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Confidence and competence raise profits

Interview - March 15, 2016

Targeting the diaspora, farming communities and SMEs, Abay Bank’s profits have been rising on average by 78% annually, and were up 122% last year alone. Yehuala Gessesse, President of Abay Bank, outlines its strategy to reach more of the population and keep it on such an impressive growth trajectory, and why investors should take a look at Ethiopia.



Could you please discuss the attractiveness of Africa for investments and how the banking sector is taking advantage of this great momentum?

In 2007/2008 the world faced a financial crisis. Fortunately, the crisis did not impact the banking sector in Ethiopia that much. We were performing well and were working with international banks. I have been working in the banking sector for the last 16 years; I believe I know the sector very well. The banking sector in Ethiopia has been performing very well for the past couple of years. We are impacting the economic development, as banking is one of the critical sectors in achieving economic growth.

Our economic development is happening very fast. Our GDP is growing at a double-digit rate. There are a lot of opportunities for commercial banks. Our country’s population is about 90 million people, with little banking service exposure. For the past 10 years, we have been teaching our society to save more, because saving is one of the most important aspects to enhancing investment. We are trying to cover most of our investments by our domestic savings. We have been focusing on mobilizing deposits from our society, including the rural ones.

Commercial banks have been doing really well for the past 7-8 years. We have been expanding our branches. If we take our bank, on average we are opening 18 to 20 branches per year. The growth is very fast – on average our deposits are growing at 52% per year. Our loans and advances to the economy are growing at more than 100% per year. As a result, our income has grown on average by 70% per year. Profits are also growing on average by 78% per year. Our capital has increased by 250% since our establishment.

We are trying to equip banking with information technology. We have introduced core banking in all of our branches. We have also acquired mobile banking, internet banking and agent banking. We are trying to maximize our customers’ satisfaction with a focus on service excellence. Most of our branches are outside Addis Ababa as we are reaching out to the rural areas. Our society is mainly agriculture dependent. Smallholder farmers’ income and commercial farming is growing and we believe there are a lot of opportunities in that.

In order to provide unparalleled services to our customers and to be competent we are always focusing on developing our people. There are a lot of challenges in the banking sector, but the most challenging one is human capital. Given that our branches are rapidly expanding, we need to employ a lot of people. We can get qualified people from the market but we need to train them to become bankers. We have a strategy for human development. 2% of our budget goes into training and education. We are partnering with domestic and international training institutes to transfer banking knowledge to our people.

The economy is growing very fast and infrastructure is developing at an impressive speed. The roads and telecommunication development is ongoing and so there are a lot of opportunities for banks to grow. We have a good financial sector policy. We need to implement a lot of directives from our regulator, the National Bank of Ethiopia. These directives will help the financial sector to be more stable.


The Ethiopian government is starting to open the financial sector to international players with, for example, finance leases or capital goods activities. How will this affect the financial sector?

In my opinion opening the financial sector to international players will have both advantages and disadvantages. It will bring new experience and knowledge from the international markets, which will help the sector to be more competent in the international market. However, we need to enhance our capacity on banking management and service delivery so as to be competent enough. Moreover, we need to develop our supervision capacity. So we need to critically evaluate the advantages and disadvantages before opening the sector to international players.


Ethiopia is the fastest growing economy in the world and the Growth and Transformation Plan with its enormous infrastructure developments is transforming Ethiopia’s economy. How is the finance sector contributing to this astonishing growth?

The government has developed the second phase of the Growth and Transformation Plan (GTP2). The financial sector has also developed a five-year strategy in alignment with GTP2. We have developed our own strategy both on our financial measures and human resource development.

The number and amount of foreign direct investment is increasing. Moreover, the government is developing industrial parks, which will help to increase FDI. We know which banking services will need investors. We have most of the required banking technology and we are exerting every effort to enhance it.

Therefore, the financial sector will continue contributing to the development of the economy, especially in supporting investment, enhancing the saving culture in society, stabilizing the economy, and other banking activities.


In its first year of operation (2010-2011), Abay Bank obtained a net profit of 24.2 million birr ($1.1m). In the year ended June 30 2015, the bank registered a gross profit of 168 million birr, showing a growth of 122% (92.3 million birr) on the previous year. What were the reasons for this impressive performance and what do you expect from this fiscal year?

The major factors that contributed to the growth in profit were increased loan provision, enhanced foreign currency earning of the bank, and proper cost management. We have a lot of programs to raise foreign currency. One of them is diaspora banking. In this scheme, if Ethiopians and people of Ethiopian origin living abroad wanted to have their own residential house in Ethiopia and be able to deposit a portion of the building price in foreign currency in our bank, we provide a loan to partially cover cost of the build. The source of foreign currency in Ethiopia is remittance and export. We provide exporters with the required facility. We provide credit and other services based on their demand and our policy and procedures. We have a good number of exporters. We have a remittance agreement with many transfer agents. We have correspondent banks in Europe, America and the rest of the world.


The foreign currency generation of the bank grew an impressive 117% last year. Please elaborate on how you will work in order to generate even more forex income.

So far it has been going well. If the exports go as planned, our performance will continue to be good. We anticipate more exports as coffee exports will start after mid-year. We expect our market share from that export will be increased.


Your bank has been undergoing an aggressive sale of shares. What is the response from the pubic?

We are selling shares. We have fulfilled the minimum requirements of the National Bank of Ethiopia before the due date. The public has a good trust in our bank. We have already sold 100,000,000 birr from June up till now. We have an authorized capital of 1 billion birr and will increase to 2 billion soon. The public has good confidence in us.

What is your marketing strategy for the coming years? Are you promoting the bank internationally?

We are promoting our services both locally and internationally. We are especially promoting our diaspora banking and remittance services to the international markets. We try to add more features to our diaspora banking to attract more of the diaspora. We are assessing real estate companies who will work with us. We have an agreement with one listed Chinese company (Tsehay Real Estate). We are looking for more trustworthy real estate developers who can work with us. We plan to promote more and include other features that will be important to customers.


You will celebrate your sixth anniversary this November. What moments or milestones would you highlight in these six years of activity?

Deposits mobilization is good and growing very fast. It is growing 52% per year, which is impressive growth. We managed to increase our capital within a short period of time to the required level. We have a good number of customers. The bank introduced the core banking technology that is important for customers to expedite the services we provide. Moreover, the bank acquired card banking, mobile and internet banking technology. I think these are some of the milestones.

We have a good number of employees and we have established a good system as a bank. We are growing very fast. Our asset quality is good: our non-performing loan rate is below 2%.


Abay Bank is a responsible bank giving back to society though youth and education programs, among others. Which do you personally feel the most proud of?

We believe that we are giving back to the society. For instance we are partly funding residential buildings for a farmers’ association located in Amhara Region, “Bura Nest”, which will serve as a model for other farmers in collaboration with other stakeholders. It will help to improve the living standards of farmers. We are also participating in educational projects.


You are providing the farmers with houses, and hopefully in the future they will also become small and medium enterprises. How are you boosting Ethiopia’s SMEs in the sector?

Yes, we are also working with farmer cooperatives and unions. We are providing loans with low interest rates. We have a plan to expand this program because there are a lot of opportunities in farming. I hope we will increase our activity in that area. I think we will work together and we will work for the betterment of the farmers.


Ethiopia and the UK have had long and fruitful relations, and you yourself studied at Greenwich University. What is your assessment on the current diplomatic and commercial relations of both countries?

We have a good relationship. There are a lot of Ethiopians living in the UK or obtaining their education there. We have a strong relationship with the UK. The investment is increasing too. We have a good feeling about doing business with UK.


What message of confidence would you like to convey to the UK audience?

The economy is growing very fast and the infrastructure is developing at an impressive speed. We have qualified employees with reasonable prices. Our working environment is improving. The government is trying to improve the efficiency of the civil service. The banking sector is good at collaborating and we have every possible service to offer. There are a lot of opportunities to invest in Ethiopia. There are a lot of untouched resources in different sectors, such as the manufacturing sector, export sector and mining. Every sector has potential.

We have good, trustworthy people living in a stable, peaceful country. Ethiopia is suitable for investment. There are a lot of satisfied foreign investors that we are working with. I would like to invite everybody to come and invest in Ethiopia.

I want to invite Ethiopians and people of Ethiopian origins who are living abroad to save their money in our bank so that they can acquire their own house.


Where do you want to see Abay Bank in five years’ time under your mandate?

I have solid experience in the banking sector. This bank is one of the most competent banks in Ethiopia. We are a profitable bank with excellent service and satisfied customers. We want to increase our customer base. We are trying to build a bank with an international standard of service. We already have a plan to achieve this ambition in the next five years. We want to be the bank of choice for Ethiopians and foreign investors.