challenge but we think still on new strategy and vision,” he said.
Gemechu also argued that Ethiopian Bankers’ Association (EBA) should focus on human capital development besides providing policy advice and recommendations for the government.
He said that similar association in other African countries have good experience on producing capable and quality experts in the sector.
Dereje said that the association commenced initiatives to establish training institute. He said that agreement has also been made with KPMG to design curriculums but facility is crucial, which has become difficult. “Access to land has become a challenge to establish the training center,” he said.
He insisted that the association may work for the industry as a whole, but institutions should fill their gaps by themselves.
The board and shareholders should have also long term vision besides amassing profits.
Asfaw said that other African countries have good experience regarding enabling professionals for the industry.
“There is no facility providing training in the banking industry than those graduated in economics, accounting or other similar field. Currently we are spending money for training but the quality is doubtful,” he said.
“To solve it as a nation a facility is supposed to be established,” he added.
Gemechu has also advised that banks should focus on future of work and technologies, “the major and first victim on future work will be the financial industry that seriously consider it now.”
Dereje reminded that when the banking industry boomed about a decade ago institutions have given attention for branch expansion than focus for technology.
“If it is business as usual it will continue as it is. It is only the change on name of banks not operations, but there is a perception of business uniqueness,” Nassir of ZamZam Bank, said.
The past experience will have the only option for the future economic challenge. When you think of the future business challenge is not business as usual.
According to NBE quarterly bulletin that viewed the economy for the second quarter of the 2019/20 fiscal year, the total number of bank branches has reached at 6,136.
Information Capital obtained from EBA indicated that currently about 90,000 employees are engaged in the banking industry, while the labour force annual growth rate is about nine percent.