Ethiopia to drop restrictions on KCB, Equity Bank


Ethiopia's Prime Minister Abiy Ahmed. AFP PHOTO

Ethiopia on Tuesday announced plans to ease restrictions on foreign banks making investments in the country, opening the door for Kenyan lenders to set up operations in the populous nation.

Ethiopian Prime Minister Abiy Ahmed said the country would open up its banking industry to foreign competition as soon as parliament passes policies permitting it.

“We will bring foreign banks because we need additional wealth and hard currency,” he was quoted saying by local media.

“Regarding this, the government is now preparing... a policy amendment. Once preconditions are met and banks are prepared, we will (implement) that.”

He, however, did not provide timelines for easing of restrictions.

This looks set to excite top Kenyan banks such as Equity #ticker:EQTY , KCB Group #ticker:KCB and Cooperative Bank #ticker:COOP who in the past decade have expressed ambitions to run fully-fledged operations in the neighbouring country.

When Abiy took office in 2018, he pledged to overhaul sectors like telecoms and financial services.

Measures to open up the telecoms sector are underway, with a consortium comprising Kenya’s Safaricom, South Africa’s Vodacom, Britain’s Vodafone and Japan’s Sumitomo building a network after obtaining an operating licence last year.

At present Ethiopia has 18 commercial lenders, two of which are state-owned, according to the central bank.

Kenyan banks have had their sights on the Ethiopian market for years due to the country’s huge population.

Its population of 110 million people -- the second-largest in Africa after Nigeria -- offers immense business opportunities.

Less than 15 percent of Ethiopians have access to a bank account, highlighting the opportunity for foreign lenders.

Kenyan banks have in the past decade aggressively opened subsidiaries in South Sudan, Uganda, Tanzania, Rwanda, and Burundi to cut their reliance on the local market.

KCB Group Chief executive Joshua Oigara earlier said that if Ethiopia’s economy were liberalised and foreign banks allowed to invest, KCB would consider partnering with a local bank.

Alternatively, he said, the bank could establish a standalone business.

KCB Group opened a representative office in Addis Ababa in 2015 to have it ready in the market when opportunities arise.

This followed the 2012 deal that allowed Kenyan banks to open representative offices but barred full banking operations in Ethiopia for direct lending and deposit-taking.

This means that the local lenders cannot generate deposits or lend directly to Ethiopian companies and households, but they can conduct research and credit assessments to allow lending from their headquarters in Kenya.

While the representative offices open opportunities for trade or export finance for local banks, the deal is seen as less lucrative compared to normal banking operations that a subsidiary would perform.

This is due to the fact that trade between the two countries is still limited, with Kenya’s exports to the northern neighbour standing at about Sh9.4 billion annually compared to Uganda’s Sh72.2 billion and Tanzania’s Sh31.8 billion.

Banks led by KCB, Equity, and Diamond Trust Bank have preferred to open subsidiaries in the regional market where they have introduced full banking services on capital investments running into billions of shillings.

A subsidiary is authorised to accept deposits from local individuals and businesses and advance loans to the same clientele.

A direct local presence, therefore, allows banks to acquire more customers and expand their loan book in the foreign market.

Equity opened a representative office in Addis Ababa in 2019. Co-op Bank said earlier it would prefer to enter the Ethiopian market through a joint venture with Ethiopia’s cooperative movement in a deal similar to its South Sudan business in which the government has a stake.

The bank said then the entry would enable it to capitalise on Ethiopia’s fast-growing unbanked population.

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