Country FilesEast & HornAwash Bank: a kitten with big claws

Mon,22Oct2018

Posted on Tuesday, 09 October 2018 15:01

Awash Bank: a kitten with big claws

By Tom Gardner in Addis Ababa

Awash Bank
The Ethiopian banking sector can be thought of as “one giant cat – the CBE – surrounded by kittens, the private banks”, according to Atnafu Gebremeskel of Addis Ababa University. But one bank stands out among the fiercely competitive litter: Awash Bank (#152).

Established in 1994, Awash was the first private bank of the EPRDF era. “In Ethiopia, the longer you stay in the industry, the better your performance,” says Abdul Mohammed, a London-based financial analyst. “There are other factors such as Awash's strong capital base, reputation, branch network and good customer services, especially to corporate customers.”

Thus, in 2016 Awash became the first private bank to net more than 1bn birr ($36.4m) in profit, and for the first time overtook its rival, Dashen Bank (#169), to become the country’s largest privately owned bank. In Ethiopia private banks tend to have ethnic affiliations, and Awash is linked to the Oromo, the largest ethnic group, in terms of ownership and lending patterns.

In 2017, Awash clocked what chief executive Tsehay Shiferaw called “the highest ever operational performance in the history of private banks”. Gross profits rose by 44% on the previous year while total deposits grew by more than a third – the largest amount mobilised in a single year in the country’s history. Shareholders’ returns were the highest amongst all banks, in a country where supernormal returns have become the norm. This is a function of protectionism and also a lack of investment in new technologies.

Awash aims to become one of the top 10 private commercial banks in East Africa by 2025. It is now investing in new cash points with the goal of doubling their number to reach about 400. Since 2016, it has also been part of a World Bank programme to improve small companies’ access to bank loans and services.

Analysts doubt a merger is on the cards for Awash, though this might be necessary should the government decide to open the floodgates to foreign competition. A large bank is unlikely to merge with a smaller one with much lower earnings per share. “There’s no culture of merging in Ethiopian banks,” notes Abdul. “They prefer to remain as they are.”

 

From the September 2018 print edition



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