COMMERCIAL BANK OF ETHIOPIA

 

 

A Comparative Analysis of Banking Products Between Commercial Bank of Ethiopia and Selected

Kenyan Commercial Banks.

 Prepared by: Dawit Haileyesus

Advisor: Wegayehu G/mariam

OUTLINE Background of the Study Statement of the Problem Objective of the Project Research Methodology Significance of the Project Limitation of the Project Overview of Ethiopian Financial Sector Overview of Kenyan Financial Sector Main Products of Kenyan Commercial Banks -Kenya Commercial Bank (KCB) -First Community Bank (FCB) -Equity Bank M-PESA Commercial Bank of Ethiopia (CBE) Lesson Learnt to CBE Suggested Products to CBE Conclusion Recommendations

BACKGROUND OF THE STUDY The fundamental role of monetary and

financial institutions for economic development is widely recognized by economic literature.

Basic conditions, although quite rudimentary, in financial field conducive to economic advancement were made available in Ethiopia at the beginning of the 20 century.

There are five principal events, dividing Ethiopian banking history into periods.

1st event was establishment in 1906 of the Bank of Abyssinia.

2nd event was Italian occupation in 1936, a broad colonial banking network, extended to encompass all Italian possessions in the Horn of Africa and closely linked with the metropolitan financial system.

3rd event was, in 1943, establishment of the State Bank of Ethiopia  

4th event was the revolution of 1974, nationalized companies and shaped a “socialist banking” “suited” to Ethiopia, the whole credit system being based on the central bank and three state-owned financial institutions, each of them enjoying monopoly in its respective market.

5th event was a financial sector reform and liberalization according to Monetary and Banking Proclamation of 1994.

STATEMENT OF THE PROBLEM Commercial banks assaulted by the pressures

of globalization, competition from non-banking financial institutions, and volatile market dynamics are constantly seeking new ways to add value to their services.

The purpose of this project is to identify and indicate Bank products of some selected Kenyan Commercial Banks and the gaps of CBE in relation to bank products to become world class bank in providing these products.

RESEARCH QUESTIONS Based on the purpose the project raised the following questions; 1. What are the selected Kenyan Commercial Banks product types?2. What are the main products of CBE?3. Is there any products gap between CBE and Kenyan Commercial Banks?4. How should CBE need to fill the product gap?

OBJECTIVE OF THE STUDY• The general objective of the study is to

identify product gaps of CBE to become World Class Commercial Bank by comparing with some selected Kenyan Commercial Banks.

Specifically, the study has the following objectivesTo identify Bank products of some selected

Kenyan Commercial Banks.To identify CBE’s products.To point out lessons learned from the

Kenyan Commercial Banks. AndTo suggest possible products to CBE.

RESEARCH METHODOLOGY This project mainly dependent on secondary

data and also primary data obtained from Kenyan Commercial Banks and CBE.

The method of data analysis is purely qualitative but some quantitative data analysis employed.

The source of secondary data obtained from annual reports of NBE, CBK, promotional materials and websites of CBE, KCB, FCB, Equity Bank and various research outputs in the area.

The source of primary data collected in the form of questionnaire and field observation from KCB, FCB, Equity Bank Moyale Branch officials and CBE officials from Strategy Management & Planning.

SIGNIFICANCE OF THE PROJECT

Commercial Bank of Ethiopia uses the project as an input to improve existing and develop new products from the lessons learnt from the above selected Kenyan Commercial Banks and draw a strategy to implement these products to become a world class bank by 2025.

The project will help the employees to know about banking products of CBE and the above Selected Kenyan Commercial Banks.

Other stakeholders and the general public also benefited by using for further knowledge.

Researchers uses as an input to conduct further researches on CBE and the banking sector in general.

LIMITATION OF THE PROJECT

The study constrained by resources of finance (budget are not allocated for this project work) and limited time.

Within this limited time and budget that is available to the project not all forty four Commercial Banks in Kenya were assessed because in Moyale only three Kenyan Commercial Banks are available affected the amount of data collected.

The researcher tried, as much as possible, to obtain primary data from the three selected Kenyan commercial banks and from CBE.

OVERVIEW OF ETHIOPIAN FINANCIAL SECTOR GDP grow in 2011/12, Real GDP registered a

growth of 8.8 percent compared to the 5.5 percent estimate for Sub-Saharan Africa in the same period.

Moreover, the economy expanded rapidly mirroring the performance of the economy, the growth of nominal GDP per capita rose to USD 510 from USD 389 in the preceding year, registering a 31.0 percent increase.

CONTINUED

The major financial institutions operating in Ethiopia are banks, insurance companies and micro-finance institutions.

The number of banks operating in the country during the fiscal year reached 17, of which 14 were private, and the remaining 3 state-owned.

During the fiscal year, 319 new branches were opened raising the total branch network in the country to 1,289 from 970 last year.

As a result, bank branch to population ratio declined from 65,415.83 people to 62,063.60 in 2011/12.

CONTINUED The number of bank branches in Addis Ababa,

reached 430 indicating the booming economic activities in the central city.

The total resource mobilized by the banking system increased by 16.6 percent and reached Birr 89.2 billion at the end of 2011/12.

Spurred by remarkable branch expansion, deposit liabilities of the banking system reached Birr 187.3 billion.

Demand deposits accounted for 49.3 percent of the total deposits followed by saving deposits (44 percent) and time deposit (6.7 percent).

The share of private banks in deposit mobilization is 31.9 percent. CBE alone mobilized 65.9 percent of the total deposit due to its wider branch network.

OVERVIEW OF KENYAN FINANCIAL SECTOR The Kenya economy grew by 4.6 percent in 2012. As at 31st December 2012, the banking sector

consisted of the Central Bank of Kenya, as the regulatory authority.

44 banking institutions (43 commercial banks and 1 mortgage finance company -MFC), 5 representative offices of foreign banks, 8 Deposit Taking Microfinance Institutions (DTMs), 2 Credit Reference Bureaus (CRBs) and 112 Forex Bureaus (FXBs).

During the year 2012, banks increased their branch network by 111, which translated to a total of 1,272 branches.

MAIN PRODUCTS OF KENYAN COMMERCIAL BANKS

In this section we review the main products of the following Commercial Banks and Telecom Company; Kenya Commercial Bank (KCB) First Community Bank (FCB) Equity Bank Safaricom Commercial Bank of Ethiopia (CBE)

KENYA COMMERCIAL BANK (KCB)KCB established in 1896 along east African coastline, it has grown from a simple outfit to a world class operation. The bank provides its customers and the general population with the widest branch network of over 200 outlets.

VisionTo be the preferred financial solutions provider in Africa with global reach

Mission To drive efficiency whist growing market share in order to be the preferred financial solutions provider in Africa with global reach.

VALUES

Putting the customer first Working together as a team Being professional in everything we do Willingness to change Caring for the community

Purpose When we look at Africa, we see infinite potential. Walking with our customers, we committed to making a difference through partnership and shared success. Matching local know-how with global thinking, we measure success when better banking improves lives, enabling a brighter future together.

KCB MAIN PRODUCTS AND SERVICES KCB CUB ACCOUNT KCB STUDENT PLUS ACCOUNT KCB MAPATO ACCOUNT KCB SIMBA SAVINGS ACCOUNT KCB JLINUE ACCOUNT KCB AMANA ACCOUNT KCB EASY PAY LOAN SALARY ADVANCE KCB PERSONAL LOAN MASOMO LOAN KCB BUSINESS CURRENT ACCOUNTS KCB FIXED & SHORT TERM DEPOSITS KCB MAVUNO LOAN

CONTINUED-KCB SME LOAN -KCB GRACE LOANS -KCB BIASHARA CLUB -KCB SUPPLIER’S CREDIT -BANC ASSURANCE -IMPORT LETTERS OF CREDIT -DOCUMENTARY COLLECTIONS -GUARANTEES -PRE-SHIPMENT FINANCE -BILLS DISCOUNTING FACILITY -IMPORT FINANCE FACILITY -POST IMPORT FINANCE FACILITY -STOCK FINANCING FACILITY -INVOICE DISCOUNTING -BANKERS ACCEPTANCES -VEHICLE AND ASSET FINANCE -LEASING -INSURANCE PREMIUM FINANCING-STRUCTURED ASSET FINANCE SCHEMES

FIRST COMMUNITY BANK (FCB) FCB is the youngest bank established in 2008

as the first fully fledged Sharia’h compliant bank to be licensed by the Central Bank of Kenya (CBK) to offer banking services on a fully fledged Sharia’h basis.

The bank has the branch network of 17 outlets across the region and has more than 1,200 ATM’s and 3,000 point of sale countrywide.

VISION, MISSION AND VALUES OF FCB

Vision “To be the preferred Sharia’h Compliant Financial Services Partner in all places we choose to operate.”

Mission “To operate as a responsible corporate citizen, foster growth for our customers, employees, shareholders and the community through the provision of innovative Sharia’h Complaint Financial Solutions.”

Values “Our value proposition is to be and remains ‘The home of Sharia’h compliant banking’ delivering innovative Sharia’h compliant financial products, services and solutions to our valued clientele. We stand to offer Sharia’h compliant banking services and solutions to all persons irrespective of their religion, race, color and creed.”

CORE VALUES Fairness FCB will work with all its stakeholders in a fair and honest manner. FCB will create partnerships which lead to win-win situations with all those who transact with it. InnovationFCB embraces change, flexibility and continuously adapts to a rapidly evolving world. FCB strives to continuously perpetuates excellence and provide innovative Sharia’h compliant banking solutions. In response to the dynamic needs of its clientele, FCB will look for creative, new and better ways to provide its expertise in all dimensions of business. Responsibility FCB will conduct its business with the highest standards of ethics, adherence to the law and doing what is right. FCB will exercise the highest level of responsibility in managing the financial affairs of all its stakeholders.  Sharia’h ComplianceThis is the essence of FCB’s existence and remains for FCB a commitment beyond banking. TeamworkWe are committed to supporting each other, taking collective ownership and responsibility of all we do and winning together as a team.

MAIN PRODUCTS OF FCB PERSONAL CURRENT ACCOUNTS SALARY ACCOUNT BIASHARA CURRENT ACCOUNT CORPORATE CURRENT ACCOUNT SCHOOL OPERATING ACCOUNT LULU ACCOUNT CHECK PLUS ACCOUNT UFANISI BINAFSI ACCOUNT UFANISI CHAMA ACCOUNT SAHLAH ACCOUNT BUSARA SAVINGS ACCOUNT LABBEYK ACCOUNT STUDENTS ACCOUNT

CONTINUED SCHOOL TUITION ACCOUNT INVEST PLUS (FIXED MATURITY ACCOUNT) ASSET FINANCE TRADE FINANCE REAL ESTATE FINANCE SME FINANCE FCB PROFESSIONAL PLUS LULU ADVANTAGE LPO FINANCING BORESHA MIFUGO VIJANA TUSTAWI CHECK OFF FACILITY ELIMIKA NA FCB YOUNG COMMUNITY SAVERS ACCOUNT

EQUITY BANK Equity Bank established in 1984 as a micro

finance institution but after twenty years in 2004 Equity bank reestablished as a Commercial Bank.

The bank has over 160 branches to serve eight million customers.

VISION, MISSION, PURPOSE AND VALUES OF EQUITY BANK

VISIONTo be the champion of the socio-economic prosperity of the people of Africa

MISSIONWe offer inclusive, customer focused financial services that socially and economically empower our clients and other stakeholders.

POSITIONING STATEMENTEquity provides inclusive financial services that transform livelihoods, give dignity and expand opportunities.

TAGLINE“Your Listening Caring Partner”

MOTTOGrowing Together In Trust

PURPOSEWe exist to transform the lives and livelihoods of our people socially and economically by availing those modern, inclusive financial services that maximize their opportunities.

VALUES Professionalism Integrity Creativity & Innovation Teamwork Unity of Purpose Respect & Dignity for Customers Effective Corporate Governance

MAIN PRODUCTS OF EQUITY BANK CURRENT ACCOUNTS- BUSINESS/PERSONAL EQUITY ORDINARY ACCOUNT- SAVINGS  FIXED DEPOSIT ACCOUNT FOREIGN CURRENCY- FIXED DEPOSIT

ACCOUNT DIASPORA BANKING SME LOANS MICRO BUSINESS LOANS ASSET FINANCE LOANS AGRICULTURE LOANS MERCHANDISED LOAN

CONTINUED CONSUMER ASSET FINANCE SALARY ADVANCE FLEXI-SALO EQUILOAN BANK GUARANTEES LPO FINANCING INVOICE DISCOUNTING IMPORT AND EXPORT COLLECTIONS LETTERS OF CREDIT PRE-SHIPMENT FINANCING POST-IMPORT FINANCING

M-PESA Launched in 2007, M-PESA enables customers

to transfer money quickly and cheaply without needing to have a (costly) bank account; money can be uploaded and withdrawn from a network of agents and used for transfers, bill payments, and airtime purchase.

More than 80 percent of adult Kenyans have made use of mobile money services.

M-PESA is provided by Safari-com Telecom company

SAFARICOM SERVICES (SAFARICOM+ AND M-PESA) Safaricom+ Menu Messaging Services, Internet & More, Fun, My

Account, My Services, Info Kiosk, and M-Banking Services.

M-Banking services provided currently in collaboration of nineteen Kenyan commercial banks.

M-PESA MENU Send Money; either to SIM contacts or to new

numbers. Withdraw Cash; from Agent or from ATM

(entering Agent or ATM code) Buy Airtime; to my phone or other phone. M-Shwari; Activate account and terms &

conditions. Lipa Na M-PESA; pay bill (enter business No.)

and buy goods and services (enter till No.). My Account; Show Balance (enter M-PESA Pin),

call support, change pin, secret word, language (Kiswahili or English), and update menu.

COMMERCIAL BANK OF ETHIOPIA (CBE) CBE Established in 1942 pioneer to introduce

modern banking to Ethiopia. It has more than 750 branches and more than 500 ATMs stretched across the country.

Currently CBE has more than 6 million account holders and 14,000 talented and committed employees.

VISION, MISSION AND VALUES OF CBE

Vision To become a World- Class Commercial Bank by the year 2025.

Mission We are committed to best realize stakeholders’ needs through enhanced financial intermediation globally and supporting national development priorities, by deploying highly motivated, skilled and disciplined employees as well as state-of-the-art technology. We strongly believe that winning the public confidence is the basis of our success.

VALUES -Corporate CitizenshipWe value the importance of our role in national development endeavor and step-up for commitment. We abide by the law of Ethiopia and other countries in which we do business. We care about society’s welfare and the environment. -Customer SatisfactionWe strive to excel in our business and satisfy our customers. -Quality ServiceWe are committed to offer quality services to our customers’ and aspire to be branded with quality in the minds of our customers and the general public.

-InnovationWe encourage new ideas that can improve customers’ experience and the bank’s performance. -TeamworkWe recognize the importance of teamwork for our success. We respect diversity of viewpoints. -IntegrityWe are committed to the highest ideal of honor and integrity. -EmployeesWe recognize our employees as valuable organizational resources -Public ConfidenceWe understand that the sustainability of our business depends on our ability to maintain and build up the public’s confidence.

MAIN PRODUCTS OF CBE Account Opening (Saving and Current Account) Deposit (Cash/Negotiable instruments) Payment Cheque clearance Money transfer (FCY/LCY) Local Drafts Cashier Payment Order (CPO) CBE RELIABLE VISA CARD POINT OF SALE (POS)  INTERNET BANKING MOBILE BANKING DOCUMENTARY CREDIT (L/C) DOCUMENTARY COLLECTION ADVANCE PAYMENT

CONTINUED CONSIGNMENT BASIS PAYMENT GUARANTEE FRANCO VALUTA LICENSE (PERMIT) SMALL EXPORT ITEMS LICENSE (PERMIT) OVERDRAFT MERCHANDISE LOAN FACILITY PRE-SHIPMENT EXPORT CREDIT FACILITY REVOLVING EXPORT CREDIT FACILITY SPECIAL TRUCK LOAN FINANCING SHORT TERM LOAN MEDIUM AND LONG TERM LOANS AGRICULTURAL INPUT LOAN AGRICULTURAL INVESTMENT LOAN COFFEE FARMING TERM LOAN FINANCING MICRO –FINANCE INSTITUTION’S LOAN

OTHER LESSONS LEARNT TO CBEIn addition to the variety of products and services suggested They provide indoor camera at every branch to

customers for opening both savings and current accounts for cost minimizing and security (Know Your Customer).

The formats of deposit, withdrawal and transfer from accounts are all in one format for easy accesses to their customers.

Telecom companies offer money transaction services by mobile phones without maintaining a bank account i.e. M-PESA.

Agent banking provides in Kenya as an option for customers to get banking services when the branch is not available or closed.

SUGGESTED PRODUCTS TO CBE Personal Current Account and Check

Plus Account Ufansi Binafsi account / SME account Busara savings account /savings for

special occasion account FCB Labbeyk Account / savings for Hajj KCB students plus /FCB Students/

Account KCB easy pay loan /Equity Bank Flexi-

Salo

CONTINUED Equity Bank Equiloan /FCB check off facility Salary Advance KCB Grace loan / FCB Lulu Advantage KCB SME Loan /FCB SME Finance/ Equity Bank

SME Loan KCB Masomo Loan / Elimika Na FCB School Tuition Account FCB Boresha Mifugo

CONCLUSION The two countries are in economic progress,

Ethiopia register 11 percent GDP growth rate and Kenya register 4.6 percent GDP growth rate in 2012.

There are 44 banks in Kenya and only 18 banks are operating in Ethiopia.

In 2012 fiscal year 111 new branches opened in Kenya and the total number of branch reached 1272 in Kenya and 319 new branches opened in Ethiopia and the total branches reached 1289.

The Kenyan telecom companies’ experience of financial product will help the customers to transact with mobile phones without maintaining bank accounts.

CONTINUED Most banking products offered by the above

mentioned Kenyan Commercial Banks are similar to each other and also with CBE products.

The previous chapter suggests the different products offered by Kenyan Commercial Banks but not provided by CBE.

These products can be tailored into the market, legal, technological and cultural conditions of Ethiopia.

RECOMMENDATIONS The suggested products must be analyzed

further and implemented immediately before others will take the leading to introduce these products.

Ethio-telecom and CBE must start working together in implementing technological aided financial products to the society.

CBE must periodically review the forms used for transactions of customers account and money transfer.

The software i.e. TEMENOUS must be used fully in operation for easy convenience to customers.

CONTINUED To open both savings and current accounts

Commercial Bank of Ethiopia must avails indoor camera at every branch like KCB and Equity Bank.

The formats of deposit, withdrawal and transfer from accounts of CBE must become one format for easy accesses to customers like KCB and FCB format.

In agreement with Ethio telecom CBE must take the leading role for preparing a detail procedures and legal terms and conditions for introducing money transactions by mobile phones without maintaining a bank account like M-PESA in Kenya.

Further benchmarking must be taken from these Kenyan Commercial Banks products and telecom services.

CONTINUED This project is not final and ultimate for

comparing banking products of Kenyan commercial banks with CBE products and to implement the suggested products.

Further studies and benchmarking must be undertake from other Kenyan and other countries Commercial Banks in the future for adopting best practices, helps CBE to become a World Class Commercial Bank and also to the financial sector all in all in Ethiopia.

THANK YOU