Private Banks Boom on Redesign Strategy

Ethiopia's banking sector is criticized for its traditional system and lack of robust and customer-oriented services, while the market remains untapped. To rectify this, banks are redesigning strategies with the consultation of international firms. While the strategy has brought changes to the operational result of the banks, the question of uniqueness and efficiency remains up in the air.
Two years after the implementation of a new management strategy, the Bank of Abyssinia witnessed the highest operational performance score it has had since 2015.

The bank has doubled its number of deposits, loans and branches. Profits grew by two-fold from the 2015 figure of 370 million Br, as did the number of clients, which reached 478,000.

For Desta Bekalo, Abyssinia’s chief strategy officer, this is the result of their “bold move back in 2015 that has started to pay off.”

Deloitte Consulting Ethiopia, a subsidiary of the UK-based multinational, consulted on the 22-year-old bank’s restructuring. The firm specializes in audits, taxes, consulting, enterprise risk and financial advisory services.

“We began by analysing the problems we had back then,” Desta told Fortune. “We planned to reach our goal within half a decade but did it within three years of implementation.”

The strategy sets short, medium and long-term objectives and targets on changes to organisational structures, employee quality and quantity, technologies, marketing, products and the level of capital the bank must aquire.

Since the implementation of the strategy, Abyssinia has adjusted employee benefit packages and its customer services. In 2016, the bank doubled the starting salary scale of its client officers to 7,000 Br and has since opened three premium service branches.

“We have implemented customer segmentation by age, business, income and sex,” Desta said. “This helped us tap into opportunities that were neglected or overlooked by the banking sector.”

Wegagen and Awash banks have also restructured their management systems recently.

The two-decade-old Wegagen Bank undertook a restructuring program with an in-house department while outsourcing the human resource component of the strategy to Deloitte. Wegagen paid the firm four million Birr for consultations of on a competence-based, human resource framework.

Wegagen strategised in five major component areas: credit portfolio, account and treasury, human resources, technology and customer service strategies.

“We had every expertise we needed to develop it in-house when working on the strategy,” Wondiferaw Tadesse, the bank’s vice president for customer services, told Fortune. “Yet the job analysis and design needed international expertise.”

International management strategy consulting firms in Ethiopia include Deloitte Consulting Plc and KPMG. Fairfax Africa Fund LLC, Boston Consulting Group, Palladium Group and McKinsey & Company had also expressed interest in the project tender, even though their attempts bore no fruit.

In the past year, both Dashen and Nib banks have signed deals with KPMG East Africa, a wing of KPMG Management Consulting. The firm was formed in 1987 with the merger of Peat Marwick International and Klynveld Main Goerdeler.

United Bank elected to give its restructuring project to Deloitte.

These management consultations often cost 25 million Br to 30 million Br.

The consultation helps Dashen define and segment its customers and value propositions to address the demand, according to Mulugeta Alebachew, Dashen’s marketing and corporate communications director.

“We will have the structural capabilities that can support the growth of the bank,” he said. “Furthermore, we seek to put in place a performance management system linked to the strategy of the bank.”

Dashen is working on a five-year strategic plan and a ten-year road-map.

A year after hiring Deloitte for the project, Abyssinia has opened three special branches that will serve the banks high-end customers with exclusive service and products. The premier branches have a personal account management service, lounges, discussion rooms, free internet access and refreshments.

Dashen, like Abyssinia, has opened premier branches.

“Customers of the premier branch are served more elegant services,” Mulugeta said. “They are also entitled to the bank’s prestigious American Express Gold Card,” he added.

The premier branch’s customers are account holders with large deposits and corporate businesses.

Employing international consultancies or a local firm with international experience to advise banks on their management strategies is commended by experts.

“International consultants bring fresh experience, international perspectives and knowledge to the table,” said one financial expert with over three decades of experience.

Abdulmena Mohamed, a financial expert with 15 years of experience, believes they have a demerit though.

“International consultants are pricey and lack knowledge of local issues,” he argued. “They also largely give similar consultancies, making services from commercial banks similar.”

He also believes that more than profit and capital growth, performance should be evaluated based on the number and quality of new products, customers’ satisfaction, level of access to services, returns to shareholders, employee satisfaction, market share, technological utilisation and the risk exposure of banks.

Players in the banking industry though believe that the synergy between international consultancies and their in-house staff brings perspective and new ideas while also considering the country’s business environment and culture.

“Wegagen owes its success to the operational result of the management strategy,” said Wondifraw.

Wegagen, in the 2016/17 fiscal year, witnessed a significant difference in its performance since launching its strategy three years ago. Deposit levels grew by approximately 50pc from 10.2 billion Br, while the number of depositors reached 719,980 from 479,406. The number of its bank branches has doubled since 2014.

“We can also measure the competence of all employees and management based on a weighted scorecard,” said Wondifraw.

Abyssinia likewise credited their achievements to the redesigning of their strategy three years ago.

“We are now able to create a customer-oriented bank by improving the client relationship management system, retaining our employees and introducing new services,” Desta told Fortune.

Despite the success stories, the management of banks say they have had challenges while attempting to implement new strategies. The industry culture, human resource quality and internal and external environmental factors have been significant hurdles.

Implementing the strategy needs a continuous follow-up and a holistic effort to attain the goals, according to Desta.

“The lack of market discipline in the sector, human resource and leadership capabilities, and the focus of stakeholders to the strategy affects the effective implementation of strategies,” Wondifraw argues.

The financial sector in Ethiopia has gone through various ups and downs in the past half century, from nationalisation during the Dergue to liberalisation and the introduction of local private banks in the mid-1990s.

Currently, there are 16 private and two state-owned banks. By the middle of the just-ended fiscal year, total bank branches grew to 4,625, cutting the population-to-bank branch ratio to 21,000 people for every bank.

Despite improving profits, private banks suffer from tight regulations, such as a credit cap and a 27pc central bank bond purchase requirement, on every loan they disburse.

The National Bank of Ethiopia recently announced the implementation of new reforms in the financial sector.

“In our deliberation with the banks and insurance company presidents, we have delineated the fundamental problems of the sector,” Yinager Dessie (PhD), governor of the central bank, told Fortune. “We have formulated a study to undertake a sectoral reform.”

To reach a higher level of financial intermediation and improve product and service delivery, experts do believe that banks need to restructure their strategies but do so through local means.

Experts suggest that with the inevitability of significant policy shifts in the sector coming soon, banks will need to strategise anew.

“Banks should be resilient if the sector is opened up for foreign banks. They need strategies that enable them to be competitive in the global environment,” Abdulmena said.

The bank officials believe they are ready for the reforms the country might go through.

“I believe we will be ready for that day,” Desta said.

WRITTER - BEHAILU AYELE,
FORTUNE STAFF WRITER.