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- Standard: The $198B Bank 🏦
Welcome to the 84th edition of ፍራንክ Digest!
Your weekly brief on all things Finance and Investing. Quick, enjoyable reads for busy professionals in 5 minutes or less.
Here’s what’s coming your way:
⚡️BUZZ: South African Bank Breaks The Mold
📊 Economic Cycles: Ready Your Wallet For Four Seasons
🖼️ Big Picture
Thanks for reading!
BUZZ: The Jo’burg Guest Makes Landfall
Banking
The National Bank of Ethiopia took out its financial vuvuzela to call potential suitors for its first foreign banking license.
The respondent? South Africa’s banking behemoth Standard Bank Group!
For context, Standard’s total assets were $198B (R3.4t) as of July 30, 2024. For the same accounting period, CBE, Ethiopia’s big 🟪purple🟪bank, claimed that its asset were valued at $9B or ETB 1.4t.
It’s like comparing a ሲኖ to a Hilux pickup truck: the difference is visible.
Now, assets also include all disbursed loans so if you have an active account with CBE, you can contribute to the growth by borrowing some cash and bridging that gap, might feel like pinching an elbow but hey you might be doing God’s work here 👼
(Side Note: Deposits are actually liabilities because you can withdraw at any time so the bank is obligated to pay you back should you request it 😉)
A new bank, especially one from out of town, brings a lot of excitement. Change is good. And good change is even better.
For now, it just re-incorporated its representative office status under the new banking laws. But we think there’s more to it, as it eyes potential banking services.
What does this mean for Ethiopia?
Slow service, faulty mobile apps, minimum elbow space while you struggle with the unreliable Bic pen when filling out your withdrawal forms…what will happen to all these struggles now, will they start disappearing?
Well, that’s the idea: competition breeds better service delivery.
Investments in tech should go up, better financial products should be introduced and customer service should feel like the concierge at a five star ⭐⭐⭐⭐⭐ hotel. This is what we expect from the local counterparts. Well, ‘hope’ more than ‘expectation’ to be fair.
In keeping with those hopes, some of the new products/innovations that consumers should look forward to are:
For bank workers, this could also signify an opportunity to jump ship. Foreign banks would like to acquire local talent and get to work pronto.
That career ladder might start to look like a high speed elevator for a lot of hopefuls who feel safe in their current position but want to take advantage of the incoming wave of banking changes. Exposure to new financial products, better pay and an opportunity to write that famous “Thrilled to announce” post on LinkedIn can be switching factors.
LinkedIn jokes aside, inter-company brain drain from local banks might happen if incentives are not properly aligned.
Will Standard Bank and the rest make money?
Any foreign bank needs to have a minimum capital of approximately $40M (Trying to hit that ETB 5B - same as the requirements for foreign banks but payable in foreign currency).
Given Standard Bank’s assets size, that’s a piece of cake 🍰.
But entering a new market is always risky and requires patience to see any return. Ethiopia is no exception, if anything, it might be Standard’s riskiest bet yet with nationwide foreign currency shortages, high ratio of unbanked citizens, low technology penetration and limited financial literacy both from the consumer and provider side.
However, Ethiopia should see a big rise in GDP in the next few years and consumer behavior will adjust accordingly. Economies with a robust banking sector always tend to shine and that will be true if Ethiopia hits the right note in its efforts to modernize the sector.
NBE is also encouraging local-foreign partnership whereby outsiders can partner up (we assume buying stakes) with a local financial services provider. In that case, keep an eye on any bank that is standing on shaky grounds, looking for a shoulder to lean on…
Big Picture
Ethiopia is heading towards a liberalization journey that is unlike anything the sector has ever seen: the NBE’s decision to open up the banking sector has attracted a few potential institutions, amongst those is Standard Bank, which has officially been granted a banking license.
Standard’s introduction will surely have an effect on how banking is done in Ethiopia, with local competitors raising their game and new activities being introduced.
While this is the second sector that Ethiopia has opened to the world (Telecom being the first), it’s a paradigm shift that should bring optimism for consumers, bankers and the broader economy. With this massive step forward, it begs the question, will Ethiopia start becoming attractive to foreign investors?
ፍራንክ Picks
🗞️ In the news: CBE flaunts its coffers with promise of ETB 100B loan
♟️ Innovation: M-PESA right on Telebirr’s tail with the launch of ‘Lehulum’
Understanding Economic Cycles
Economy
Like most things in life, whether it’s the weather, Liverpool football team or our love-hate relationships, economies also go through ups and downs. Some seasons feel like payday Friday, others like mid-month when you’re inspecting your ሚስጥር ኪስ hoping for a miracle.
These ups and downs are what economists call economic cycles. The economy grows, sometimes it slows and our wallets feel every bit of it.
And because Ethiopia’s story is… let’s say “special edition” it’s important for career professionals and soon-to-be millionaires to understand how these cycles affect growth, inflation, job opportunities. More importantly, how we can ride the wave instead of being dragged by it.
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