Tsehay Bank Business Plan

TSEHAYBANKSHARECOMPANY(UNDERFORMATION)
Final Report-2
On
BankBusinessPlanforFiveYear
December,2020
FinalReport
TableofContents
EXECUTIVESUMMARY..............................................................................................V
I. ANOVERVIEWOFBLOBALBANKINGINDUSTRY......................................................1
II. MACRO-ECONOMICANALYSIS...................................................................3
2.1 GENERALCONTEXT......................................................................................................................... 3
2.2 ECONOMICGROWTH....................................................................................................................... 4
2.3 SECTORALCONTRIBUTIONTOGDP...............................................................................6
2.4 FUTUREOUTLOOK.......................................................................................................................... 8
2.5 DEVELOPMENTSININTERESTRATES................................................................................................ 11
III. FINANCIALSECTORANALYSIS.................................................................12
3.1 OVERALL..................................................................................................................................... 12
3.2 FINANCIALSECTORINSTITUTIONS................................................................................................. 13
3.3 INSURANCECOMPANIES................................................................................................................ 27
3.4 MICROFINANCESECTORANALYSIS................................................................................................. 28
IV. BUSINESSENVIRONMENT.......................................................................30
V. MARKETFORBANKINGSEREVICES.............................................................32
5.1 SUPPLYOFBANKING SERVICE........................................................................................................ 32
5.2 DEMANDFORBANKINGSERVICE..................................................................................................... 33
5.4DEMANDANDSUPPLYGAPFOR BANKINGSERVICES............................................................................ 35
VI. THELEGAL FRAMEWORK.........................................................................37
6.1 LICENSINGREQUIREMENTSOFTHEBANKINGLAW.............................................................................. 38
6.2 REGULATIONANDSUPERVISION..................................................................................................... 41
6.3 IMPLICATIONOFTHELEGALFRAMEWORK.......................................................................................... 42
VII.THEESTABLISHMENTOFTSEHAYBANKS.C.(UNDERFORMATION)......................43
7.1 BACKGROUND............................................................................................................................. 43
7.2 VISION....................................................................................................................................... 43
7.3 MISSION..................................................................................................................................... 43
7.4 OBJECTIVESOFTHEPROPOSEDTSEHAYBANK................................................................................... 44
7.5 COREVALUES.............................................................................................................................. 45
7.6 MAJORFUNCTIONSOFTHEBANK..................................................................................................... 45
7.7 SHAREHOLDERS........................................................................................................................... 47
7.8 CAPITAL...................................................................................................................................... 47
VIII. PROPOSEDORGANIZATIONALSTRUCTUREANDMANAGEMENT.......................48
8.1PROPOSEDORGANIZATIONSTRUCTUREANDMANAGEMENTSYSTEM..................................................... 48
8.2.FUNCTIONALDESCRIPTIONOFTHEDIFFERENTORGANS..................................................................... 49
IX. STRATEGICANDOPERATIONAL PLANS.............................................................77

9.1 CLIENTTARGETINGSTRATEGY...................................................................................................... 77
9.2 STRATEGIESFORREACHINGCLIENTS............................................................................................. 77
9.3 MANAGEMENTANDOPERATIONALSTRATEGIES............................................................................... 79
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X. PRODUCTSANDSERVICES.................................................................................86
10.1 LOANPRODUCTS........................................................................................................................ 87
10.2 OPERATIONALSTRATEGIES......................................................................................................... 97
10.2.1 DEPOSITSMOBILIZATION........................................................................................................ 97
10.3 FOREIGNBANKINGSERVICES...................................................................................................... 99
10.4 TRANSFER SERVICE................................................................................................................... 99
10.5 GUARANTEE SERVICES............................................................................................................... 99
10.6 INTERNATIONAL MONEYTRANSFERSERVICES................................................................................ 99
10.7 OTHER INNOVATIVESERVICEPRODUCTS...................................................................................... 99
XI. TECHNOLOGICALCOMPETENCIES...................................................................100
11.1 BANKINGTRENDSWORLDWIDE................................................................................................. 101
11.2 IMPORTANCE OFTECHNOLOGYINBANKING.................................................................................. 101
11.3 SIXCORECOMPETENCIESFORANEWRETAILBANK........................................................................ 102
XII.ACCOUNTINGPRINCIPLESANDPOLICIES.......................................................105
12.1 PRINCIPLES............................................................................................................................ 105
12.2 ACCOUNTINGPOLICIES............................................................................................................. 107
12.3 REQUIREMENTSBYBANKINGBUSINESSLAW................................................................................ 108
12.4 ADOPTIONOFIFRS9.........................................................................................108
XIII.PROJECTIMPLEMENTATIONSCHEDULE.........................................................110
XIV. ASSUMPTIONSFORFINANCIALPROJECTIONS...............................................111
14.1 GENERALASSUMPTIONS........................................................................................................... 111

14.2 SPECIFIC ASSUMPTIONS.......................................................................................................... 111
XV. FINANCIALPROJECTIONS..............................................................................112
15.1 INVESTMENT REQUIREMENTSAND COSTESTIMATES................................................................... 112
15.2 PROPOSEDSOURCESOFFINANCE.............................................................................................. 112
15.3 FINANCIALRESULTS................................................................................................................ 113
15.4 RATIO ANALYSIS..................................................................................................................... 115
15.5 SENSITIVITYANALYSIS............................................................................................................. 117
XVI. CONCLUSIONSANDRECOMMENSATIONS......................................................118
16.1 CONCLUSIONS........................................................................................................................ 118
16.2 RECOMMENDATION.................................................................................................................. 120
16.3 RECOMMENDEDIMPLEMENTATIONSTRATEGIES.......................................................................... 121
ANNEX-1:BASICASSUMPTION FORFINANCIALANALYSIS....................................122
ANNEX-2:ESTIMATEDUNITPRICESOFINVESTMENT ITEMSAT HEADOFFICE..........124
ANNEX-3:ESTIMATEDUNITPRICESOFINVESTMENT ITEMSAT BRANCHES.............125
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LLISTOF TABLES
TABLE1:ETHIOPIA:SECTORALCONTRIBUTIONSTOGDPANDGDPGROWTH............................................................. 7
TABLE2:ETHIOPIA-ECONOMICFORECASTS-2020--2022..................................................................9
TABLE3:AVERAGEANNUALINFLATIONRATE(PERCENT).....................................................................11
TABLE4:INFLATIONVSACTUALINTERESTRATESTRUCTUREFORTHEPERIOD2012-2019...............................12
TABLE5:BRANCHDISTRIBUTIONBYREGIONANDOWNERSHIP............................................................................... 22
TABLE6:CAPITALOFTHEBANKINGSYSTEMATTHECLOSEOFJUNE30…..............................................................................22
TABLE7:ANNUALRESOURCEMOBILIZATIONBYPRIVATECOMMERCIALBANKSASATJUNE30...........................................23
TABLE 8:OUTSTANDINGLOANSANDADVANCESOFPRIVATE COMMERCIALBANKS........................................... 24
TABLE9 : LOANSAND ADVANCESBY ECONOMICSECTOR, FORTHEYEARSENDINGJUNE30, 2014-2019(INMILLIONS
OF BIRR)...........................................................................................................25
TABLE10:GROWTHRATEOFNUMBEROFBRANCHESANDTOTALCAPITALOFINSURANCECOMPANIESIN
ETHIOPIA,2013-2019...........................................................................................27
TABLE11:PERFORMANCEOFMICROFINANCEINSTITUTION(INTHOUSANDSOFBIRR).....................................29
TABLE12:ADULTPOPULATIONPERBANKBRANCHOFSELECTEDCOUNTRIES,2010-2018...............................33
TABLE13:INTERESTRATESTRUCTUREOFCOMMERCIALBANKSFORTHEYEARSENDINGJUNE30...........................95
TABLE14:TSEHAYBANKS.C.ESTIMATEDINVESTMENTCOSTS(BIRR)....................................................112
TABLE15:AMOUNTSBYSOURCEOFFINANCE,TSEHAYBANKS.C...........................................................112
TABLE16:TSEHAYBANKS.CPROJECTEDBALANCESHEET.................................................................................. 113
TABLE17:TSEHAYBANKS.C,PROJECTEDPROFITANDLOSSSTATEMENT(BIRR)..................................114
TABLE 18:TSEHAYBANKS.CPROJECTEDCASH FLOW(ETB.......................................................115
TABLE19:TSEHAYBANKS.CPROJECTEDFINANCIALRATIOS.............................................................................. 116
TABLE 20:CAMELRATIOS................................................................................................................... 117
TABLE21:SENSITIVITYANALYSIS.................................................................................................................. 118
ListofFigures
FIGURE1:GDPINBILLIONSOFUSDOLLARS....................................................................................................................... 4
FIGURE2:GDPANNUALGROWTH RATE(%)...........................................................................................5
FIGURE3:ETHIOPIA GDPPERCAPITA(USD).........................................................................................5
FIGURE4:GDPPERCAPITAPPP.........................................................................................................6
FIGURE5:DEPOSIT MOBILIZEDINMILLIONSOFBIRR........................................................................................................ 23
FIGURE6:ANNUALGROWTHRATEOFLOANSOUTSTANDING............................................................................................... 24
FIGURE7:PRIVATEBANKSPROFITFIRTHEPERIOD13/14-1920....................................................................26
FIGURE8:NUMBER INSURANCEBRANCHES FIGURE9:TOTALCAPITALINSURANCECOMPANIES.................28
FIGURE10:PERFORMANCEOFMFIS................................................................................................................................ 29
FIGURE11:PROJECTED POPULATION TO 2030BASEDON2007POPULATIONCENSUS.......................................................... 34
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ACRONYMES/ABBREVIATIONS
BoD : Board of Directors
CAMEL : Capital, Asset. Management,
LiquidityCEO : ChiefExecutiveOfficer
CBE : Commercial Bank of
EthiopiaCBO : Cooperative Bank of
OromiaDBE : Development bank of
EthiopiaGDP : GrossDomesticProduction
FX : ForeignExchange
GTP : Growth and Transformation
ProgramIT : InformationTechnology
MFI : MFI Micro Finance
InstitutionNBE : NationalBankofEthiopia
NIB : NIBInternationalBank
NPL : Non-PerformingLoan
ROA : ReturnonAssets
ROE : Return onEquity
S.C : ShareCompany
SSA : Sub-SaharanAfrica
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EXECUTIVESUMMARY
Developments in Global Banking Industry

The global banking industry has been stable since the recovery from the financial
crisis. Despite, the stability, there is a fear that the global environment such as
technological, economic, geopolitical, and demographic and climate changes might
challenge the profitability of the industry. The unexpected, outbreak of COVID-
19,towards the beginning of 2020 has also impacted on profitability and credit
management of the global banking industry. Hence, Tsehay Bank S.C. (Under
Formation) which is planning to operate within these global environments must be
watchful of the changes that might take place and be prepared to respond by
developing appropriate strategies for minimizing their negative impacts.
The Ethiopian Economy
The policy measures undertaken to liberalize the financial sector in the early
1990shave encouraged the entry of private banks into the financial sector and
stimulated competition. In response to these measures, private banks have been
emerging and increasing in number from year to year, which currently stands at
16.The demand for banking services is increasing in rural and semi-urban areas as
the result of stimulated economic growth expanded business activities. Very
recently the basic banking laws have been amended to fine-tune the regulatory
framework and improve prudence in banking activities.
Tsehay Bank S.C(Under Formation)
The proposed Tsehay Bank S.C (under Formation) is a profit making Commercial
Bank to be established for the provision of diversified and efficient banking services
in all parts of the country. Its objectives are to provide efficient, effective and state
–of-the art banking service to customers, including advisory services for the
potential investments in macro and micro enterprises owned by individuals ,
business organizations and other business entities.
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The shareholders of the Bank are private innovators and organizations that have
natural and legal entity. Most of the promoters are committed innovators and
experienced professionals desiring to bring the bank into reality. While it’s
subscribed capital is Birr 2.0 billion and paid up is Birr 500million. It is envisaged
that the bank will establish ten branches in the first year with at least one branch in
each sub-city of Addis Ababa City Administration. It is expected that the branch net
work will expand to 100 over a period of five years covering regional and zonal
towns of the country. The special vision of the bank is that it will focus on rural area
of the country, targeting growth oriented small and medium enterprises, known as
the “middle layer” of the industrial sector.
Financial Results
Theenvisagedtotalinvestmentsinfixedassetsduringthefirstyearareabout 62.8
million,whichwillIncreaseto Birr253.4millionduringthefifthyear.
TheprojectannualoperatingcostsareestimatedtobeaboutBirr102.9millionduringthefirst
year,whichwillincreasetoBirr612.6millionduring thefifthyear.
The projected balance sheet shows that the total assets of the Bank will grow
fromBirr 2.6 billion in the first year to Birr 19.7 billion in years 5. Its total capital will
alsogrow from Birr 562.2 million at the end of the first year to Birr 4.0 billion during
thefifthyear.
The projected income Statement shows that the Bank will earn a net profit after
taxof Birr 62.2 million during the first year of its operations which is projected to
reachBirr 662.7millionduring thefifthyear.
Based on the basic assumptions made for the financial analysis, the two
majorprofitability indicators,ROA and ROE are foundto be sound comparedto
theinternationalstandardof1.5%.ThereturnonAsset(ROA)isfoundtobe2.4%duringthe
first year of its operations which will increase to 3.7% by the fifth
year.ThereturntoEquityisalsofoundtobe11%duringthefirstyearwhichwillalsoincreaset
o 17%during the fifth year of its operations which is also favorable. Similarly ,
theearningpersharewillincreasefrom12%duringthefirstyearto22%duringthefifthyear,
whichisfavorable.
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ConclusionsandRecommendedActions
The assessment of the global banking trend, overall Ethiopian economy in

generalandthefinancialsectorinparticularhasshownthatthepotentialforbankingbusines
sis still untapped. More specifically, the rural sector in Ethiopia is under banked.
Onthe other hand, the economy is growing and the demand for financial services
invarious forms is increasing. All existing banks are striving to meet the demand
forfinancial services, but they are all far from these expectation. To-date, both
theprofitability and return on equity of the capital invested in the purchase of
bankshares are attractive even though they may contract as the number of
banksincreases over time, which requires development of business strategies to
remain inthemarket.
The availability of unmet demand for the financial services in the country,
emergingbusiness activities that need the support of a dedicated financial institution
that isefficient, effective and profitable as proved by the financial results, and
interestshown by the committed innovators and professionals to promote the
establishmentoftheBank,theestablishmentofTsehayBankS.C(UnderFormation)isinord
er.Tothis end, the following are recommended for action by the Organizing
Committeeduringitsestablishmentprocess.
 PrepareactionplanforthevariousactivitiesfortheestablishmentoftheBankandfixt
hedateforstarting ofoperations;
 Select office sites and rent offices in advance,for immediate

commencementofoperationsfollowingregistration;
 SelectthechiefExecutiveOfficer andkeyofficersfollowingtheNBEdirectivesbased
ontheCriteriasetbytheNationalBankofEthiopia;
 PrepareapplicationtoNBEfollowingNBEdirectivesfor obtaininglicense;
 Designmechanismsforshorteningoftheregistrationprocess withcourt;
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 Facilitate the legal registration of the Company and obtaining of

operationlicensefrom theNBE;
 Simultaneously, purchase the office equipment and furniture required

inadvance;
 Recruit and trainstaff for the Head Office and Branchesto be established
inadvance;
 Providecustomerneedsorientedservicesandtothisend,developinstitutionalcultur
e that is responsive and that can make a difference in the provision
ofservices.
 SelectandputinplaceanappropriateMIShardwareandsoftwareattheearlystagesa
nd planfortheprocessstageofitsintroductionandimplementation;
RecommendedImplementationStrategies
 Start with Twenty branches in Addis Ababa and in regions with high
potentialduring the first year and with additional new branches each year
followingZonalandWoredalevelsduringearlyyearsandthenexpandtootherregion
altownsand woredatownsyearbyyear.
 OrganizingstrongPlanningandBusinessDevelopmentDepartmentandconducting
applied research to identify appropriateand innovative
productsandservicesusingdigitalizationfrom theinitial stage;
 Listeningto customers and offering the best services continuously ;

anddetectingandrespondingtoemergingriskfactorsusinganup-to-
datemanagementinformationsystem.
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I. ANOVERVIEWOFBLOBALBANKINGINDUSTRY
Thefearintheglobalbankingindustryisthatanewwaveofdisruptionmoreforcefuland
more pervasive than the past financial crisis of 2008, may likely unfold in thenext
decade1. While the roots of this disruption may be technological,
economic,geopolitical,demographicorenvironmental:remainthesame,theuniqueconve
rgence of these factors may unleash unprecedented change in the
broadersocietyand economy, and, consequently, inthebanking industryaswell.
Meanwhile,ontheeconomicfront,persistentlowgrowth,lowinflation/deflation,andnear-
zero/negativeinterestrates—
arearealpossibilityformanyadvancedeconomiesthatmighthavematerialconsequencesf
orgrowthandprofitabilityintheglobalbankingindustry.
Furthermore, fundamental demographic changes across the globe may likely
altergrowth dynamics significantly. Moreover, aging populations in advanced
economiesaswellasemerging
countriesmayalsostresssocial,political,andbusinesssystemsinwaysthathavenotbeense
enbefore.
As feared, the outbreak of COVID-19 pandemic towards the beginning of 2020

hasalreadyimpactedonprofitabilityandcreditmanagementofthebankingindustry.Thelo
winterestratescenario,alongwiththesignificantimpactoftheCOVID-19pandemic, is
reducing the core banking profitability in mature markets the financialinstitutions of
which are thus shifting towards commission-based income from otherpaymentsand
techbusinesses.
12020bankingandcapitalmarketsoutlook
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ByValSrinivas,Jan-ThomasSchoeps,TiffanyRamsay,RichaWadhwani,SamiaHazuria,AarushiJa
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One of the immediate effects of the health emergency on the real global economy
isthe increased credit risk of corporate and retail clients of the banks. In order
tocontinue financing the real economy and support its recovery, banks are called
todistinguish between purely temporary phenomena, destined to be reabsorbed in
ashort time, and longer lasting impacts which would require actions of
managementandreclassification.Moreover,thecontractionineconomicactivityishavinga
dverseconsequencesoncreditqualityasbanksareincreasing loanlossprovisions.
Last but not least, concerns about climate change and social impact will force
banksto reprioritize their role in society and sacrifice short-term gains for long-
termsustainability.Thecombinedeffectsoftechnologicaldisruption,sweepingchangestot
henatureofwork,demographicshifts,climatechange,couldhaveseriousimplications for
the global banking industry. The low-growth scenario, in
particular,couldresultinadrasticreductioninbankingcapacity,withfewerbanksthanthata
reabletodaytorecovertheircostofequity.Institutionsthatlackscaleordifferentiatedcapab
ilities,inmostcases,maylikelybechallenged.
Theseforcescanalsochangehowbankingisdone.Bankingshouldbecomemore
open,transparent,real-time,intelligent,tailored,secure and
deeplyintegratedintoconsumers’livesandinstitutionalclients’operations.
Despite what happens in the environment, banks should remain true to their
coreidentity as financial intermediaries: matching demand with supply of capital.
Banks’competitive advantages should continue to be their ability to manage risk
andcomplexfinancialmatters,conductingbusinessinahighlyregulatedmarket,drivinginn
ovation to serve client needs, protecting clients’ privacy, and maintaining trust,all at
scale. No matter what, banks will remain trusted custodians of customers’assets.
For the banking industry to flourish identifying six macro themes that should
becriticalforlong-termgrowthareCustomercentricity,regulatoryrecalibration,
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technology management, mitigating cyber risk, digitalization and re-orientation
ofworkForce.TsehayBankS.C(UnderFormation)tooperateintheglobalenvironmentreali
tymustbeawareofthisglobalphenomenon.
II. MACRO-ECONOMICANALYSIS
2.1 GeneralContext
Ethiopia,thesecondmostpopulouscountryinAfricaisastatewithamixedeconomy.Accordi
ngtoofficialestimatesEthiopiagrewataratebetween8%and11%annuallyin the last one
decade and has been among the fastest growing 188 IMF membercountries 2. This
growth was driven by government investment in infrastructure, aswell as sustained
progress in the agricultural and service sectors. More than 70% ofEthiopia’s
population is still employed in the agricultural sector, but services havesurpassed
agriculture as the principal source of GDP 3. Ethiopia has the highest levelof income-
inequality in Africa and one of the lowest in the world, with a Gini co-efficient
comparable to that of the Scandinavian countries. Yet despite progresstoward
eliminating extreme poverty, Ethiopia remains one of the poorest countriesin the
world, due both to rapid population growth and a low starting base.
Changesinrainfallassociatedwithworld-
wideweatherpatternsresultedintheworstdroughtin 30 years in 2015-16, creating
food insecurity for millions of Ethiopians. The stateis heavily engaged in the
Economy. Ongoing infrastructure projects include powerproduction and distribution,
roads, rails, airports and industrial parks. Key sectorsare state-owned, including
telecommunications, banking and insurance, and
powerdistribution.UnderEthiopia'sConstitution,thestateownsalllandandprovideslong-
term leases to tenants. Title rights in urban areas, particularly Addis Ababa,
arepoorlyregulated,andsubjecttocorruption.Ethiopia’sforeignexchangeearningsareled
by the services sector - primarily the state-run Ethiopian Airlines - followed
byexports of several commodities. While coffee remains the largest foreign
exchangeearner,Ethiopiaisdiversifyingexports,andcommoditiessuchasgold,sesame,k
hat,livestockandhorticultureproductsarebecomingincreasinglyimportant.
2
CIAfactBook,2019
3
SeeTable1
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Manufacturingrepresentedlessthan8%oftotalexportsin2016,butmanufacturingexports
shouldincreaseinfutureyearsduetoagrowinginternationalpresence.Thebanking,insura
nce,telecommunications,andmicro-
creditindustriesarerestrictedtodomesticinvestors,theGovernmentfinalizedandpublishe
dthecurrent2016-20five-year Growth (GTPII), known as the Growth and
Transformation Plan II, whichemphasizes developing manufacturing sectors
whereinEthiopia has a
comparativeadvantage,suchastextilesandgarments,leathergoods,andprocessedagric
ulturalproducts. To support industrialization, Ethiopia plans to increase installed
powergenerationcapacityby8,320MW,upfromacapacityof2,000MW,bybuildingthreem
oremajordamsandexpandingtoothersourcesofrenewableenergy.In2017,theGovernme
nt devalued the Birr by 15% to increase exports and alleviate
chronicforeigncurrencyshortageinthecountry.
2.2 EconomicGrowth
2.2.1 HistoricalDevelopment
Economic growth is customarily measured in terms of GDP growth, Annual
GrowthRate (%), GDP per capital, and GDP per capita PPP. According to official data
fromthe World Bank and projections from Trading Economics, the GDP value of
Ethiopiarepresents 0.08 percent of the world economy during the period 1881-
2020. TheGross Domestic Product (GDP) in Ethiopia was worth 96.11 billion US
dollars in2019,
Figure1:GDPinBillionsofUSDollars
2010-2020
2.2.2 GDPAnnualGrowthRate
TheeconomyofEthiopiagrew6.1percentinthe2019/2020fiscalyear,theweakestexpansionsinc
eacontractionwasobservedin2002,mainlyduetotheimpactofthe
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Covid-
19pandemic.Itcompareswithanearlierestimateofa10.8percentgrowthbeforeEthiopia'sf
irstreported caseofthenewcorona virus.
Figure2:GDPAnnualGrowthRate (%)
2010-2020
Source:WorldBankData
2.2.3 GDPPerCapita
According to the World Bank data the Gross Domestic Product per capita in
Ethiopiawas last recorded at 602.20 US dollars in 2019. The GDP per Capita in
Ethiopia isequivalentto5percentoftheworld'saverage.
Figure 3:EthiopiaGDPPerCapita(USD)
2.2.4 EthiopiaGDPPerCapita PPP

Based on the World Bank Data, the Gross Domestic Product per capita in
Ethiopiawaslastrecordedat2219.70USdollarsin2019,whenadjustedbypurchasingpowe
rparity (PPP). The GDP per Capita, in Ethiopia, when adjusted by Purchasing
PowerParityisequivalentto12percentoftheworld'saverage.
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Figure4:GDP perCapitaPPP
2010-2019
2.3 SectoralContributiontoGDP
According to NBE annual reports, the Ethiopian Economy which had exhibited
9.9percent average annual growth during 2012/13- 2016/17, registered 10.9
percentgrowthin2016/17,depictingrecoveryfromchallengingmacroeconomicandweath
erconditions of the previous year. The registered growth rate in real GDP was
0.2percentage point lower than base case scenario GTPII target set for the fiscal
yearalthough it was significantly higher than 2.6 percent average growth estimated
forSub-SaharanAfrica (WorldEconomicOutlookUpdate,October 2017).
ThegrowthinrealGDPwasmainlyattributedto10.3percentgrowthinservices,6.7percent
in agriculture and 18.7 percent in industrial sectors (Table 1).Nominal GDPper
capita rose to USD 863 depicting 7.8 percent improvement over the previousyear.
The Ethiopian Economy was projected to grow by 11.1% in 2017/18 in contrast

toIMF’s forecast of 3.7 percent growth for the world and 3.4 percent for Sub-
SaharanAfrica(SSA),
(WEO,andOctober2017.In2016/17,theagriculturalsectorexhibited
6.7 percent growth rate which showed recovery from El- Nino effect of the
previousyearwhichmerelysaw2.3percentexpansion.Yet,itwas1.3percentagepointlowe
rthanthe8percenttargetfortheyear.
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In 2017/18 and 2018/19, the real GDP grew by 7.7% and 9% , respectively,
whilethe Agriculture sector’scontribution to GDP growth was only by 1.3% during
eachYear.However, industry contributed to GDP growth 3.1% in 2017/18 and 3.6%
in2018/19.ThecontributionoftheservicesectortoGDPgrowthwas8.8%and11.0%during
2017/18and2018/19,respectively,depictinggreatercontributionofthesub-sector.
Table 1: Ethiopia: Sectoral Contributions to GDP and GDP
GrowthFortheYearsEndingJune30,-----(InBillionsofBirr)
Items 2012 2013 2014 2015 2016 2017 2018 2019
Agriculture 222.9 238.8 251.8 267.8 274.0 573.1 600.9 623.8
Sector Industry 59.6 73.9 86.5 103.7 125.0 404.3 464.4 526.2
Services 237.0 259.0 292.0 325.0 353.0 620.2 673.9 745.7
Total 519.5 571.7 630.3 696.5 752.0 1,597.6 1,739.2 1895.

7
LessFISIM 3.0 3.0 4.0 4.0 5.0 20.5 19.8 21.0
RealGDP 517.0 568.0 627.0 692.0 747.0 1,577.1 1,719.5 1874.
7
GrowthinRealGDP (%) 8.7 9.9 10.3 10.4 8.0 10.9 7.7 9.0
PercapitaGDP (USD)(Nominal) 523 559 640 725 794 863.0 883.0 985.0
GrowthrateinPercapitaGDP 32.2 6.8 14.4 13.4 9.5 7.8 0.9 11.6
Mid-yearpopulation(inmillions) 82.7 84.8 87.0 89.1 91.2 93.4 95.5 97.6
Agriculture 43.1 42.0 40.2 38.7 36.7 36.3 34.9 33.3

ShareinGDP(
In %) Industry 11.5 13.0 13.8 15.0 16.7 25.6 27. 28.1
Service 45.9 45.5 46.6 47.0 47.3 39.3 39.2 39.8
Agriculture Absolute 4.9 7.1 5.4 6.4 2.3 6.7 3.5 3.8
Growth
Contribution 2.2 3.1 2.3 2.5 0.9 2.5 1.3 1.3
toGDPgrowth
Contributionin% 25.3 31.2 22.3 24.0 11.3 22.9 16.5 14.6
Industry Absolute 19.6 24.1 17.0 19.8 20.6 18.7 12.2 12.6
Growth
Contribution 2.1 2.8 2.2 2.7 3.1 4.4 3.1 3.6
toGDPgrowth
Contributionin% 24.1 27.9 21.4 26.0 38.8 40.4 40.7 39.5
Services Absolute 9.6 9.0 13.0 11.2 8.7 10.3 8.8 11.0
Growth
Contribution 4.4 4.1 5.8 5.2 4.0 4.0 3.4 4.1
toGDPgrowth
Contributionin% 50.6 41 56.3 50.0 50.0 36.7 43.9 45.8
Source:PlanningandDevelopmentCommission
2.3 DevelopmentChallenges
Ethiopia’smainchallengesaresustainingitspositiveeconomicgrowthand
acceleratingpovertyreduction,whichbothrequiressignificantprogress injob
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creation, aswellasimprovedgovernance4.Thegovernmentisdevotingahighshareof its
budget to pro-poor programs and investments. It is evident that large
scaledonorsupportwillcontinuetoprovideavitalcontributioninthenear-termtofinancethe
cost of pro-poor programs. Key challenges of the Ethiopian economy are relatedto:
 Ethiopia has been experiencing the unprecedented social and economic impact
ofthe COVID-19 pandemic. The shock is expected to be transitory with
potentialrecovery possible in 2021, but the overall adverse economic impact on
Ethiopiawillbesubstantial.TheeconomicimpactofCOVID-
19includestheincreasedpriceofbasicfoods,risingunemployment,slowdowningrowth,
andincreaseinpoverty.
 Ethiopia has been experiencing the worst locust invasion in decades. This
mayundermine development gains and threaten the food security and livelihoods
ofmillionsofEthiopians.
 Political disruption, associated with social unrest, could negatively impact

growththroughlowerforeigndirectinvestment, tourismandexports.
 Limitedcompetitiveness,whichconstrainsthedevelopmentofmanufacturing,thecreat
ionofjobsand theincreaseofexports.
 Anunderdevelopedprivatesector,whichwouldlimitthecountry’stradecompetitivenes
sandresiliencetoshocks.Thegovernmentaimstoexpandtheroleof the private sector
through foreign investment and industrial parks to
makeEthiopia’sgrowthmomentummoresustainable.
2.4 FutureOutlook
Despite the above development challenges, Ethiopia aims to reach lower-middle-
incomestatusby 2025.Ethiopia’seconomyexperiencedstrong,broad-basedgrowth
4
WorldBank,2020
TsehayBankS.C Page9
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averaging 9.8% a year from 2008/09 to 2018/19; Ethiopia’s real gross
domesticproduct (GDP) growth rebounded to 9% in 2018/19. However, the World
Bank cutsits forecast for Ethiopia‘s economic growth in 2020 fiscal year to 6.3%,
well belowthe government’s projections. Growth is expected to slow due to tighter
fiscal andmonetary policy stances aimed at containing inflation.Inline with the
government’saim the forecast by Trade and Economics 5 (Table 2) showed that the
Ethiopia’s GDPannualgrowthratewillbe9%in2022.
Table2: Ethiopia-EconomicForecasts-2020--2022
Indicators Actual Forecast

2020 2022
GDPAnnualGrowthRate(%) 6.10 9
UnemploymentRate(%) 19.10 21.3
InflationRate(%) 18.20 8
InterestRate(%) 7.00 7
BalanceofTrade(USDMillion) -1745.8 -2950
CurrentAccount(USDMillion) -211.0 -1520
CurrentAccounttoGDP (%) -4.50 -5.3
GovernmentDebttoGDP (%) 57.00 62
GovernmentBudget(%ofGDP) -2.50 -3.5
CorporateTaxRate(%) 30.00 30
PersonalIncomeTaxRate(%) 35.00 35
Source:TradingEconomics
2.4 Inflation
Accordingtoseveralstudiesintheliterature,inflationismeasuredbyConsumerPriceIndex
annualpercentage growth andisbelievedto have anon-linearinverserelationship with
growth and the finance-growth nexus. As inflation rate exceeds
acertainthreshold,ithasanegativeandadverseeffectonfinancialsectorperformance.Ther
e are evidence in the literature that inflation affects the lendingactivitiesofbanksand
financialmarketperformanceofacountry.
2.4.1 ImpactofInflationon CommercialBanking

Inflationraisesinterestrates.Higherinterestratesprovidemoreopportunity(spread) for
banks to build in a profit margin. At the same time, their costs of funds(depositors)
also go up which can reduce profits.Also, Interest Rates tend to
risewithinflationbutthebanks’costsoffunds(whattheypaydepositors)lag,providingspre
ad.Anegativeeffectfrominflationistheuncertaintythatitcausestothe
5
https://tradingeconomics.com/ethiopia/forecast
TsehayBankS.C Page10
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consumers.Thisuncertaintyleadstonotmakelargeinvestmentsandhenceborrowing less
from the commercial banks.This decreases the profitability ofcommercial banks.
Inflation transfers money from savers as creditors. Here the impact is that they
losepurchasingpower.Thiscancreateanincentivetospendmoneyor, under
thewrongconditions, a disincentive to invest money in things that would otherwise
be good inthe long run. On the contrary, the effect of inflation on debtors is positive
becausedebtors canpaytheirdebtswithmoneythatisless valuable.
The promoters of Tsehay Bank, S.C. are aware of these impactsof inflation and
arecommittedtoputinplaceamanagementthatissmartenoughtousethetricksneededtob
alanceits negativeandpositiveimpacts.
2.4.2 InflationTrendinEthiopia
The three main components of the consumer price index in Ethiopia are: Food
andNon-Alcoholic Beverages (54 percent of total weight); Housing and Utilities
(16.8percent)andClothing&Footwear(5.7percent).Othersinclude:Restaurants&Hotels
(5.3 percent; Alcoholic Beverages & Tobacco (4.9 percent); Furnishings,
HouseholdEquipment and Routine Maintenance of the House (4.7 percent);
Transport
(2.5percent)andMiscellaneousGoods&Services(2.5percent).Communication,Health,R
ecreation & Culture and Education account for the remaining 4.1 percent of
totalweight6.
In Ethiopia, the average annual inflation rates, for the period 2014/15 to
16/17shows stable movement for the general, food & and non-alcoholic beverages
as wellas no-food (Table 4).In 2017/18the annual average national headline
inflation atthe end of the fiscal yeardepicting7.2 percentage points increase over
2016/17.Similarly,averageannualinflationrateforfoodandnon-
alcoholicbeveragesincreased by 6.2 percent while non-food increased by 8.1 over
that of 2016/17.However,Annualizedfood&non-
alcoholicbeveragesinflationslightlyscaleddownto
6
CentralStatisticalAgency
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13.1 percent from 13.4 percent in2018/19 due to a significant decline inprices
ofbread & cereals, fruits, foodproducts not classified elsewhere and non-
alcoholicbeverage. Meanwhile, annual average non-food inflation dropped by 3.9
percentagepoints to11.9percenton
accountoflowerinflationofalcoholicbeverageandothers
.Similarly,year-on-year,headlineinflationdroppedto15.3percentfrom16.8percent a
year ago as non-food inflation declined by 9.7 percentage points to
10.2percentcounterbalancingthe5.7percentageincreaseinfood&non-
alcoholicbeverages inflation to 19.8 percent. In 2019/20, however, the average
annualinflationrateescalated to22.6Percent.
Table3:AverageAnnual InflationRate(Percent)
YearEndingJune30…
Item 2015 2016 2017 2018 2019

General 7.8 9.7 7.2 16.8 15.3
Food & non- 7.4 11.2 7.3 14.1 19.8

Alcoholicbeverages
Non-Food 7.9 8.1 7.1 20.0 10.2
Source:NBEAnnualReports,2015/16-2018/19
2.5DevelopmentsinInterestRates
The National Bank of Ethiopia has raised the minimum interest rate that
financialinstitutions pay on saving and time deposit by 2.0 percentage points to 7.0
percentsince October 2017. As a result, commercial banks have revised their
interest ratestructure. Consequently, average interest rate on savings deposit was
set at 8.0percent, which remained unchanged compared to previous year. Similarly,
simpleaveragelendinginterestratereached13.5percentandremainedthesamevis-à-
vislast year same period. In contrast, weighted annual average interest rates on
timeand demand deposits showed a slight change and reached 8.07 percent and
0.04percent, respectively. Given the high inflation rate, all real interest rates
werenegative.Annualheadlineinflationdeclinedto15.4percentfrom16.8percent.Thus,a
veragerealinterestratestoodatnegative7.4percentforsavingdeposit,7.33
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percent for time deposit and negative 1.9 percent for lending interest rate.
Detailsareshownintable5.
Table4: InflationVSActual InterestRateStructurefor thePeriod2012-2019Year

Ending June30...
2013 2014 2015 2016 2017 2018 2019

1.DepositRates
1.1.SavingsDeposit(SimpleAverage) 5.38 5.38 5.38 5.38 5.38 8.00 8.00

Minimum 5.00 5.00 5.00 5.00 5.00 7.00 7.00
1.2.Timedeposit(WeightedAverage) 5.66 5.66 5.77 5.59 5.54 8.09 8.07
Upto1year 5.57 5.57 5.71 5.53 5.43 8.05 8.02
1-2years 5.68 5.68 5.78 5.60 5.57 8.10 8.07
Over2years 5.74 5.74 5.81 5.64 5.63 8.13 8.11
1.3.DemandDeposit(WeightedAverage) 0.03 0.00 0.04 0.04 0.04 0.04 0.04
2.LendingRate(Average) 11.88 11.88 11.88 12.75 12.75 13.50 13.50
Minimum 7.50 7.50 7.50 7.50 7.50 7.00 7.00
Maximum 16.25 16.25 16.25 18.00 18.00 20.00 20.00
3. T-bills(Nominal) 1.86 1.59 1.43 1.44 1.42 1.42 1.74
4.HeadlineInflation(Year-onYear) 7.4 22.4 10.4 7.5 8.8 16.8 15.4
5.RealRateofIntereston:
5.1.SavingDeposit(1.1-4) -2.03 - -5.03 -2.13 -3.43 -8.80 -7.40
17.07
5.2.TimeDeposit(1.2- 4) -1.74 - -4.64 -1.91 -3.26 -8.71 -7.33
16.79
5.3.Lending(2- 4) 4.47 - 1.47 5.25 3.95 -3.30 -1.90
10.57
Source:NBEAnnualReport2018/19
III. FINANCIALSECTORANALYSIS
3.1 Overall
Ethiopia’sfinancialsectorisinitsinfancy,dominatedbythestate-ownedCommercialBank
of Ethiopia (CBE), with about 57 percent of deposits and 45 percent of
profitsfromthetotalof18lenders7.Overthepastdecade,theDevelopmentBankofEthiopiaa
lsosupportedenterprisesandprojectswithinindustriesdeemedtobeimportantforthe
national economy. These included the textile, commercial farms and sugarfactories.
7
Gebretsadik,FinancingforEthiopia’sdevelopment,November3,2020
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Since2018,efforthavebeenmadetorevamptheeconomicpolicyframeworktoshiftaway
from a state-led development model to one led more by the private sector
aspartof“HomegrownEconomicReformAgenda”.Thenewapproachfavorsamarket-
based financing model for the private sector while allowing the state to
keepaccessing concessional financing from development partners to fund
infrastructurespending.
The “Homegrown Economic Reform Agenda” aimed to create the “fiscal space”
forfurther public investments in infrastructure, human capital, and institution
buildingthatareneeded to leverageprivatesectorinvestment.
Inthepasttwoandhalfdecades,NBEregulationsweredesignedtocheaplyfundthegovernm
entbudgetdeficitsandfacilitatemuch-neededpublicinvestmentbykeepinginterest rates
artificially low. The focus on public investment-driven growth modelhasreachedits
limits and resultedinmajorimpedimentsforamarket-basedallocationoffinancial
resources, severelyimpacting privatebusiness.
However, critically, a private sector-led economy is dependent on a well-

functioningfinancial system and a prudent monetary policy that starts with a
targeted inflationrate. Hence, a market-based funding model is required for the
private sector toensure pricing mechanisms in the allocation of financial resources
driven by supplyanddemand forriskcapital.
Itisinrecognitionofthesefactsthattheauthoritiesstartedrevampingthemonetarypolicy
and financial sector regulatory frameworks and shift away from the
pastfundingpolicies.
3.2 FinancialSectorInstitutions
ThemajorfinancialinstitutionsoperatinginEthiopiaarebanks,insurancecompaniesandmi
cro-
financeinstitutions.Thenumberofbanksoperatinginthecountryreached18followingthee
stablishmentoftwonewbanksin2010.In2012,twoprivatebankshavealsocometothescen
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e,namelyEnactBankS.CandGlobalBankS.C,thusbring
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the total number of banks operating in the country to 18.In terms of
ownership,sixteen are private commercial banks, and the remaining two are state-
owned,namelytheCommercialBankofEthiopia(CBE)andtheDevelopmentBankofEthiopi
a(DBE). In 2017/18, the total number of bank branches has reached 4757 from
4257in the previous year (2016/17). The total number of branches of private banks
hasreached 5,564 as of June 30, 2019 (Table 8). As a result, bank branch to
populationratiostoodat1:20,286peoplein2017/188and.About35.3percentofthetotalba
nkbrancheswerelocated inAddisAbaba.
3.2.1 TheBankingIndustry
It was in 1994 that the GOE allowed the establishment of private banks
andinsurancecompanies;however,itisonlyrecentlythatforeignownershipispermittedin
this sector through Proclamation No. 1159/2019.The Ethiopian banking sector
iscurrentlycomprisedofacentralbank,theNationalBankofEthiopia(NBE)),onestateowne
d development bank, and a state owned commercial bank and sixteen privatebanks
in operation. One Islamic banking namely Zemzem, has also recently
startedoperationbringing thetotalofprivatecommercialbanksto17.
Under the Growth and Transformation Plan II (GTP II), NBE planned to increase
theminimum capital for banks to operate to 2 billion Birr and instructed all
commercialbanks to increase their capital to that amount by 2020. However, only
ten of thesixteen private banks, namely: Awash, Dashen, Abbysinia, Wegagen,
United, NIBCBO, Oromia International and Berhan banks are likely to surpass this
limit. Thoughforeign banks are permitted to provide financial services in Ethiopia,
this did notmaterialize to-date.Ethiopia has allowed a small number of foreign banks
to openliaison offices in Addis Ababa to facilitate credit to companies from their
countries oforigins. Accordingly, Chinese, German, Kenyan, Turkish, and South
African bankshaveopened liaisonofficesinEthiopia.
8
NationalBankofEthiopiaAnnualReport2017/18
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Based on the most recently released data 9, the Commercial Bank of Ethiopia
(CBE)holdsmorethan60percentoftotalbankdeposits,bankloansandforeignexchange.N
BEcontrolsthebank’sminimumdepositrate,whichnowstandsat7percent,whileloan
interest rates are allowed to float with maximum reaching 20%. Real
depositinterest rates have been negative in recent years due to inflation, which
stood at 11percentinmid 2019.
The state-owned Commercial Bank of Ethiopia (CBE) dominates the market in

termsofassets,deposits,bankbranches,andtotalbankingworkforce.Theothergovernme
nt-
ownedbankistheDevelopmentBankofEthiopia(DBE),whichprovidesloanstoinvestorsop
eratinginprioritysectors.DBEextendsshort,medium,andlong-term loans for viable
development projects, including industrial and agriculturalprojects. DBE also
provides other banking services such as chequeing and
savingaccountstoitsclients.TheDBEhasbeenplaguedforyearsbyaportfoliowithahighper
centageofnon-
performingloans(NPL’s),inefficientcapitalallocation,andcorruption.TheBankiscurrently
undergoinganextensiverestructuringprocess.
Moreover, NBE aims to foster monetary stability and a sound financial

system,maintaining credit and exchange conditions conducive to the balanced
growth of theeconomy. NBE may engages with banks and other financial institutions
in
thediscount,rediscount,purchase,orsaleofdulysignedandendorsedbillsofexchange,pro
missory notes, acceptances, and other credit instruments with maturity
periodsnotexceeding180daysfromthedateoftheirdiscount,rediscount,oracquisitionbyt
he bank. The bank may buy, sell, and hold foreign currency notes and coins
andsuchdocumentsandinstruments,includingtelegraphictransfers,astheyarecustomar
ilyemployedininternationalpaymentsortransfersoffunds.Lackofaccessto finance is a
significant constraint for local businesses. In 2015, NBE
allowedcommercialbankstoprovidemobilebankingserviceandagentbanking.Pursuantt
o
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9
NBEAnnualReport2017/18
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NBE’spermit,manyofthecommercialbanks10,
havehenceaddedmobileandagentbankingintheirlineofservices.
3.2.1.1 BankingIndustryinEthiopia:PESTELAnalysis
TheuseofPorter’sframework,(PESTL)givesagoodinsightintotheforcesthataffectthe
banking Industry in Ethiopia for the Promoters of Tsehay bank S.C
(Underformation).
The banking industry is a fairly fragmented and made up of various

segmentsincluding retail banking. During the period from 1994 to 2021, the retail
bankingsegmenthadseensignificantgrowthinEthiopiaandisexpected
togrowevenfasterafter2021.
Opportunitiesforgrowthinthecountryarealsohugeastherearemajoropportunities for
the banking Industry because of the opening of space for Islamicbanking as well as
the conversion of Microfinance institutions to banks.Apart fromthese trends there
are several other forces and factors too that also influence thegrowth and business
of the banking industryin the country. Growing middle classincome, increased
technology usage, legal and regulatory factors and in this
wayseveralforcesimpactthebankingIndustry.HereisaPESTELanalysisoftheBankingindu
stry that analyses the impact of these forces on the industry and its growth
inEthiopia.
 Political factors
Political factors acquire a very important role in the context of the banking
andfinancialservicessector.Banksbeingtheleadingrepositoriesofthepublic’ssavings,the
government believes that banks must be regulated through the Central Bank(The
National Bank of Ethiopia) but banks complain that strict regulation has
oftenbeencriticizedforhinderinggrowth.Itisevidentthatthereisconflictofobjectives
10
FromreviewofprivateBanks’annualreports
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between that of the Government and Banks. Government’s objective is to

maximizesocialwelfare, while that of banks is maximizing profit fortheir
shareholders.Understanding this conflict of objectives by Tsehay Bank S.C (Under
formation) iscentraltodesigningofitsstrategic plans.
 Economicfactors
Banks and economic growth are interrelated. A growing economy is good for
thebanking industry and a healthy banking industry can be good for the
country’seconomy. In fact, the banking industry is leading economic growth of
Ethiopia.Inthe 21st century, the banks have emerged as important players
facilitating
businessgrowth.Theyhaveemergedascriticalpartnersforsmallandlargebusinesseshelpi
ngthem with loans, consumer transactions and several other things which is true
inEthiopia as well.While on the one hand, their health depends upon the state of
theeconomy, on the other, the economy’s health depends upon the operations of
thebankingindustry.Hence, botharecomplementary.
 Social factors
Socio-
culturalforcestoocanhaveadeepimpactonthebankingindustryinEthiopia.Changing
social trends and people’s preferences can affect the business and growthof the
banking brands. Consumer demographics and people’s attitudes towards
theuseoffinancialserviceshavealsochangedtosomeextent.Businesseswhethersmallorb
igaremoreopentotakingfinancialassistancefrombanks.Consumerconfidencehas
surged owing to economic factors but socially to the acceptance
ofbankingserviceshasrisen.
 Technological:
Technologyisnowvirtuallyeverywhereinthe21stcentury.Alargepartofthetaskscarriedou
tbythebanksarecarriedoutonlinethoughnotwidelyspreadinEthiopia.Technology has
added convenience to banking. However, some issues have
alsoarisenamidallthistechnologicaldevelopmentandinnovationofwhichthepromotersof
TsehaybankS.C(Underformation)haverecognized.Privacyandsecurityconcernshave
also grown bigger with the rising use of technology.Banks have to spendsignificantly
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large sums on the maintenance of a large technological
infrastructure.Applicationsarenowcommonandcustomerscanusethemanytimefromthe
ir
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smartphonestoshopandpayonline.Theseapplicationsarefulloffeaturesandmakeiteasyt
opaybills onlinebutcarryhugeissuesofsecurityas well.
 Legal
ThebankingIndustryinEthiopiaisgovernedbytheNationalBankofEthiopiathroughbankin
gBusinessProclamationNo.592/2008andamendedbyProclamationNo.1159/2019 and
several other directives issued by NBE from time to time
inincludingDirectiveSBB/71/2019.WhiletheCommercialCodeof1960asamendedin2021
are the basis, the Ethiopia labor law are also applicable. Hence, the
bankingindustryisimpactedbytheselaws.Customerconcernsandsocialresponsibilityhav
ealsomadethegovernmentintroducelaws.ThepromotersofTsehayBankS.C(underforma
tion) do realize that the banking industry is a heavily regulated area
wherecompliancerequires alotoffocusandalsospending.
3.2.1.2 InternalAnalysis
SWOT analysis (or SWOT matrix) is a strategic planning technique used to help
anorganization identify strengths, weaknesses, opportunities, and threats related
tobusiness competition or project planning. It is with this understanding that
Tsehaybank S.C (Under formation) employed the technique to assess the current
situationofthebankingindustryinEthiopiaanditsopportunitiesinforeseeablefuture.There
are many positives associated with the banking industry in Ethiopia though, as
thisSWOTanalysisofthebankingindustrywillexplain.Here,thestrengths,weaknesses(ch
allenges), opportunities, and threats related to the banking industry, now and
inthefuture.
 Strengths
Ethiopianbankingindustry,whichusedtobetraditionallydominatedbythestateforover
half a century—the last three decades brought blessing news of opening up ofthe
sector for private operators in 1994, during which 16 more banks joined
theindustry,whichusedtobedominated
bythreestateownedbankssince1909.Sincethen, thanks to the firm monetary policy of
the National Bank of Ethiopia (NBE), allthe privately owned banks in the market
have survived until the present time withnooneexperiencing
symptomssuggestingpossiblebankruptcy.
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In Ethiopia,the banking Industry is a leader in economic growth.It is because

ofbankingIndustrythatwehaveseensuchdoubledigiteconomicgrowthininEthiopia,partic
ularlyinthelasttwotothreedecades,followingeconomicliberalizationin1994.Since then,
supply and demand have fostered this growth and also improved trade,financial
stability, and financial security. It may also be among the
factorsbehindincreasedemploymentand thereductionofpoverty.
Banking has taught most of if not all of the Ethiopian people about the value
ofmoney, provided access to loans to businesses to reach their dreams, and
provideda hostofotherservicesrelatedtocreditcards,savings, andbonds.
The banking industry has provides financial support after a crisis. After
experiencinga loss or natural calamity, the banking industry helps customers get
back on theirfeet. The best example in Ethiopia is the role played bythe banking
industry torehabilitatebusinessesinthehighly
affectedsubsectorssuchashotelsandtourism.
Though it is at an infant stage, the banking industry in Ethiopia is trying to

providedigital banking convenience.It’s now easier than ever to do banking online
to payyourbills,withdrawcashwithATMcardwithoutsteppingfootintoyourbank’sbranch.
 Weaknesses
The banking industry in Ethiopia in general and the private banks in particular
arestrugglingwithseriouschallengesofshortageofforeigncurrencyduetothelowlevelofex
portsfrom thecountry.
There is also shortage of skilled workforce, because of the absence

ofspecialized instruction in the country that caters for skills required by
thebanking industry. As a result, there exists high rate of staff attrition
ratewithintheindustry.
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Financial instability—which may emanates from negative real
interestrates, and the lack of competition in the banking sector—may
contributetoincreasinglybecominganaggregateofthosechallenges.
Rural areas in Ethiopia do not have access to banking services, because of

conflictsbetweengovernmentandbankingobjectives.Thelackofaccessisbecauseprovidi
ngservices to rural areas can be more trouble than it’s worth financially, arising
fromthelackofrequired infrastructurebybanks.
 opportunities
Individuals’preferencetobuysharesinthebanksduetothefactthattheyhave
more trust in the banking sector than in other sectors in
Ethiopia.Consequently, banks in Ethiopia can still mobilize more shares as
they stillappearmoreprofitablethanotherbusinessareas
Another factor which directly influences the performance and “blossom”

ofthe banking Industry is the size of the banking sector. Given the small
sizeofthemarket(nowabout20banks)andthepopulationof110millionthereis
no doubt the industry is experiencing such growth levels. Because thesize
of the banks in the industry is very small and the population of thecountry
is very big, there is a huge opportunity for selling services to thepublic.
Furthermore, the growing number of middle income households and

thevast number of new businesses have also created fertile grounds for
thebanks.Thesupplyforfinancing,evenonthedomesticside,isalsoveryhighbec
auseofmanyinfrastructureprojectsandmanyfactoriesunderconstruction, but
the supply from the bank side cannot keep up with thedemand.
For the time being, the bad loans are not that much risky. Even
thoughtherearebadloans,thesizecanbemanagedbecauseweknowthatthe
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size of bad loans as a whole in Ethiopia is not as worrying as one
wouldthink. There is no such threatening situation for the banking sector
as awhole because there is a strong regulatory issue for recognizing the
badloans.
 Threats
The issue of competitiveness within the industryalso seems to be at
itsinfancylevel.Thesectorislaggingintermsofintroducinglatesttechnology
and others. Even though most of the Banks have
startedofferingATMservices,theexistingATMservicesareproblematic.
Thelackofcompetition,whichhasbecomeafactorforthesurvivalofthelocal
banks and a source of headache for customers, may persist if
theEthiopiannegotiatorsmanagetogetaWTOaccessionwithoutopeningupth
e sector. The strength of the banks will continue untilthey are able
tocompete with international banks. Ethiopian banking sector is thus at
acrossroads; it has to choose whether to remain competitive within
anuntapped sector or open up the space for the international
bankingcommunity.
Through appropriate strategic planning, Tsehay Bank S.C (Under Formation) will
toovercome the weakness , exploit the opportunities with in the industry and
convertthethreatstoopportunities.
3.2.2 OverviewsofPrivateBankingSector
3.2.2.1 BranchNetwork
Duringtheearlydaysoftheeconomicliberalization,thestateownedbanksdominatedtheba
nkingsectorintermsofbranchnetworkaswellascapitalownership.However, the private
banks network surpassed that of the public banksin 2007/08 reaching 298, while
that of public banks stood at 268.Since then,
thedominationofpublicbanksintermsofbranchnetworkacrossthecountryended.Bytheen
dof2018/19totalbranchnetworkofprivatebanksreached3898,whilethosepublicbanks
stoodat1685.
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Therecentperformancesofprivatecommercialbanksindicatethat497newbrancheshaveb
eenopenedin2017/18whichincreasedthetotalnumberofbranchesto3,275from 2,637 in
2016/17 and 5564 in 2019/19. The branch network grew at
averageof27%overthepastfour years. Thedetailsareshownintable 6below.
Table5:BranchDistributionby RegionandOwnership
Ownership 2016 2017 2018 2019
Rgs AA Tl % Rgs AA Tl % Rgs AA Tl % Tl AA Tl %
Public 994 266 1260 38.2 1134 286 1420 33.4 1154 328 1482 31.2 1,338 347 1685 30.3
Banks
Private 1153 888 2041 61.8 1723 1114 2837 66.6 1,926 1,349 3,275 68.8 2,302 1,577 3,879 69.7
banks
Total 2147 1154 3301 100 2857 1400 4257 100 3,080 1,677 4,757 100 3,640 1,924 5,564 100
Source:NBE AnnualReports,2016-2019
It is apparent that other private banks have been expanding their physical
branchesandintroducingdigitizedbankingservicesascustomervalueproposition.Mobilea
ndwallet banking and internet banking are being popularised among the public
andcorporateorganisations.Paymentsofelectric,waterandtelephonebillsareswitchedto
banks that have already launched wallet and mobile banking
services.Corporateentitieslike the EthiopianAirlines are
networkingwiththosebanksthathavelaunched online services through internet
banking. Top up services through
mobilebankinghavebeenappreciatedbythosecustomerswhohaveenjoyedsuchservices.
3.2.2.2 CapitalGrowth
PublicBanksremaineddominantoverthatofprivatebanksintermsofcapitalinthebankings
ystemwiththeexceptionoffewyears.In2015/16thecapitalofbothpublicandprivatebanks
wasBirr43.1billion,whichgrewto78.0billionin2016/17,and
85.8 billion in 2017/18. Total capital of the banking industry increased by
18.4percent and reached Birr 101.4 billion as of June 30, 2019. The Capital of
privateCommercialbanksgrewbyabout26%peryearovertheperiod2013/14to2018/19.
Detailsareshownintable7,below.
Table6:CapitaloftheBanking System attheCloseofJune30…

(Millionsof Birr)
Ownership 2016 2017 2018 2019
Tl % Tl % Tl % Tl %
PublicBanks 21,058.3 48.9 50,174.7 64.4 51,528.3 61.1 57,394.4 66.6
Privatebanks 22,002.5 51.1 27,788.1 35.6 34,222.8 39.9 44,004.2 43.41
Total 43,060.8 100 77,962.8 100 85,751.1 101.0 101,398.6 110.01
Source:NBEAnnualReports, 2015/16-2018/19
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3.2.2.3 ResourceMobilization
Annual Resource Mobilization by Private Commercial Banks in the form of
depositsduring the period 2013/14 to 2018/19 is shown in table 8. The deposits
mobilizedwere in the form of demand, savings and time. While demand and saving
depositsaccounted for 28% and 57%, respectively, time deposit accounted for 15%
onaverage for the six years. This clearly shows that private commercial banks
favorsaving deposits to the other forms from the point of view cost. Demand
deposit is anon-interest bearing and the cheapest, but is a short time resource.
Time deposit iscostly, but can be used for filling resource gap. Therefore, Tsehay
Bank S.C.
(UnderFormation)willweighthecostsbenefitsofeachtypeofdepositinordertomaximizeits
profit.
Table7:AnnualResourceMobilizationbyPrivate CommercialBanksasatJune30….
(MillionsofBirr)
Deposits 2014 2015 2016 2017 2018 2019 Annual
Average
Demand 3,994.4 7,089.8 7,670.4 13,670.4 19,106.5 18,046.6 11,596.4
Savings 3,685.0 15,305.6 16,374.8 31,979.6 46,194.7 56,379.1 28,319.8
Time 2,613.2 3,628.3 4,771.0 8,669.1 9,016.9 5,887.1 5,764.3
Total 10,292.6 26,023.7 28,816.2 54,319.1 74,318.1 80,312.8 45,680.4
Percent
Demand 39% 27% 27% 25% 26% 22% 28%
Savings 36% 59% 57% 59% 62% 70% 57%
Time 25% 14% 17% 16% 12% 7% 15%
Total 100% 100% 100% 100% 100% 100% 100%
Figure5:DepositMobilizedinMillionsofBirr
PrivateCommercialBanks
60,000.00
M 50,000.00
illion 40,000.00
s 30,000.00
E Demand
TB 20,000.00
SavingsTime
10,000.00
0.00
YearEndingJune30..
3.2.2.4 LoansandAdvances
Table 9 below shows the amounts of outstanding loans of private commercial

banksinEthiopiafortheyearsendingJune30oftherespectiveyears.Astheannualgrowthrat
es and average growth rates of 37% show, the demand for loans and advance
ishighindicatingthatPrivatecommercialbanksneedtodevelopstrategiesforresource
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mobilizationthefilltheresourcegap.TsehayBankS.C(UnderFormation)isawareofthisfact
andwilldevelopstrategiesforresourcemobilizationfromvarioussources.
Table8:OutstandingLoansandAdvancesofPrivateCommercialBanks
YearEnding BillionsofBirr
June30… Disbursements Outstanding
2009 12.7 17.7
2010 14.7 21.3
2011 48.0 35.2
2012 34.4 31.7
2013 21.0 44.7
2014 21.1 52.7
2015 33.6 73.8
2016 38.4 92.0
2017 60.6 134.6
2018 67.2 182.1
2019 36.9 25.0
2020 44.7 33.6
Source;Annual ReportsofPrivateCommercialBanks
Figure 6: Annual Growth Rate of Loans

OutstandingPrivateCommercialBanks
70%
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
YearEndingJune30..
3.2.2.5 LoansandAdvancesbyEconomicSector
The Outstanding Loans and advances by economic sector at the end of 2013/14-
2019/20 years are shown in table 9 below. The average amount of the
outstandingloansandadvancesforthesevenyearsshowsthattheindustrialsectorreceived
thebiggest proportion (31%), while mines, power and water sector received the
lowest.Theindustrysectorisfollowedbydomestictrade(13%),andHousingandconstructi
on, and mines, power and waterwhich also received 11% and
11%,respectively.IExportreceived10%followedbyimports(7%)andagriculturalsectors
andTransportandcommunicationswhichreceived5%and5%,respectively.The
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tabledepictsthatHotelandTourism, received 2%onlywhichwasunderfinanced
ascomparedtoothersectors.
Table 9 : Loans and Advances by Economic Sector, for the years
EndingJune30, 2014-2019(InMillionsofBirr)
%
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Average
Share
Agriculture 15,815.00 14,401.30 20,377.50 20,041.80 19,511.80 20,387.10 21,087.30 18,803.11 5%
Industry 67,219.40 18,579.80 106,164.00 129,977.70 154,904.40 188,676.90 221,731.90 126,750.59 31%
Domestic
16,399.20 86,212.30 28,550.60 41,830.10 44,945.30 65,405.90 87,819.10 53,023.21 13%
Trade
Export 13,312.00 17,581.30 23,028.40 30,017.50 47,774.10 66,128.70 89,219.40 41,008.77 10%
Import 19,267.60 25,722.60 28,878.00 22,190.20 30,202.50 36,106.50 44,851.40 29,602.69 7%

Hotelsand
3,562.80 3,590.60 4,818.80 5,852.80 9,856.60 13,740.50 17,576.70 8,428.40 2%
Tourism
Transportand
5,278.80 7,289.00 10,026.10 14,275.40 13,826.90 12,355.00 68,741.80 18,827.57 5%
Communication
Housingand
19,802.00 22,529.10 28,080.80 37,970.60 43,572.60 51,308.70 115,534.00 45,542.54 11%
Construction
Mines.Power
546.7 844.7 851.8 225.1 221.9 1,632.30 303,992.30 44,044.97 11%
andwater
Others 6,033.50 7,827.70 10,297.70 16,373.40 23,044.30 5,907.20 11,436.40 11,560.03 3%
Personal 1,052.00 1,796.90 2,779.60 4,252.80 6,695.20 40,754.20 50,212.70 15,363.34 4%
Total 168,289.00 206,375.30 263,853.30 323,007.40 394,555.60 502,403.00 1,032,203.00 412,955.23 100%
PercentGrowth
rate 23 28 22 22 27 105 38
Source:AnnualReportsofNBE,2013/14-2019/20
3.2.2.6 ProfitabilityofPrivateCommercial Banks
According to the new research paper released by a private equity firm,

CephuesInvest Advisory,the 16 private banks have for the first time grossed 17
billion Birrcollectively (figure 8), while CBE’s profit for the year stood at 14 billion
Birr duringthe year ended 30 June, 2020.The research also showed that Private
Banks havesteadily increased their market shares in branch networks, deposits,
loans,
andprofits.Duringthisfiscalyear,thetotalnewdepositsmobilizedbyprivatebanks(Birr89b
illion)exceededthatofCBE(Birr54billion),whileprivatebanks’collectiveprofits(Birr 17
billion) have now surpassed—for the first time—that of the state bank
(Birr14billion),”thereportstated.
Stating that private banks in Ethiopia were not severely impacted by the
globalpandemic– COVID-19, the paper indicated that “average returns to
shareholders(EPS) were near 32 percent, not much different from the norms of
recent years.”According, Ethiopia’s private banks finished the 2019-20 fiscal years
on a
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soundfooting,withdepositsup25percent,loansup34percent,andprofitsup21percent.
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AstheimpactofthePandemicisstillintheprocess,theresultforthe2020/21isyettobeseen.
Figure 7:Private BanksProfitfir thePeriod13/14-1920
18.0 17.0
B16.0
14.0
i 14.0 13.1
l
l 12.0 10.5 10.7
i 10.0
7.6 8.1
o
8.05.85.6
n 5.4
6.0 4.7 4.5 ProfitbeforeT
4.1
4.0 3.6
B 2.0
iProfitaftertax
0.0
rr
YearEndingJune30,.....
3.2.3 MajorachievementsofprivatebanksinEthiopia
 Private Banks recorded a strong performance in the year ended 30 June

2020across key metrics: deposits, loans, capital, and branches. Loans rose
bynearly Birr 100 billion for the year, funded by Birr 87 billion in new
depositsandBirr8billioninextracapital.
 Branch networks were also significantly expanded, and the total number
ofprivatebankbranchesisnownearlytriplethatoftheCBE(4,361privatebankbranc
hesvs. 1,604CBEbranches).
 DespitetheCOVIDpandemic,pre-taxprofitsrosefrom14billionto17billion,though
the latter are still provisional figures for 30 June 2020. Taking intoaccount
effective tax rates for the sector, the researcher estimated after-taxprofits
will be Birr 13.1 billion, implying close to Birr 4 billion in payments
byprivatebanksfortheyear.
 Expressedrelativetoyear-averagepaid-
upcapital,theprofitfigurestranslateintoaverageEarningsper
share(EPS)of31.5percentinFY2019-
20,closetotheaveragereturnsreceivedbyshareholdersoverthelastfiveyears.Profi
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ts
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wereequalto2.5percentofaverageassets(ROA)andalsoequalto29percentoftotalc
apital(ROE).
3.2.4 FutureOutlookoftheBankingSector
Reflecting on the outlook of the banking sector in Ethiopia, the paper noted that
thesectorissettofacemajorpolicyshiftsastheGovernmentmodernizesitsframeworkfor
deficit financing, monetary policy setting, and exchange rate determination.“Other
reforms will bring many more competitors (up to 20 new banks, MFI-turned-
banks,leasingcompanies,fin-techs,specializedserviceproviders,foreignfinanciers),
broaden funding sources (via local bonds and external borrowing), andpermit new
services (such as capital market offerings). Taken together, thesechanges in the
macro-financial environment may help propel continued bankingsector growth but
within a much more competitive environment for the
establishedplayers,”asthepaperforecasted.
3.3 InsuranceCompanies
According to NBE Annual Report for the year 2018/19, the growth in the
insuranceindustry has also been rapid since the economic liberalization. By the end
of June2019, the total number of Insurance companies stood at 17 of which one is
a publiccompany. The total number of Insurance company branches also stood at
568 as
ofJune30,2019,ofwhich305werelocatedinAddisAbaba,while263wereinregionaltowns.
The growth rate of number of branches was 8% in 2087/19 and 7% in
2019(Table11).
Moreover, Insurance companies increased their total capital by 50 percent to

aboutBirr 8.2billion,ofwhich,
theshareofprivateinsurancecompanieswas68.3percentandthatofpublicinsurancecomp
anywas31.7percent
Table 10 : Growth rate of Number of branches and Total capital
ofInsuranceCompaniesinEthiopia,2013-2019
2011 2012 2013 2014 2015 2016 2017 2018 2019
NUMBER 221 243 273 332 377 426 492 532 568
OFBRANCH
ES
Growthrate(%) 10% 12% 22% 14% 13% 15% 8% 7%
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TotalCapital(MillionsB 955.7 1,200. 1,489. 2,034.1 2865 3,590.0 4,332.0 5,476 8,188
irr) 1 0
Growth rate(%) 24% 37% 41% 25% 21% 85% 50%
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Figure8: NumberInsuranceBranches Figure 9: Total
CapitalInsuranceCompanies
600 9000
N M8000
u500 i
7000
m ll
b400 i 6000
e 5000
r300 o 4000
o n 3000
f200 s2000
B
r100
1000
anch 0 E0
TB
YearEndingJune30..YearsEndingJune30....
3.4 MicroFinanceSectorAnalysis
3.4.1 OriginandLegalFramework
In Ethiopia Micro financing was started as a rehabilitation and development
strategyfor drought stricken areas of the country prior to 1996, by a diversity of
NGOs anddifferent government programs for deliveringmicro-credit to the needy
peopleresiding in rural and urban areas of the country. The key role of the
microfinancesector in reducing poverty was recognized in 1996 upon the
establishment andenforcement of the regulatory framework, Proclamation No
40/1996 that
createdconduciveenvironmentforensuring,creatingandbuildingofsustainablemicrofina
ncinginstitutionsand infrastructureinthecountry.
However,thelegalframeworkwasimprovedbythelegalinstrumentwhichregulatesMicro-
financing institutions in Ethiopia by the Licensing and Supervision of Micro-
FinancingBusiness ProclamationNo. 629/2009.
3.4.2 PerformanceoftheSector
Currently there are 38 Microfinance institutions, providing savings, credit,
moneytransfer and micro-insuranceservicesinthecountry.
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By end 2018/19, the number of microfinance institutions (MFIs) reached 38.
Theiroverall performance was encouraging as their total capital and total asset
increasedsignificantly by 20.0 and 24.0 percent and reached Birr 16.6 billion and
Birr
83.5billion,respectively.Atthesametime,theirdepositmobilizationandcreditprovisionex
panded remarkably. Compared to last year, their deposit surged by 26.0
percentand reached Birr 41.9 billion while their outstanding credit went up by 30.1
percenttoBirr 58.7billion (Table12).ThefivelargestMFIs,namelyAmhara,
Dedebit,Oromia,OmoandAddisCredit
andSavingsinstitutions,accountedfor83.4percent of the total capital, 91.4 percent of
the savings, 87.7 percent of the
creditand88.1percentofthetotalassetsofMFIsattheend of2018/19(Table12).
Despite the growing number of microfinance service providers, the growth of

capitaland savings as well as credit and total assets, the coverage is still less than
20% ofthepopulation.
Table11:Performanceof MicroFinanceInstitution(In ThousandsofBirr)
Particulars 2014 2015 2016 2017 2018 2019
TotalCapital 5,652,005.7 7,187,259.5 8,875,780.6 10,720,058.6 13,772,435.9 16,567,933.7
Saving 11,784,059.6 15,832,747.4 18,432,836.7 26,323,896.4 33,213,124.6 41,897,179.6
Credit 16,855,556.8 21,827,337.3 25,203,763.0 32,398,857.4 44,987,229.9 58,722,261.1
TotalAssets 24,535,850.0 30,562,012.2 36,668,011.6 49,551,770.7 67,261,994.6 83,475,519.0
AnnualGrowth(%)
TotalCapital 27% 23% 21% 28% 20%
Saving 34% 16% 43% 26% 26%
Credit 29% 15% 29% 39% 31%
TotalAssets 25% 20% 35% 36% 24%
Source:NBEAnnualReport2013/14-2018/19
Figure10:Performance ofMFIs
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Figure1:PerformanceofMFIs
90000000
T
h 80000000
o 70000000
u
s 60000000
a
n 50000000 TotalCapital
d
Saving
s 40000000
Credit
o
f 30000000
TotalAssets
20000000
E
T 10000000
B
0
2014 2015 2016 2017 2018 2019
YearEndingJune...
IV. BUSINESSENVIRONMENT
Business environment is the sum total of all external and internal factors
thatinfluence a business. External factors and internal factors can influence each
otherand work together to affect a business including banking business.These
factorsmay be political, macro-economic, micro-economic, social and technological.
Inaddition, some external factors may be beyond control and these are often
calledexternal constraints.The incidence of COVID-19 towards the beginning of
2020 hascreated serious credit risk resulting in high non-performing loans.As a
bankinginstitution operates under these environments, its results will be affected
positivelyor negativelyduring itsoperations.
AccordingtotheWorldBankEthiopia’seconomicfreedomscoreis53.6 11,makingitseconom
y the 137th freest in the 2019 Index. Its overall score has increased by 0.8point,
with significant increases in scores for business freedom and labor
freedomoutpacingadeclineinmonetaryfreedom.Ethiopiaisranked26thamong47countri
es
11
TheHeritageFoundation|heritage.org/Index
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intheSub-
SaharanAfricaregion,anditsoverallscoreisbelowtheregionalandworldaverages.Current
ly,theGovernmentisencouraginggreaterprivate-sectorinvolvement to support its plan
to transform Ethiopia from an agriculture-basedeconomy into a manufacturing hub,
a plan that hinges on improved transport andenergy infrastructure and greater
agricultural-sector productivity. To achieve thesegoals, reforms are in the process
to improve the burdensome and opaque businessand investment regime.Efforts
being exerted to reduce the poor quality andefficiency of government services that
are made worse by weak rule of law
andpervasivecorruption.Statedistortionsinpricesandinterestratesunderminemonetary
stability
Ownership of all land remains in the hands of the state, with use rights granted
tolandholders. Efforts being made to make the judiciary independent,
Governmentofficials and state institutions reportedly enjoy preferential access to
credit,
landleases,andjobs.Corruptionandbriberyremainsignificantproblems,butthegovernme
ntisintroducing areformistagenda.
Thetopindividualincometaxrateis35percent,andthetopcorporatetaxrateis30percent.
Other taxes include value-added and capital gains taxes. The overall taxburden
equals 12.4 percent of total domestic income. Over the past three
years,government spending has amounted to 17.9 percent of the country’s output
(GDP),andbudgetdeficitshaveaveraged2.6percentofGDP.Publicdebtisequivalentto
56.2percentofGDP.
Ethiopiahasmadestartingabusinesseasierbyremovingtherequirementtoopenabank
account for company registration and eliminating the paid-in minimum
capitalrequirement.Theunderdevelopedlabormarkethindersemploymentgrowth,trappi
ng much of the labor force in the informal economy. The government intendsto
reform fuel subsidies but also has offered tax breaks and subsidies to
foreigninvestors.
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The combined value of exports and imports is equal to 31.5 percent of GDP.
Theaverage applied tariff rate is 12.1 percent. Ethiopia is not a member of the
WorldTradeOrganization.Thestatehasallowedtheprivatesectortoparticipateinbanking,
but it restricts foreign ownership, though the Diaspora with who are Ethiopian
bybirtharenowallowedtoparticipateinthefinancial
sector.About38percentofadultEthiopians have access to an account with a formal
banking institution. In
general,thereisatrendforopeningupoftheeconomyfortheprivatethroughtheimproveme
ntofthebusiness environment...
V. MARKETFOR BANKINGSEREVICES
5.1 SupplyofBankingService
5.1.1 PopulationPerBank Branch12in theworld
Populationperbankbranchisanimportantindicatorforservicedeepeningoffinancialservic
es in a country.In order to compare the position of Ethiopia in terms of
Adultpopulationperbankbranchdatahasbeencollected
fromtheWorldBank’sdatabaseandNationalbankofEthiopiaAnnualReports.Asitcanbeun
derstoodfromTable2,AdultPopulationperbranchdeclinedfrom9,106in2010to7,857in20
18.Thisshowsthatbanking servicehasexpanded worldwide.
5.1.2 SubSaharanAfrica
Adult population per bank in branch in Sub-Saharan Africa also declined fro,
22,548in 2010 to 19,861 in 2018. It evident from the table, that even though
bankingservice in Sub-saran Africa has expended significantly, it is still far behind
that ofother world countries.
5.1.3 SelectedEastAfricanCountries
Adult Population per bank branch in Kenya, with a total population of about
30.omillion, declined from 21,340 to 19,900 showing that the expansion of
bankingservice has been growing but in a sluggish manner. In Uganda, the adult
populationper bank declined from 39,541 in 2010 to 38,344 in 2018, indication that
there
hasnotbeensignificantgrowthinbankingservicesinUgandaoverthepastdecade.Most
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12
Data takenfromtheworldBankdatabaseand NBEannualreports,2010-2018
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of the commercial banks in these countries are foreign owned, which might
haveconstrained the expansion of local banks and branches arising from lack of
capacitytocompetewiththeforeignowned banks.
5.1.4 Ethiopia
In Ethiopia, adult Population per bank branch declined from 120,620 in 2010
to16,114 in 2019, (Table 13). This indicates the fact that banking service in
Ethiopiahasincreasedaboutsixfoldoverthepastdecade.Eventhough,thenumberofBanks
in the country has stagnated over the past five years, there has been
significantexpansion in the number of bank branches, particularly in larger
commercial
towns.Despitetheexpansioninthenumberofbankbranches,theruralareasofthecountrya
re still under served and there is high potential for growth as communication
andpowerinfrastructuressuchtelephone,internetnetworkandelectricityexpandstotheru
ralareas.
Table12:AdultPopulationperBankBranchofSelectedCountries,2010-2018
Year/Countries 2011 2012 2013 2014 2015 2016 2017 2018 2019
World 8,768 8,643 8,432 8,071 8,352 8020 8,299 7,857 7500
Sub-Saharan 27,640 28,944 25,887 24,331 22,227 21,093 21,844 19,861 17,500
Africa
Kenya 20,408 19,342 18,993 18,302 17,934 18,636 19,172 19,900 19,250
Uganda 40,650 36,010 33,580 32,605 32,819 34,483 37,244 38,344 37,500
Ethiopia 74,309 57,533 43,341 35,543 29,944 25,108 19,995 18,365 16,114
Sources:WorldBankdataDatabase,NBEAnnualReports.
Compared to the World countries, adult population per bank branch in Ethiopia
isabout twice behind. Therefore, the potential for establishment of new
commercialbanksisstilluntapped.
5.2 DemandforBankingService
Even though there are several other factors that determine the demand
forbanking services, we have here considered, population growth, income
level,savingslevelandtransactioncostsasthemajorones.
5.2.1 PopulationGrowth
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ThelargeliteratureonBankingSectordevelopmentglobally,revealsthatpopulationincrea
ses as well as an increase in individual Per capita income levelsfuel
strongappetitesforfinancialservicesintheBankingsectorinbothdevelopedanddevelopin
gcountries(WorldBank,2013).Thegrowthinthedemandofretailbankingservices
isspurredlargelybytheemergingmiddleclass ineach country.
InEthiopia,theprojectedpopulationfortheyear2019basedonthe2007populationcensus
result was 109 million. When projected at an average growth rate of 2.35%per
annum, the estimated total population of Ethiopia will be about 139.4 million
in2030. In addition to the already existing 16 private commercial banks, two
Islamicbanks, namely Zemzem and Hijra have already received license of which the
formerhas already started operation. This brings the total number of operational
privatecommercial banks to 18. Even If some ten new private Commercial banks
join
themarketwithintenyears,thedemandforbankingservicesinEthiopiaisnotexpectedtobe
saturated.
Figure11:ProjectedPopulationto2030basedon2007PopulationCensus
160.0
S140.0
i
z120.0
e
100.0
o
80.0
f
60.0
P
op 40.0
.
20.0
0.0
YearsEndingJune30...
5.2.2 Incomelevels
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The level of income is a significant determinant on the nature of financial
servicesdemandedfromthebanks.Thusthehighertheincomethehighertheabilitytoacces
smoreand better financialservicesofferedbythebanksintheCounty.
5.2.3 SavingsLevel
Traditionally, the culture of savings in the county was not well built. Further
moremost of the services offered by the banks did not encourage the culture, as
thereturns on the savings were negligible or even negative at times of high
inflation.Furthermore,SACCO’shavereducedtheappetiteforsavingsfacilitiesofferedbyth
ebanks. Therefore, the banks needed to do more to encourage the culture in
thecounty.
5.2.3TransactionCosts
Some of the transaction costs encouraged the demand-pull, as they were
realisticandfair.However,interestrateschargedontheloansarestillconsiderablyhighthus
discouraging the consumption of loans. Furthermore, the use of liquid cash and
thehigh maintenance costs have reduced the appetite for credit cards in the
county.However, Mobile banking service has to some extent increased the demand
forfinancialservicesofferedbythebanksinthecounty.Internetbankingcostsarealsoconsi
derablylowthusencouragingutility;however,therisksinvolvedintheutilityofthe facility
have discouraged the uptake of the service. This is an area where
banksneedtofocusinordertomaximizeitsbenefits.
5.4 DemandandSupplyGapforBankingServices
5.4.1 Demand and Supplygap forloansanddeposits

As the demand and supply for loans and deposits are determined by several
factorsboth on the side of borrowers and lenders,they can be quantified easily
andprojected.Hence,theIMFusesAdultPopulationperBankBranchisusedaproxyfordeter
mination of the level of the gaps and comparison between countries in
theWorld.Asshownintable12above,adultpopulationperbankbranchismuchbehindthat
of the world, but approaching that of Sub-Saharan Africa. The rate of growth
ofbankbranchesseemstobeprogressingcompared tothatofKenyaandUganda,but
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with the annual population growth rate of Ethiopia at about 2.7%, and an
estimatedpopulation of 115.0 million in 2021, it is evident thatdemand and
supplygap forbankingserviceswillremainhuge.
5.4.2 AccountHoldersofDepositsandBorrowers
Thenumberofaccountholdersofdepositsandborrowersmaybeavailablewitheachbank,b
utformallypublishedaggregatedataisnotavailable.Hence,thereisnoactualdata that can
be used as proxy for projection. However, it is anticipated that theincreased use of
banking technologies and awareness ofthe population will inducethe demand for the
use of banking services.According to World Bank Developmentindicators published
for 2018, the percent of population with ages 15+ of
accountownershipatfinancialinstitutionswas21.8.Thedataisaggregateanddoesnotsho
wwhether it is deposit or borrowing account. Never the less, it indicates a very
lowlevel, buttheexistenceofpotentialsinthefuture.
5.5 MarketSegmentation
Market segmentation is a marketing term that refers to aggregating
prospectivebuyers into groups or segments with common needs and who respond
similarly to
amarketingaction.Inthiscasegeographicanddemographicsegmentationareconsidered.
5.5.1 ServiceGeographic’s
Tsehay Bank S.C (Under Formation) serves the population of Addis Ababa
CityAdministration with ten branches during the fist year. However, gradually the
bankwill expand to other major regional and zonal towns, by opening 20 branches
eachyear to reach 100 branches by the end of the fifth year. Expansion to
geographicallocations outside Addis Ababa will gradually take place after the 5 th
year based ontheoutcomesofmarketresearch.
5.5.2 ServiceDemographics
Itis estimatedthat30%oftheeconomicallyactiveresidentsofAddisAbabaAdministration
and other parts of the country are unemployed and eligible to
accessfinancialservices.Lowandmiddleincomeresidentsofthecity,andotherpartsof
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the country with growth potential, organized as enterprises, particularly, the
ruralareaswillbethetargets oftheBank.
5.5.3 ProposedMarketingStrategies
TheBank’smarketingprogramwillfocusonincreasingitsvisibilityinthecommunityitaspire
stoservewithdeeppenetrationanddiversification.Inparticular,diversificationintohighpo
tentialareawillbeessentialforminimizingrisk.TheBankwill advertise its services to the
target populations groups through all types of massmedia to serve these groups on
a daily basis. Prepare brochures and fliers anddistribute to the targeted population.
Development of diversified service brands willbeatthecenterofitspromotionstrategy.
VI. THELEGALFRAMEWORK
BankingbusinessinEthiopiaisgovernedbytwoproclamations.ThefirstonewastheMonetar
y and Banking Proclamation No.83/1994, amended by Proclamation No.591/2008
that defines the powers and responsibilities of the National Bank ofEthiopia, which
is the Central Bank of the country. The second is proclamation No.84/1994 repealed
and replaced by proclamation No. 592/2008 that deals with
thelicensingandsupervisionofbankingbusiness.Thisproclamationsetsouttheconditions
under which commercial Banks can be licensed and also the
supervisoryrequirementstheyshouldobserveinthecourseoftheiroperation.Theproclam
ationspecifically stipulates that in order to undertake a banking business in Ethiopia,
it iscompulsorytoformasharecompanywithfullysubscribedsharecapitalandthatthetotal
par value of the shares be paid and deposited in a Bank Account in the
nameandtotheaccountofthecompany.Moreover,ithastobeconfirmedbytheNationalBan
k of Ethiopia that the minimum par value of the shares (current minimum beingBirr
500 million) paid and deposited and also that the directors and officers of
thecompany have the qualifications prescribed through its directives. In addition,
thecompany must meet other requirements of the Proclamation or Directives issued
bytheNationalBankofEthiopiainordertobeissuedwithalicensetoundertakebankingservic
esinEthiopia.
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6.1 LicensingRequirementsoftheBankingLaw
6.1.1 FormofOrganizationandCapitalRequirement
The Ethiopian law governing the licensing and supervision of banking
businessconstituted under Article 304 of the Ethiopian Commercial Code requires a
sharecompany as the only form of business organization through which the
business ofbanking businessmaybecarried outinEthiopia.
6.1.2 Regulatoryframework
BankinginEthiopiaisgovernedbyanoverarchingbankinglaw,theBankingBusinessProcla
mation(FederalNegaritGazetaProclamation592/2008)thathasbeeninplacesinceAugust
2008andthatgivesNBEthefullrangeofpowersofabankingregulator.ThisBankingBusines
sProclamationaddressesmandatoryrequirementswithrespectto:
 Thelicensing ofnew banks;
 Shareregistryandshareholders;
 Directorandseniormanagementqualifications;
 Banks’financialobligationsandlimitations;
 Financialrecord-keepingandaudits;
 Disclosureand inspection;and
 Other miscellaneousareas.
TheProclamationalsodesignatesNBEtoissuedetailedDirectivesregularlyandreviseasdee
medappropriateinalloftheaboveareas.TsehayBankS.C.
(UnderFormation)isawareofalltheseproclamations.
6.1.3 BankingDirectives
InlinewiththeBankingBusinessProclamation,theNBEhasovertheyearsissuedandrevise
dseveralBankingDirectivesandCircularsthatspecifyrulesandregulationsacrossallkeyar
easofbankingoperations.
NotableAmongtherequirements in banking operations of which Tsehay Bank S.C is

aware of are theFollowing:
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 Minimum capital: Birr 500millio is the formal paid-up capital
requirement,though banks’ have been advised to reach Birr 2,000mn
($70mn) by 2020).Many Banks have not fulfilled this requirement and it is
not known whetherthisrequirementwillbeextended
 Capitaladequacy:8percentcapitaladequacyrequirement,onarisk-
weightedbasis.Thisisinternational standardandbasedonBasel Agreement.
 Liquidityrequirement:15percentliquidityrequirement
 Minimuminterestrate:Minimumsavingsrateinterestpaymentof7percent(since
October2017)
 Reserverequirement: 5percentreserverequirementsonalldeposits
 Singleborrowerlimit:Creditlimitsthatcapsingleborrowerexposureto25percent
ofcapital;
 Equity investment limitations: While banks may make equity

investmentsinto businesses, such investments cannot exceed 10 percent of a
bank’s networth and no more than 20 percent of investee’s capital; a bank’s
aggregateequityinvestmentsalso cannotexceed 50percentofitsnetworth.
 Net FX open position limits: 15 percent net fx open position

requirement(bankscannot—attheend ofeachbusinessday—hold
netlongornetshortfxpositions at their correspondent banks of more than 15
percent of theircapital).
 Foreign exchange allocation rules: Foreign exchange allocations based
onwait-
listsystemandarankingofprioritysectorsasspecificbytheNBE.Amongtheprioritys
ectors/productsare, inorder,thefollowing:
(1) Fuelandmedicines;
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(2) Inputsfor agricultureandformanufacturing;and
(3) motoroils,agriculturalinputs/
machineries,pharmaceuticalproducts,sparepartsformanufacturers,babyfoods,s
parepartsforconstructionmachineries,educational materials, profit/dividend
transfers, local sales of foreign airlines,andsharesalesofexisting
FDIcompanies.
6.1.4 InformationRequiredFromApplicantsforLicense
In addition to the information specified under Article 5 of proclamation No
84/1994,the National Bank of Ethiopia requires the applicant for evidence of paid up
capitalwhichincludescertificatesofdepositinblockedsubscriptionaccountmaintainedwit
hcommercial banks and also the names, addresses and occupation of the
founders.Above all, the NBE requires a feasibility study that provides adequate
description
ofthefutureoperationsandplanneddevelopmentofthebusinessforaminimumperiodof
three years. The contents of the Business Plan are outlined in the Amendment
forNewBankLicensingandApprovalofDirectorsandCEO,DirectiveNo.SBB/39/2006.This
BusinessPlanaimed atfulfilling filling therequirements.
6.1.5 ContributioninKind
It is allowed for founders and prospective shareholders to make their contribution
inkind provided that the property contributed is valued in the proper manner
andsupported by valuation evidence. However, the contribution in kind will not
becomputed to fulfill the minimum capital requirement. Furthermore, the in
kindcontributioncannotexceedtwentyfivepercent(25%)ofthepaidupcapitalinexcessof
the minimum required capital. The logic behind the requirement is quite clear
inlightofthenatureofthebusiness to becarried outbytheapplicant.
6.1.6 OwnershipoftheBank
The banking law as amended under proclamation no. 1159/19 allows Ethiopians
bybirth to holding stake in Bank. Hence, citizenship will not be an issue as
Ethiopians,physicalorlegalpersonsarefreetoownsharesofthecompany.Cooperativeunio
ns,likeanylegalperson,areentitledtoownshareoftheBank.Thelawsetsamaximumlimit
on the proportion of the capital, which could be held by a single
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shareholder.However,thislimitcouldbeexceededprovidedthattheNBEpermissionisobtai
ned.
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6.1.7 TypesofShares
TheEthiopianCommercialCodeenablescompaniestoissuedifferentclassesofsharewithdi
fferentrights.However,thegoverninglawonbankingbusinessprohibitssuchpracticeand
requiresallsharestobeofthesameclassand value.
6.1.8 TheBoard
TheCommercialCodeofEthiopiarequirestheminimumnumberofboardtobe3andthemaxi
mum12persons.TheNBEfurtherrequiresthatatleastseventyfivepercentof bank’s board
members shall hold a minimum of first degree or equivalent fromrecognized higher
learning institution, and the remaining board members
havecompletedataminimumgeneralsecondaryschooloritsequivalent.
6.1.9 TheChiefExecutive
TheNBEhasalsosetoutcriteriaforselectionandappointmentoftheChiefExecutiveOfficer
of a Bank. These criteria are outlined in the Amendment for New
BankLicensingandApprovalofDirectorsandCEODirectiveNo.SBB/39/2006.Themajorcri
teriasetoutarefordeterminingthecompetence,integrity,reputationandexperiencesinth
esectoroftheCEO.
6.2 RegulationandSupervision
Regulating the new financial sector in Ethiopia takes two forms: (1) Licensing
andapproval of external auditors, and(2) Bank supervision, which in turn takes
twoforms(a) Off-siteSurveillance,and (b) On-siteExamination
6.2.1 LicensingandApprovalofExternalAuditors
The NBE is guided by Proclamation No 592/2008 in conducting this function.
Whenrequested for licensing, the NBE will check whether the request is in line with
theproclamation and then will evaluate the Business Plan in order to decide on
thematter. Similarly, NBE conducts renewal of licenses pursuant to the latest on-
siteexamination and off-site surveillance. The analysis needs to focus on liquidity
ratio,capitaladequacyandassetqualityindicators.Requestforbranchexpansionwillalsob
eacceptedfollowingexaminationofthefeasibilitystudyofitsfutureoperation.
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Appointing appropriate auditors is also part of the regulatory activity of NBE

whichappoints auditors after examining their past experience (or record). In
addition,
theNBEwillalsoexamineotherrelevantvariablessuchassecurityofthepremises,staffoper
ationarea,insurance, documentationpolicyand procedureandthelike.
6.2.2 BankSupervision
TheNBE’sdesiretomaintainstrongbankingregulatorysystemisbasedonmaintainingastro
ngprudentialandformalaccountingstandards,off-sitesurveillancetechniques,full-
scopeon-siteexaminationofallbanksonaregularbasis,andpromptexaminationactions.
6.2.3 Off-siteSurveillance
Using key financial data on regular basis, this technique aims at providing
policymakers(inparticularthegovernorandtheboard)informationregardingthesoundne
ss of banks. The Off-Site Surveillance technique also aims at detectingemerging
weaknesses and, thus, determines whether on-site Examination is calledfor.
Each bank is required to submit such key financial data (balance sheet, income
andexpense, credit concentration, non-performing loans, risk weighted assets,
reserveandliquidityreport,annualbranchnetworkaswellasotherfinancialindicators)ona
regular basis, at least monthly and quarterly. Thus, the supervisory unit
willcomputedifferentratesthatindicatetheperformanceofbanksonthebasisofthesedata.
The off-site surveillance basically focuses on performance analysis. The

analysiscomprises examination of level, trends and peer group comparison using
variousindicators.
6.3 ImplicationoftheLegalFramework
From the review of the proclamations and directives of the NBE that are issued
fromtimetotime, itcanbeunderstood,thatthereisastrongcommitmentonthepartof
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the Government to protect the public as well as the prudence of banking
institutionsin the country. Therefore, this commitment shows the efforts that the
Governmentmakestocreateamorefavorableenvironmentandtoencourageinvestorswho
wishto invest in banking business. It is in recognition of these facts that the
promotersdecided toestablishTsehayBankS.C. (UnderFormation).
VII. THEESTABLISHMENTOFTSEHAYBANKS.C. (UnderFormation)
7.1 Background
The establishment of the Bank is conceived by visionary Ethiopian business owners
andexperienced bankers in recognition of the fact that Ethiopia has been registering
steadydouble-digit rapid economic growth over the last decade and contemplating that
theoverall Ethiopian economic growth and environment is conducive for banking
business.With strong desire to contribute for economic and social development of the
nation, thevisionariesdeliberated toengage inbankingbusinessthrough issuing
ordinarysharestothe public. For the smooth formation of the bank, promoters of this
idea formedOrganizing Committee, which consists of members from diverse business
background,experience and credentials in doing similar achievement. The Organizing
Committee thenproceeded to establish a new bank - registered by Ministry of Trade as
Tsehay BankShare Company. Tsehay Bank S.C. (Under Formation) is a profit making
CommercialBank established to expand and provide diversified and efficient banking
services inEthiopia.
7.2 Vision
The promoters envision a “powerful financial institution that serves as an engine
ofeconomic and social development through financing of Small, medium and
largeenterpriseswithmajorfocusongrowthorientedSME’sandcreationofhighvalueforthe
ir shareholder’sinvestment”.
7.3 Mission
Themission oftheBankis to:
 Optimizeshareholdersvalueoftheirinvestmentwhilepursuingthestateoftheart
banking services;
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 Ensureequitableaccesstofinancialservicesandbusinessadvicestomotivatedb
usinesspersons;
 Enablepeopletotransformtheirresourcefulnessintomaterialwell-beingfor
bettermentoftheirlife;
 Createstrongentrepreneurialspiritforthepeopleitservesinallitsdomains;
 Makeaggressivepublicrelationscampaigntobringthepeopleoutfromdormancy
(inbusiness)to innovativenessand activeengagement;
 Dedicateitselfforand promotecorporatesocialresponsibility; and
 Promoteinclusivenessandparticipation;
7.4 ObjectivesoftheProposedTsehayBank
7.4.1 GeneralObjectives
Thegeneralobjectivesareto:
 Contributetosocialandeconomicdevelopment,maximizecustomers’satisfaction
and shareholders’profitontheirinvestment;
 mobilizefinancialresourcesfromthepublicandotherstofacilitateinvestmentin
ventures and economic activities that would contribute to improve
thestandard ofliving oftheshareholdersand otherclients intheCountry,and
 TsehayBank(Underformation)willintroducebrand
anascentandinnovativebanking services using digital technologies to all
sectors of the economy withmajor focusonsmallandmedium
enterpriseinthecountry.
7.4.2 Specificobjectives
Thespecificobjectives areto:
 Offerdifferentsavingservicestobusinesses/individualsandotherclients:
 Provideinterestfreebanking
 Provideloanstoeligibleclientsbypursuingaffordableandcustomerfriendlycollater
al:
 Engageinforeignbankingusingimprovedtechnologies:
 Participate inrelevant investment venturesbasedonthe
directivesoftheNationalbankofEthiopia:
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 Administerfundsthatwouldbeusedtocaterfinancialservicestolowincomeorother
targetgroups:
 Contributetothedevelopmentofvibrantfinancial marketinthecountry;
 Provideadequateservicestoclientsthatareinterestedinconstructingwonhouses;
 Engageinrealstatedevelopmentinpartnershipwithothersinterestedinthescheme
;
 Developnewproductsthatmeetthediversifiedfinancialneedsofthepeopleinthecou
ntry;
 ProvideDigitalbanking services,and
 Networkwithotherfinancialinstitutionsinthecountry;and
7.5 CoreValues
TheCoreValuesofTsehayBankS.C(under formation) are:
 HonestyandIntegrity
 Innovation
 Excellence
 Commitment
 Professionalism
 Respectfor Customersandcommunity,and
 Loyalty
7.6 MajorFunctionsoftheBank
 Receivedemand,savingandtimedepositsonsuchtermsandconditionsastheBoard
mayprescribe;
 Grant short, mediumand long term credit, in cash or in kind, to

enterprises,farmers and others who are engaged in small and medium scale
production,processingand serviceprovisionactivities;
 Encourage and support income generating projects for urban and rural
micro,small and medium enterpriseoperators;
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 Providecounselingservicetoitsclients;rendermanagerial,marketing,technical
and administrative advice to borrowers and assist them to
getservicesinthosefields;
 Makeloansandadvancesandallow overdrafts;
 Draw, accept, discount, buy and sell bills of exchange, drafts, and
promissorynotespayablewithinEthiopiaorabroad;
 Issuelettersofcredit;
 Buy, sell, hold andotherwisedealinforeignexchange;
 Hold, acquire and sell negotiable instruments, negotiable securities,

movableand immovable properties including real estate and other security
pledged,hypothecated or assigned to the company as security for loans,
advances orover drafts and which have not been redeemed at the time such
redemptionwasdueunderthetermsofsuchpledge, hypothecationor assignment;
 Accept for safe-keeping, in safe or otherwise, securities, jewels,

preciousmetals and other valuables on such terms and condition as the Board
mayprescribe;
 Issue Cheques and traveler's Cheques, and generally deal in Cheques

relatedmatters;
 Negotiate,underwriteandmanagetheissueofshares,bondsanddebentures;
 Purchase in the name of and for the account of the Bank shares in
productiveand/or serviceenterprisesandsellsuchshares;
 Act as agent for the Bank's customers and in this capacity, engage in
thepurchaseand saleofmoneyand securities;
 Enter into contractsofsuretyship onguaranteewithor withoutsecurity;
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 Acquire, maintain and sell such residential and business premises as they
arenecessaryforconducting companybusiness;
 Borrow money for the purpose of conducting the company's business,

andpledge,hypothecateorassignthecompany'sassetsassecurityforthemoneyso
borrowed; and
 Engage in all other transactions and operations not specifically

enumeratedabove,thatareincidentaltoor necessaryfor sound similar
bankingbusiness.
7.7 Shareholders
TheshareholdersoftheBankmay be:
 PrivateindividualsandbusinessOrganization,privateorpublic;
 Non-governmentalandregisteredsocialorganizationsandCooperativesocieties
7.8 Capital
7.8.1 SubscribedCapital
The subscribed capital of the Bank is Birr 2.0 billion. This is expected to be paid-
upwithinaperiodoffouryears.
7.8.2 Paid-upCapital
Theminimumpaid-upcapitaloftheBankwillbeBirr500,000,000,whichwillbepaidin cash
and deposited in a blocked Bank account in the name of Tsehay Bank S.C(under
Formation). The par value of a share shall be limited to Birr 1000 while theminimum
share of a shareholder shall be limited to Birr 100,000 and maximum isBirr
1,000,000.
7.8.3 SubscriptionFee
Each prospective founder member is expected to pay a 2% of the value of
thesubscribed capital as subscription fee for covering pre-incorporation costs of
theCompany.
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7.8.4 Stakeholders’expectationandStrategiestomeettheir
expectations
StakeholderExpectations inanybusinessareofmanytypes;Theirexpectations maybe

plenty, but the major ones are falling either into a category of a shareholder,
orcustomer.InthesensethesepartiesanticipatemanyfromtheBankunderformation.The
shareholders are investors who have exchanged equity in the business for
theinvestment;toownsharesofthebank.Theirexpectationistomaximizethevalueofthein
vestedmoneywithintheshortesttimepossible.ThepromotersofTsehayBank
S.C(underformation)haveattheoutsetunderstoodthemajorchallengeforabankunder
formation through learning from already established private banks in thecountry
and developed strategies to meet the expectation of their shareholders. Thefirst
strategy is formation of an Organizing Committee based on NBE’s
directive,formationofmembersintosub-
committees,withspecificresponsibilities.Thesecondstrategy is to set the minimum
number of shares that a potential shareholder canbuy at a higher level. Thirdly,
encouraging personal communication among actualshareholders and potential
shareholders for speeding up the attainment of theminimum required capital for
licensing by the NBE. Finally, the use of periodicmeetings,and
mediatoreachthepublicareplannedstrategies.
In order to shorten the time between obtaining establishment license and

operationlicense, the Organizing Committee has also planned to complete the
preparation ofdocuments required by NBE for starting of operation during
application phase, asspecifiedunderDirectiveNo. SBB/56/2013.
VIII. PROPOSEDORGANIZATIONALSTRUCTUREANDMANAGEMENT
8.1ProposedOrganizationStructureandManagementSystem
ProposedOrganizationalChart.
GeneralAssembly
ExternalAuditors
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BoardofDirectors
Risk InternalAudit
andComplia CHIEF
EXECUTIVEO
nce FFICER
Planning and Legal and

BusinessDevelopmentDepar
tment. ContractAdministrationDepartme
nt
CorporateCommunication
&Marketing Department
Deputy
ExecutiveOfficer,Op Deputy Executive Deputy
erations OfficerIT ExecutiveOfficer,CorporateSe
rvices
International
BankingDepartment
HR &
CreditDepartment AdministrationD
epartment
TreasuryDepartment Finance &

AccountsDepart
ment
Branch
OperationsDepar
tment Technical
ServiceDepartm
ent
Branches
8.2. FunctionalDescriptionoftheDifferentOrgans
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Thefunctional descriptionsgivenasfollowsarebased onthemajor functional units.
8.2.1 GeneralMeetingofShareholders
The general meeting of shareholdersis the highest decision making body of the Bankand
the major duties and responsibilities are stated in the Memorandum and Article
ofAssociationoftheBankbasedonNBEdirectiveNo.SBB/71/2019withprejudicetothe
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relevant Articles of the Commercial Code of 1960 as amended in 2021.The duties
andresponsibilitiesofthegeneralmeetingare:
 Appointing directors who are reliable and competent persons capable
ofenriching good governance and adding value for the bank including
decidingontheirremunerationand allowances;
 EnsuringthattheBoardisheldaccountableandresponsibleforinefficientandineffect
ivegovernance;
 Appointing, auditors of the Bank and also fixing their remunerations
andallowancesasproposed bytheBoard ofDirectors.
 Evaluatingand approving of the annual reports of the board of directors

andauditors;
 Assessing and evaluating the business performances of the Bank and also
theperformancesoftheboard ofdirectorsandauditors;
 Deciding on the distribution of profit and payment and also on issues

relatedtopreviousyearsaccount;
 Establishing“NominationandElectionCommittee”byelectionofmembers
fromshareholders;
 Reviewing, approving and amending memorandum and article of

associationoftheBank.
 Making decisions to increase authorized capital in order to raise

additionalequity through the issue and sales of new shares in accordance
with thememorandum and article of association of the Bank and also as
stipulated bytheapplicablelaw.
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8.2.2 BoardofDirectors
Without prejudice to the duties and responsibilities stated in other applicable
laws,regulations,theNBEdirectives,articlesandmemorandumofassociationaswellasare
solutionbyshareholders, theBoard oftheBankwillberesponsiblefor:
 Developing and submitting to the ordinary general meeting of

shareholderforapprovaloftransparentrulesandproceduresforNominationofp
otentialcandidatesforBoardmembershipinaccordancewithindustrystandarda
ndNBEdirectives;
 Appointing directors from the waiting list as per thetheir ranking in
caseofoneormoredirectorsleavetheboardbeforecompletionoftheirtermofser
vice;
 Proposing external auditors and their service fees to the general
meetingofshareholders;
 Selecting and appointing chief executive officer, Senior Executive
officers,chief internal audit, and chief risk and Compliance officer are
qualified andcompetent with integrity and getting the approval of their
appointment bytheNBE;
 Ensuring that all responsibilities listed under Articles 10.4.5 to 10.4,25
ofNBEdirectiveNo.SBB/71/2019areexecuted;
 DevisetheoverallpolicyandstrategyforthedevelopmentoftheBankbusinessesandit
sperformanceevaluation,Codeofconductincludingcorporatevaluesthatguidedecisi
ons, actionsand standards;
 Develop the Bank policy and procedures for the selection and appointment
oftheexternal auditors,executivesandnon-executivedirectorsoftheBank;
 DeveloppoliciesandproceduresfortheperformanceassessmentandevaluationofBo
ard ofDirectors, Committeesandkeyexecutives;
 Develop remunerationpolicyfor executivesandnon–executivesoftheBank;
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 Devise the Bank policy and strategy to expand its business, raise
authorizedcapital,issueand salesofnewshare;
 Decide on other policy matters which are beyond the authority of the
executivemanagementoftheBank.
 Approve the internal regulations, annual plan and budget, annual report
andstrategicplanand programsoftheBank.
 Ensure that books of accounts and other pertinent records of the Bank are
keptproperly.
 Decide on proposals to undertake major changes whenever it is felt

necessarytodo so.
 Executeotherpertinentdutiesandresponsibilitiesinaccordancewiththeprovisionssti
pulatedbythelawandproclamationforthelicensingandsupervisionofthebusinessofB
anking,thecommercialcodeofEthiopiaandalsothedecisionsofthegeneralassemblyo
ftheshareholders.
 At the end f its office term, the outgoing Board shall prepare a
comprehensiveexist report and submit to the NBE, the report covering board’s
performanceduring its office term, challenges and issues requiring the attention
of the NBEand /ortheincoming newboard.
8.2.3 ChiefExecutiveOfficer
The Chief Executive Officer has a major responsibility of ensuring the implementation
ofpolicyandthedecisionsoftheBoardofDirectors.He/sheisexpectedtoprovidestrategicdirectio
ns to ensure that accountability is maintained throughout the Bank’s operation.Apart
from discharging all the duties and responsibilities vested on him/her by
thepertinentlawaswellasthedirectiveofNBENo.SBB/71/2019anddecisionsoftheGeneral
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AssemblyofShareholdersandtheBoardofDirectors,thedutiesandresponsibilitiesoftheChiefExe
cutiveOfficerarethefollowing:
 Developingcorporatestrategicandoperationalplansandbusinessplanandbudgetwhich
aresubjecttotheBoardofDirectorsbeforeimplementation.
 Developing,approvingandimplementingproceduremanuals.Guidelines,andcontrols
to address compliance with laws and regulations applicable to the Banks\
sbusinessenvironmentandriskprofile;
 Ensuringthatdocumentssuchasproceduremanuals,andguidelinesarecommunicatedto
allconcerned staff;
 Preparing organizational structure that clearly and appropriately assigns

duties,responsibilities and authorities and ensures that segregation ofduties which
shallbesubjectto Board approval;
 Preparing and presenting all senior executive officers with the exception of
Chiefinternaauditand chiefRiskand ComplianceforBoardapproval;
 Allocatingauthoritiesdutiesandresponsibilitiesinwell-
definedjobspecificationanddescription;
 Developing management information system that adequately addresses the

bank’sbusinessenvironmentandriskprofile,gettingapprovalfromtheBoardforimpleme
ntation;
 Providing the Board with timely, relevant, accurate and complete reports on
theplanperformance;
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 Implementing the effective internal control and risk management program of
thebank;andimplementingtimelyandcorrectiveactionondeficienciesandissuesthatha
vebeenraisedorreportedbytheNBEand/orriskandcompliancemanagement.
 Ensure that all the Bank’s policies, procedures,regulations, rules,
guidelines,directivesareadhered to;
 Approve requests/proposals pertaining to administrative and financial matters

thatfall within the span of authority and power and also when delegated by the
BoardofDirectors;
 Establish and maintain good relationship with all stakeholders and collaborators
oftheBankinordertopromotetheobjectives,imageandcredibilityofthesame;and
 In all business matters that involve a third party, represent the Bank and
act,negotiateand enterintoagreementsonbehalfoftheBank,
 Handle all affairs of the Bank pertaining to the legality, operation, existence
andgrowth of the same and delegate his/her authority to the Bank personnel
and/oremployeeshired toaccomplishspecifictaskstemporarily.
 Accomplish other related tasks and functions with the directives and decisions
oftheBoard ofDirectors.
 NominateandproposetheemploymentandappointmentofDepartmentManagers,Servi
ceHeads,and DeputyManagersfortheapprovaloftheBoard ofDirectors.
 ApprovetheemploymentandassignmentofthoseheadsaccountabletoDepartmentMan
agers
8.2.4 RiskandComplianceManagementDepartment
The role of the bank’s risk and compliance Department function shall be to
identify,assessandmonitorthecompliancerisksfacedbythebank,andadviceandreportto
seniormanagementandtheboardofdirectorsabouttheserisks. Theresponsibilitiesof the
Risk and Compliance Department function shall include most if not all of
thefollowing.
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 onapro-activebasis, identifyingandassessingthecompliancerisksassociated
with the bank’s business activities, including in relation to
thedevelopmentofnewproductsandbusinesspractices,theproposedestablish
mentofnewbusinessorcustomerrelationships,ormaterialchangesinthenature
ofsuchrelationships;
 Advise management on the applicable laws, rules and standards,

includingkeeping up-to-date with developments in the applicable laws,
rules andstandardsandadvisingmanagementaccordingly;
 establishing written guidelines on the appropriate implementation of

thelaws, rules andstandardsthrough policiesand procedures and
otherdocumentssuchasRiskandCompliancemanuals,internalcodesofconduct
andpracticeguidelines;
 Assess appropriateness of internal procedures and guidelines,

promptlyfollowing up any identified deficiencies in the policies and
procedures and,wherenecessary, formulatingproposalsforamendments;
 Monitor risk and compliance with the policy by performing regular

andcomprehensivecomplianceriskassessmentandtesting,andreportingonar
egularbasistoseniormanagement,andifnecessary,theboardorBoardSub-
committeeoncompliancematters
 Produce reports referring to the compliance risk assessment and

testingwhich has taken place during the reporting period, any identified
breachesand/or deficiencies, and the corrective action taken; including
informationabout compliance training provided to compliance function and
other bankstaff;
 Exerciseanyspecificstatutoryresponsibilities(e.g.fulfillingtheroleofanti-
moneylaunderingofficer);
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 Educatestaffwithrespecttocompliancewiththeapplicablelaws,rulesandstanda
rds, and acting as a contact point within the bank for
compliancequeriesfrom staffmembers;and
 Liaisonwithrelevantexternalbodies,includingregulators,standardsettersand
externallegalcounsel.
8.2.5 ChiefExecutiveOfficer’s(CEO)Office
TheChiefExecutiveOfficer’sOfficehasamajorresponsibilityofensuringtheimplementation of
policy and the decisions of the Board of Directors. He/she is expectedto provide strategic
directions to ensure that accountability is maintained throughout theBanks’ operation.
Apart from discharging all the duties and responsibilities vested
onhim/herbythepertinentlawaswellasthedirectiveanddecisionsoftheGeneralAssemblyof
Shareholders and the Board of Directors, the duties and responsibilities of the
ChiefExecutiveOfficer’sOfficewillalsoincludethefollowing:
 Develop strategic and operational plans of the Bank in accordance with the
powerdelegatedtohim/herbytheBoard ofDirectors;
 EnsurethatalltheBank’spolicies,procedures,regulations,rules,guidelines,
directivesareadhered to;
 Approve requests/proposals pertaining to administrative and financial matters

thatfall within the span of authority and power and also when delegated by the
BoardofDirectors;
 Establish and maintain good relationship with all stakeholders and collaborators
oftheBankinordertopromotetheobjectives,imageandcredibilityofthesame;and
 In all business matters that involve a third party, represent the Bank and
act,negotiateand enterinto agreementsonbehalfoftheBank,
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 Handle all affairs of the Bank pertaining to the legality, operation, existence
andgrowth of the same and delegate his/her authority to the Bank personnel
and/oremployeeshired toaccomplishspecifictaskstemporarily.
 Accomplish other related tasks and functions with the directives and decisions
oftheBoard ofDirectors.
 NominateandproposetheemploymentandappointmentofDepartmentManagers,Servi
ceHeads,and DeputyManagersfor theapproval oftheBoard ofDirectors.
 ApprovetheemploymentandassignmentofthoseheadsaccountabletoDepartmentMan
agers
8.2.6 PlanningandBusinessDevelopmentDepartment
ReportingtotheChiefExecutiveOfficer,thebasicfunctionsofthedepartmentisconducting
studies and research activities to collect and analyze market informationregarding
market for Banking service development including the demand for and also
theavailabilityofservicedevelopmentinordertoidentifyopportunitiesandpotentialsfortheexpa
nsion of the Bank businesses. It also undertakes periodic studies and uninterruptedneed
assessment to improve its services to ensure the satisfaction of existing
customerswhicharevaluabletotheBankandalsoattractnewonesthatcouldhavegreaterpotenti
alforthegrowthoftheBankbusiness.
It also has a core role of integrating the Bank’s strategic efforts with that of
collaboratorsandstakeholders.Inanutshell,themaintaskofdepartmentistoensurethatclientsa
ndstakeholders are happy with the Bank’s services and based on the expansion plan,
toinvestigate and determine the market potential and business opportunities to open
newBankbranches
Thespecificdutiesandresponsibilitiesoftheplanningandbusinessdevelopmentdepartmentincl
udethefollowing:
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 Conducting new product and services research for determining
productspecifications, production costs and a production time line and
evaluation theneed for the product before the design begins to ensure it is a
functionalproductthatcustomerswanttouse;
 Developing the product and services based on the requirements and

ideascreated during the research phase in a way that must meet the
productguidelinesandanyregulatoryspecifications;
 Updatingexistingproductsandservices,throughregularevaluationthe
productsandservicesthatareofferedbythecompanytoensuretheyarestillfunctional.
 Conductingqualitycontrolchecksonproductsandservicescreatedbythe
bank.
 Researchingandanalyzingtheproductsotherbanksarecreating,aswellas
thenewtrendswithintheindustrytohelpindevelopingandupdatingtheproductsand
servicescreated bythecompany.
 Prepare and submit quarterly, biannual and annual reports and strategic plans
oftheBankand follow up itsexecution.
 Provide advisory services for the management of the Bank on the

operationalpolicies;
 Assist and participate actively in the identification and soliciting of new sources
offundstodevelopthefinancing capacityoftheBank;
 Initiateandconductappliedresearchandbusinessdevelopmentstudiesthatenableto
identify new techniques and innovative ideas in the areas of investments,
ICTandnew technologiesetc. usefultoimproveBankingservices;
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 Reviews the overall management plans and work programs of organizational

unitsof the Bank and accomplish other related duties in accordance with the
directivesandalso thedecisionsoftheChiefExecutiveOfficer.
 Perform any other related duties as and when assigned by the Chief
ExecutiveOfficer ortheBoardofDirectors.
TheDepartmentshallhavetwodivisions,namelyPlanning&ProductDevelopment,Planning&Pro
gramming.
8.2.7 InternalAudit
Themainresponsibilitiesofthisdepartmentaretoexaminerecordsoffinancialtransactions,proc
urementacts,humanresourceplacementsandutilization’sofresources.Thus,itisresponsibleto
ensurethattheseactivitiesareperformedinaccordancewiththeacceptedprinciples,strategicpl
ansandoperationalprograms,planandbudget,pertinentnational laws and decrees and it
also provides professional opinion for improvement.
Thedepartmentwillaccomplishitsdutiesandresponsibilitiesthroughtwospecializeddivisionsvi
aauditdivisionandinspectiondivision.TheDepartmentwillreporttotheChiefExecutive’sOffice.I
neffect,thedepartmentwillhavethefollowing maintasks;
 Plan,organize,direct,coordinate,controlandsupervisetheoverallactivitiesofthedepart
ment;
 EnsurethattheBank’sstrategies,policiesandguidelinesareproperlyimplemented
byconcerned unitsoftheBank;
 Reviewperiodicreportsandclosureofbooksofaccounts;
 Study and/or inspect audit, accounting and other administrative manuals

andproposeimprovementmeasures;
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 Ensure that all financial documents and loan contracts or other instruments of
theBank are checked properly and timely as well as strict adherence to the rules
andregulationsoftheBank;
 Ensuresthatall propertiespurchasedor mortgaged bytheBankareinsured.
 Ensuresthatfundsandcashesaremanagedefficientlyandeffectively;
 Providesfeedbackthatneedtheattentionofthemanagementandproposecorrectivemea
surestoresolveproblemareas;and
 Undertakeotherrelateddutiesandresponsibilitieswiththedirectivesanddecisionsofthe
ChiefExecutiveOfficer.
8.2.8 LegalandContractAdministrationDepartment
Reporting to the Chief Executive’s Office, this Department is mainly responsible for
bothoperationalandmanagerialtasksofadministeringallcontractsthattheBankhasenteredint
o with all third parties including all tasks associated with the different licenses of
theinstitution.
Itisbasicallyentrustedwiththefollowingdutiesandresponsibilities;
 Plans; organizes, directs, coordinates, control and supervise the legal activities
oftheBank;
 Provides legal services to the immediate superior as well as to the various

organsoftheBank;
 Reviews and prepares agreements and contracts between the Bank and its
clientsor third parties.
 Drafts and/or reviews rules. policies and loans and other agreements to
safeguardtheinterestsoftheBank;
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 Participatesinlegalresearchworks oftheBank;
 RepresentstheBankincourtsand/orsemi-
judicialbodies,incasesbroughtbyandagainsttheBank;
 Signsandcosignsloancontractsand othercontractualinstruments.
 Ensuresthattimelycourtactionsaretakenondelinquentborrowers;
 ProvideslegalinterpretationofEthiopianforeignandinternationallegislationthatmightaf
fecttheBankdirectlyorindirectly;
 ParticipatesinloanandothercontractualnegotiationsthattheBankentersintowithnation
al and internationalbodies;
 Depositrules,regulationsdirectives, manuals andanyrelevantlegislation.
8.2.9 CorporateCommunicationandMarketingDepartment
ReportingtotheBank’sChiefExecutiveOfficer,thecommunicationswingservesas
advisers in managing the company’s reputation. It helps the leaders prepare
formedia interviews,develop messagestodelivertoshareholder,customers
andemployees and suggest new initiatives to keep the Bank on the cutting edge
ofcommunication with their stakeholders. On the other hand, the marketing wing
willprovide information about the product and services of the bank, gathering
andanalyzingmarketinformation,designthebank’sproductsandservicestomakethematt
ractive,packagingandLabeling,PricingofProductandprovidingcustomersupportservices
.Themajorfunctionisthefollowing:
 Writing and distributing news releases and responding to media

inquiries,overseeing all planning for news conferences, including selecting the
site foran event, arranging for banners and other graphics to be displayed at
theevent,preparingpacketsofinformationtodistributetothemediaandpreparinge
xecutivestospeakatnewsconferences.
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 Arranging for spokespersons to appear on television and radio
programs,monitoring newspapers, television news broadcasts and other
outlets to seewhat the media is saying about the Bank and to devise
strategies to addressmisinformation.
 Building relationships with customers and responding to inquiries from

thepublic, which includes producing newsletters, brochures and other
printedmaterialsdesignedforthegeneralpublic;
 Managingthe Bank’swebsite and socialmedia presence,which

includesmonitoring what customers and clients are saying about the
company onsocial networking websites and responding to inaccurate postsor
requestsforinformation.
 AdvisingtheCEOandseniorleadersinmanagingcrisisevents.
 WorkingwithstaffthroughouttheBanktodevelopcrisiscommunicationplans
beforedisasterstrikes.
 Designing printed publications and writing emails to announce
companynews,benefitsinformationandtraining opportunities.
 Advising senior officers on how to improve relationships with their staff

andgainsupportfortheirinitiatives.
 providing information about the product and services of the Bank

FunctionsofMarketing Department
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 Gatheringandanalyzingmarketinformation,tofindoutthevariousnewideas,
needandwantofthepotentialcustomerstotakethevariousdecisionsand
findouttheopportunitiesinthemarket.
 Designingtheproductandservices oftheBanktomakethemattractive.That
leadtoanincreaseinsalesandagood-lookingproducthasmorechanceto
sellfirst.
 Packagingandlabelingtomaketheproductandserviceslookattractiveandhaveinfo
rmationaboutthem.
 Providingcustomersupportservicesintermsofconsultationandbusinessplanning.
8.2.10 DeputyChiefExecutiveOfficer,Operation
The Deputy Chief Executive Officer, Operation position will be a part of the
seniormanagementteamthatdrivestheoverallstrategyfortheorganizationandrepresent
s the company on a local, regional, and national basis. The Deputy ChiefExecutive
Officer, Operations will have deep knowledge of each project,
programoperations,and business plan.
He/she is responsible for planning, organizing, directing and overseeing all
bankingoperations,effectiveandefficientprovisionofbankingservicestocustomers.He/
sheinitiate policies, and coordinate studies for improving the scope and methods
ofserviceprovisionanddevelopmentofnewproducts/servicesandsuperviseitsimplement
ationuponapproval.
He/sheisresponsiblefor overseeingbanking
operationsaswellasavarietyofotherstrategicobjectivessetforthbythemanagementteam
andBoardofDirectorsofthebank.He/
sheisalsoresponsibleforavarietyoflending,deposit,savings,creditandother banking
products
Themaindutiesand responsibilities ofthisorganinclude:
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 Responsiblefortheoverallmanagementofbankingoperationsinlinewiththe
organization’sstrategicand annualplans
 Responsible for monitoring organizational performance against the

strategicplan, working with staff to stay on target and looking ahead to the
long termdevelopmentofthecompany,operationallyand strategically.
 Responsible for providing operational support and advice to the president

fortheeffectiveimplementationofplansandprograms
 Responsible for initiating the annual planning process and for overseeing
andcoordinating its development ensuring that it is in line with overall
strategicgoalsandmissionofthecompany
 Attract,develop,coach,andretainhigh-performanceteammembers,empowering
them to elevate their level of responsibility, span of control, andperformance
 Work with staff to develop systems to ensure consistent, high-quality

servicetocustomers
 Provideleadershipindevelopmentofinter-teamcommunicationandcohesiveness,
sustaining culture and supporting staff during organizationalgrowth
 Responsiblefordevelopinggoodrelationshipswithcustomersandotherstakeholde
rs
 Responsibleforensuringthattheorganizationhasanup-to-
dateandcompetitivebankingproducts/
services,attractiveinterestratesonthedifferentbanking products/services
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 Responsible for ensuring efficient and effective methods and procedures
forhandling customers on the variedbanking products (loans,
internationalbanking services, local and foreign money transfer, saving and
checkingaccounts,alternativebanking services,etc).
 Responsible for the an up-to-date and proper recording and processing

ofcustomer requests, reportingandmanagementsystems
 Responsible for ensuring proper marketing strategy to ensure

sustainableprofitoninvestmentand expanding thecompany’smarketshare
 Oversees and coordinate the development of necessary systems,

processes,andtoolstobettersupportthefacilitation,collection,andsharingofknowl
edgethatisgenerated bythedepartmentsunderitsdirectsupervision
 Oversees and coordinate the development of dissemination system to

shareorganizational learning withabroadrangeofcommunities
 Work collaboratively with the senior management team to integrate

crossprogramactivitiesand functions
 Confers with board members, other executives and subordinates to

reviewgoals,resolveproblemsanddeterminestrategicdirection.
 Analyzedataanddecideonmethodsofachievingtheorganization'spriorities.
 Performs other duties as delegated and/or directed bythe Chief

ExecutiveOfficerortheboard
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8.2.11 InternationalBankingDepartment
ReportingtotheDeputyChiefExecutiveOfficerforOperation’sOffice,thisisadepartmentwhichis
chargedwithalltheresponsibilitiesofInternationalBankingoperations.Themajordutiesandres
ponsibilitiesofthedepartmentinclude;
 Planning,organizing,directing,co-
coordinatingandcontrollingtheoverallactivitiesofthedepartment;
 Managing International Banking services pertaining to export and import

trades,moneytransfersfromabroad,purchaseandsaleofforeigncurrenciesandadminist
rationofforeigncurrencyaccounts.
 Analyzing the impacts of national and international capital and money markets
ontheliquidityand profitabilityoftheBank;
8.2.12 CreditDepartment
Reporting to the Deputy Chief Executive Officer’s Office for Operations, this is
anotheroperationalwingoftheBankwhichisentrustedwiththefollowingdutiesandresponsibiliti
es:
 Plans, organizes, directs, co-ordinates and supervises the overall activities of
thedepartment;
 ReviewsandpresentsloanproposalstoloancommitteeoftheBank;
 Reviewsappraisal,follows-
upstudiesetc.andinstructsforadjustmentsasdeemednecessary;
 Authorizesdisbursementofapprovedloansandensurescollectionofloansgranted;
 Co-ordinates and supervises all loans, credits and investments committed by
theBank;
 Signsloancontracts onbehalfoftheBank;
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 Guides and coordinates loan granting and collection activities of Area Banks
andBranches
 Initiatesactionstobetakenondelinquentborrowers;
 Participatesinthedesignsofprojectappraisalmethodsandstandards;andattendstoclien
tscomplaints.
 Makescreditageanalysis
TheDepartmentwillhavetwodivisions,namely,CustomerRelationsandCreditManagementand
CreditAnalysisand Appraisal.
8.2.13 BranchOperationsDepartment
Reporting to the Deputy Chief Executive Officer’s Office for Operations, this
operationalwingoftheBankisentrustedwiththedutiesandresponsibilitiesintheareasofdomesti
cBanking operations and coordination of the activities of all branches of the Bank to
thisend.Inparticular,itsmajor dutiesand responsibilitieswillbethefollowing.
 Plans, organizes, directs, co-ordinates and supervises the overall activities of
thedepartment;
 Directs,coordinates,supervisesandguidesoperationsofbranchesandtheiradministrati
on;
 ThroughallthebranchesoftheBank, providingdomestic
BankingServices;pertainingtosavingmobilization,demanddeposit,localtransfer,loana
ndguaranteeServices;
 Analyzing the impacts of national and international capital and money markets
ontheliquidityand profitability oftheBank;
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 Performing financial analysis, liquidity management and short term investments
inthemoneymarketandlongterm investmentinthecapitalmarket;
 Consolidatesbranchreports;
 Makes sure that financial, human and other resources are made available
forbranchesfortheirsmoothoperations,and
 Performsfacilitatingtasksforthesmoothrunningofbothoperationalandadministrativeta
sksofbranches.DeputyChiefExecutiveOfficer,CorporateSupport
8.2.14 InformationTechnologyServices
Reporting to the Chief Executive Officer’s Office the Deputy Executive officer for
ITservices, is generally responsible for the development of specifications for acquiring
theright information technology services required for the different operations of the
Bank,installation of the same, their repair and maintenance, development of data system
andprovidingthenecessaryinformationformanagementdecisionspertainingtotheacquiring,h
andling usage, repair and maintenance, disposal of IT equipment and services
andvariousoperationsoftheBank.
Itismainlyresponsibleforadministeringtheserver,thee-
Mergedatabase,designingandmanagingwebsite, generatingweekly,
bimonthlyandmonthlyportfolio report
Ineffect,itisentrustedwiththefollowingdutiesand responsibilities:
 Plansorganizes,directsandsupervisesallelectronicdataprocessingactivitiesoftheBank;
 Ensuresthathighstandardelectronicdataprocessingservicesarerenderedtoallorganiza
tional unitsoftheBank;
 Ensuresthattimelyand accuratedataaregeneratedformanagementdecisions,
 Undertakestheco-
ordinationandpreparationoftheBankperiodic,progressandactivityand
financialreports;
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 StudiesandproposesITrelatedbankingproductsand/
orservicesformanagementdecisions,
 AssistsandprovidesexpertservicesandassistanceintheuseofITandbankinginformation
system throughoutthebank.
8.2.15 DeputyChiefExecutiveOfficer,CorporateServices
The Deputy Chief Executive Officer, Corporate Services is responsible for
planning,organizing, coordinating and overseeing the overall support functions for
bankingoperations.He/sheinitiatepolicies,initiatesandcoordinatestudiesforimprovinga
ndmaintaining efficient and effective support in the area of HRM, ICT, procurement
ofgoodsandservices,financeandaccounting,logistics,andothersandforsupervisingitspr
operimplementationuponapproval.
He/she is responsible for effective and efficient accounting operations,

includinggeneral accounting, billing, payroll, month end close, insurance, risk
managementandfacilitiesandplaysanintegralroleinthestrategicplanningandcontinuedg
rowthofthecompany.
 Initiate/authorizestudiesforintroducinganup-to-dateandeffectiveHRMsystems
which includes recruitment and selection, placement, training anddevelopment,
performance appraisal, salary administration, benefit schemesand incentives,
and separation and overseeing its proper implementation uponapproval
 Initiate/authorizestudiesforintroducingstate-of-theartandeffectiveITsystems to
support banking operations and enhance the competitive capacityand
sustainable performance of company’s operation and for overseeing and
itsimplementationuponapproval
 Initiate/
authorizestudiesnecessaryforimprovingthebank’sprocurementpolicyandprocedur
esfortheprocurementofgoods,worksandservicesandsuperviseitsimplementationu
ponapproval
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 ensuresefficientandtransparentprocurementprocedureforgoodsandservicesandef
fectivetransportationservicesfoesmoothoperation
 ensuresefficientandeffectiverecording,analysisandreportingofcompany’s
financialperformanceandfinancial management
 Demonstrateconsistentqualityoffinanceandadministration,Informationtechnolog
y and procurement methods for providing support to the
operationaldepartments.
 Attract,develop,coach,andretainhigh-performanceteammembers,empowering
them to elevate their level of responsibility, span of control, andperformance
 Work with staff to develop systems to ensure consistent, high-quality service

tocustomers
 Provideleadershipindevelopmentofinter-
teamcommunicationandcohesiveness,sustainingcultureandsupportingstaffdurin
gorganizationalgrowth
 Responsible for initiating and managing change and play an active role in
theidentificationofchangeagentfacilitatethechangeprocess.
 Conferswithboardmembers,otherexecutivesandsubordinatestoreviewgoals,resol
veproblemsanddeterminestrategicdirection.
 Analyzedataanddecideonmethodsofachievingtheorganization'spriorities.
 Leads and continues to strategically build a strong infrastructure for the
soundandefficientfinancialandadministrativemanagementofthecompany
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 Oversees all financial reporting systems, including budgeting, audits,
reporting,compliance,etc.
 Designs and implements systems and procedures following standards

adaptedto handle specific constraints and conditions, yet ensuring effective
internalcontrols and minimizing risks; monitors accounting procedures and
accountingdutiesso astomaximizeinternalcontrols
 Builds relationships with public agencies to maximize business opportunities

forbank
 Assistsinnegotiationsforfundingregardingcontractspecificsrelatedtooverheads,re
porting, etc.
 Overseesthefiancéandtreasurydepartmenttoensurethatthebooksareclosedmonth
ly and a full set of financial statements are prepared accurately for
thepresidentandBoard ofDirectors.
 Asnecessary,reviewsthebenefitsprogram,HumanResourcespolicies,regulations,a
nd operatingprocedures
 Managesandmaintainsthebalancebetweenworkingcapitalandinvestedfunds,maxi
mizing the growth potential of the funds through safe, secure short-andlong-
terminvestment
 Establishesbudgetaryreportingandmonitoringproceduresthatmeetthemanageme
nt needs of the president, department managers, and the
oversightresponsibilitiesoftheBoard ofDirectors
 Reviews the annual budget for submission to the presidentand Board
ofDirectors, as well as periodic budget forecasts, budget revisions and
fiscalanalyses
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 Ensures that outside auditors have access to all necessary information
andrecordsasinstructed bythesupervisor
 Oversees generation of monthly corporate financial statements necessary

atregional, national , and federal tax filings, and other corporate reports
andrequestsfrom outsideagencies,asinstructed bythesupervisor
 Withinputasappropriatefromdepartmentdirectorsordesignees,organizesandmain
tainsallcontracts,financialandHumanResources’recordsandothercriticaldocument
sacrosstheorganization
 Researches and implements the bank’s business insurance program to

protectagainst loss finance, equipment, facilities, and people key to the
organization;also, general and umbrella liability coverage, property, workers’
compensationandemployeebenefitinsurance.
 Performother dutiesdirectedbytheChiefExecutiveOfficer.
8.2.16 HumanResources&AdministrationDepartment(HR)
Reporting to the Deputy Chief Executive Officer’s Office for Corporate Service,
thisorganoftheBankhasaresponsibilityfortheacquisition,deploymentandmovement,pr
oper utilization, motivation and maintaining of motivated human resources of
theBankandefficientutilizationofmaterial resources.Itsfundamental tasksinclude:
 Plans, organizes, directs, co-ordinates and controls the overall activities
ofthedepartment;
 Ensuresthatpersonnelpolicies,regulationsandproceduresoftheBankarecompl
iedwith;
 Advises and assists management in the formulation and implementation

ofoperating policies and procedures in respect to the sound management
ofHr and administrationactivities;
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 Ensures the provision of efficient clerical, messengerial,

custodial,communication,etc. servicestothevariousofficesoftheBank;
 Authorizesvariouspaymentsinaccordancewithdirectivesgivenbymanagemen
t;
 Organizesanddirectsthehumanresourcedevelopmentprogramsgivenbymana
gement;
 Administerssalaryandother employeebenefitprograms;
 Ensuresthesystematicandefficientmanagementofpropertyrecords;
 Ensurethatproperrecruitment,placement,promotion,andtransferofemployee
sarepracticed atalllevelsoftheorganization;
 Ensuringproperselection,training,placementandadministrationofhumanresource
softheBank;
 UndertakingtraininganddevelopmentofemployeesoftheBank;
 AdministeringrewardsandbenefitsoftheBank;
 Developingandputtinginplaceasystemofperformancemanagementandadministeri
nghumanresourcesoftheBank;
 Executingplans,policies,directivesetc,pertainingtoitsrolesand/
orassignedtoitbytheBank;
 Establishingandmaintainingemployeeinformationsystems(EIS);
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 ProvidingexpertservicesontheinterpretationandapplicationofHRpoliciesandproce
dures;
 Managing employee relations, like employee involvement and

communication,employee services and assistance
programs,safety,welfare,wellnessandhealth;
 Assistinginorganizationalplanning,organizationdevelopment,systemimprovemen
t;
 Maintainssoundworkingrelationswithallpresentandprospectivesuppliers;
 Ensures that materials, equipment services, and other property of the bank
areprotected against fire, theft, temperature, humidity, and excessive ageing,
andotherdamages;and
 Administers and manages all physical properties of the bank and

providesgeneral services such as repair and maintenance of buildings, fleet
operations,andmaintenanceofvehicles,replacementand
salesofobsoleteproperties.
8.2.17 FinanceandAccountsDepartment
ReportingtotheDeputyChiefExecutiveOfficer’sOfficeforCorporateServices,thisorganof the
Bank has a responsibility for the allocation and reallocation, proper utilization,
safekeepingoffinancialresourcesoftheBank.Italsoexercisestheresponsibilitiesofcreating,an
d maintaining workable and efficient system of recording and reporting of all
financialtransactionsoftheBank.
Itsfundamentaltasksinclude:
 Ensuring the establishment of optimum structure and composition of
financialrecourses.
 EnsuringbestusesofdifferentfinancialportfoliobuildupoftheBank,ensuringthatfinancia
lresourcesareutilized forthecorebusiness oftheBank
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 Establishingandimprovingsystemsoffinancialrecordingandreporting.
 Producingaccurate,completeandtimelyfinancialstatements/information.
 Signingandcheckingvouchers,Bankingtransactions,correspondenceandotherfinancia
ldocumentsoftheBank;
 Ensuringthatheadofficeandbranchaccountsareconsolidated;
 Attendingtoclientscomplaints;
 Analyzingfinancialstatementsandadvisingmanagementonitsimplicationtogetherwith
possiblecoursesofactions.
 Initiatingandconductingstudiestoimprovefinancialreportingsystemsandcosteffective
utilizationoffinancialresources,
 Monitoringandcontrollingbudgetaryallocationsandexpendituresthrough
regularreports, review,anddata.
Inlightofthesemajortasks,thedepartmentshallhavethefollowingthreeDivisions.
 General Accounts&AccountsReconciliation
 ShareholdersAccounts
 MgtAccounting&CreditInformation
8.2.18 TechnicalServicesDepartment
ReportingtotheDeputyChiefExecutiveOfficer’sOfficeforCorporateServices,thisisa
unitwithmainresponsibilitiesofexecutingtechnical tasksoftheBankpertainingto:
 Performingofalltechnicalserviceslikevaluationofpropertiesforcreditpurposeandforfor
eclosure,
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 Developingvariousbuildingdesignsandtechnicalparametersforbuildings,
 Constructionofbuildings forthepurposeoftheBank’s use,
 SupervisingofconstructionsofbuildingsfortheBank’suse,and
 Developingvariousspecificationsusedforloandecisions.
8.2.20 Branches
ThesearethelowestleveloperationalunitsoftheBankthatdirectlylinktheBankwiththecustomers
. Theyrepresentthefirstlinkinthevaluecreating chain.
Theirfundamental tasksinclude:
 Organizingandmobilizinghumanandfinancialresourcesfortherealizationoftheir
plansand workprograms;
 Planning.co-
coordinating,supervisingandcontrollingtheirownoperationsaspertheauthorityvest
ed inthem;
 DeliveringcreditServices,
 Mobilizingsavingsanddemand deposits,
 Deliveringall Servicesrelatedtotransfers,
 ProvidingtrainingandadvisoryServicestoclients,
 Makingfollow-upofloanrepayment,
 Analyzing,compiling,andpreparingfinancialreportsandothers;and
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 OpeningofissueAccountwiththenearestCommercialBankofEthiopiaBranchanddep
ositingexcesscashandwithdrawingcashwhenever shortageoccurs.
Dependingontheirstageofdevelopment,brancheswillhaveSavingsAccountSection,CurrentAcc
ountsection, TransferSectionandLoanSection.
IX. STRATEGICANDOPERATIONALPLANS
9.1 ClientTargetingStrategy
ThemajorclientsoftheBankareexpectedtobelow and
middleincomeindividuals,business enterprises, and cooperatives at various
development stages, individualsthrough their cooperatives and women groups
recognized by concerned
governmentagencies,individualentrepreneursinruralandurbanareasandbusinessorgan
izations. The bank will mainly focus on rural areas of the countryfor
reachingregionstotap thepotentialsnotyettapped.
9.2 StrategiesforReachingClients
The networking of the Bank will stretch out from the Head Office with
differentdepartments down to Area, Branches and District Branches over time. Even
thoughthe financial services will mainly be rendered at Area and District branch
offices
forpracticalreasons,thetasktobeperformedbyeachoftheofficesisbrieflydiscussedasfollo
ws:
9.2.1 HeadOffice
TheHead OfficeistheNationalHeadquarterofthebankresponsiblefor:
 Establishing andmaintainingcontactswiththegovernmentandtheexternal
world;
 Mobilizingresourcesandtechnicalassistancefromdomesticandforeignsources
;
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 Allocatingfundstobranches;
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 DesigningpoliciesandproceduresoftheBank;
 DesigningtheBank’scorporatebusinessstrategic plan;
 Undertaking business development andmarketingresearch for

designingofnewproducts;
 Coordinatingandmonitoringtheactivitiesofthebranches;
 RecruitingandhiringpersonnelfortheentirebankingoperationsoftheHeadOffic
eand Branches;

Periodicallyinspectingthebranchoperationswithrespecttooperationalandcred
itrisks
 Organizingandconductingseminars,workshops,trainings,meetingsandallied
activities;and
 RepresenttheBankatnational level.
9.2.2 BranchNetworking
Expansion of banking branches of Tsehay Bank will be guided by two principles.
Thefirst guiding principle is that of economy while that of the other is location. In
anyeconomy, it is important that banking services are spread across all sections of
thesociety. A sound banking system must also be present throughout the economy
andoffer funds for all productive activities. In fact, the less-developed regions
andsegments of society must receive more banking facilities than the others. The
otherguidingprincipleisthatoflocationwhichcallsfor
Commercial banks to locate their branches in the commercial area where
manycustomers are available,the location are safe forthe customers andan
easycommunicationsystem exists.
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GuidedbytheaboveprinciplesTsehayBank’sbrancheswillbeestablishedwhenandwhent
heoperationsjustifytheestablishmentofitsbranches.
The plan for branch expansion is to reach at least 100 branches by year 5,
withopening and Operationalization of 20 branches each year. The branches of the
Bankwill be opened in each Zone of Addis Ababa and each region of the country
duringyear 1, but expansion to high potential areas based on feasibility studies
thereafter.Themajorfunctionswillbe:
 Providingfullbankingservicesintheir area ofoperation;
 Establishingcontactswiththesub-
cityAdministrationandDepartments,Banksandfinancialinstitutionsincludingmicr
ofinance;
 Conductingfeasibilitystudiesonbankableactivitiesinthe sub-
cityandsubmittingsametotheHead Office;
 PreparingannualbudgetsandforwardingsametotheHeadOfficeforapproval.
9.2.3 Digitalization
In the recent years, Ethiopian banks have joined the electronic banking
revolutionseen globally, with virtually all now offering some combination of digital
bankingservices that includes ATMs, POS, internet banking, and mobile banking.
There is nodoubtthatTsehayBankS.C.willfollowsuituponcommencementofoperations.
9.3 ManagementandOperationalStrategies
9.3.1 MarketingStrategies
The following are modern strategiesfor commercial banks, which Tsehay

BankS.C.,mayalsoadopt asitcommences operations.
 MarketingCooperativelywithPartners
Findingpartners to work with is important because teamwork makes the dream

ofthe bank work effectively. Whether it is a hospital or real estate agency, the
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wholeideaistoalignitselfwithotherbusinessesthatcanhelpbringinnewcustomers.For
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example,TsehaybankS.CmaypartnerwithhospitalsinAddisAbabaorregionaltownstooffe
rsavings funds fornewbornsbornona certainday.
 TappingintoNewMarkets
CooperativemarketingcanhelpTsehayBankS.C.buildnewrelationshipsanditcanalso
help it find new markets, like homebuyers who need to take out loans or theparents
of young children who are looking to start bank accounts. This is one of
thebestmarketingstrategies forbanking.
 ResearchingandNotAssuming
Instead of assuming thatwho the bank’smain customers are and how they
spendtheirtime,TsehayBankS.Cmayneedtoputintheresearchtofindout.Forinstance,wh
atsegmentofitscustomersareactuallyonFBversusothersocialmediaplatforms.
 EducatingandTeaching
Alotofcustomersmaygenuinely wanttolearnaboutbanking,whiletheBankistheexpert.
There’s a lot the bank can teach customers, both online and offline, aboutpersonal
finance, saving for emergencies, how to finance and run a small businessandso
muchmore.Whatis requiredfrom thebankisfacilitation.
 GettingInvolvedwiththeCommunity
Sponsoring a local football team, fundraise for rescue shelters, helping build
housesfor free classes at the local school library on budgeting for promoting the
bank. Thecommunity needs the bank just as much as the bank needs them and
many groupswill be happy to give it a voice in exchange for the assistance made,
which is a win-winforeveryone.
 OfferingaGoodIn-PersonExperience
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One part of marketing that often gets overlooked is marketing visits to
currentcustomers. But it is always cheaper to retain existing customers than it is to
keepsearching fornewones.
 MarketwithVideos
Not only should the bank be marketing with content, but that content should
alsoincludevideos. It’simportantfor thebanktoshowstoriesaboutthepeopleitservesand
the communities in which it operates. Tapping into this resource and make themost
ofthepowerthat“show” holdsmuchbetterpowerthan “tell”holds.
9.3.2 ProductDevelopmentStrategies
Commercial banking services are at a cross roads in their service offerings as

newrealities disrupt the status quo. Consumers trust in financial firms may be
erodedwhiletheirexpectationsofservicemayincrease.Financialservicesarenottraditiona
lly known for innovation but intense competition in today’s retail marketplace
means that banks must seek every advantage to gain their share. Whilstinnovative
products can often provide that edge, the key to long term success is toproduce a
constant stream of innovations so gains are consistent and repeatable.Tsehay Bank
S.C. (under Formation) is . aware of these facts.It understands
thatitsfuturesuccesswillbebaseduponitsabilitytoreactquicklytoexternalforcesandrespo
nd quickly to opportunities and threats. What will separate the winners
fromtheloserswillbetheabilityto reacttoandembracechange.
In order to face up to the competitive challenge from new market players, the
bankwillstrengthenitsawarenessofnewintelligentbankingproducts,focusoninnovatives
alestechniquesand lookatlong-term strategicplanning trends.
In the implementation of its productive development strategies,the Bank needs

toconsider thefollowing keytactics fordevelopingbankingitsproducts. Theseare:
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Purpose:Makesuretohaveapurposethattheentireteamentrustedwithproductdevelop
mentunderstandsandthateveryoneinvolvedinproductdevelopmentatthebankundersta
ndswhychangingproductisneeded.Tohelpachieveclarity,aprojectcharter, agreed upon
by the entire product development team, should be
developedtoprovidebothastatementofpurposeandasetofguidelinesthattheteamcanuse
toguidefuturedecisionswheninformationisambiguousorcontradictory.
Simplicity:Driving customer behavior through targeted incentives, specific to

thecustomer base and the bank, is the only way to keep checking accounts
profitable.Using behavior-driven pricing and product strategy allows the bank’s
customers tobank the way they want while maintaining profitability. It is important
to listen
tocustomersandrespondandtakecustomerbehaviorintoaccountandprovideflexiblesolut
ionsforindividualfinancialneeds,withoutintroducingunnecessarycomplexity.
Speed: The advantages of speed and surpriseare obvious. Speed in new

productdevelopment allows the bank to take advantage of market opportunities as
theypresentthemselves.
Security: Keeping the details of action plans secret until implementation

keepscompetitorsguessing the next move.The corollary is beyond just
informationsecurity to the security of knowingthe bank’sproduct plan but taking into
accountallpossibleoutcomes, whichiseasiersaid thandone.
Repetition: In the processes and training is critical ifone wants the teams to
worktogether effectively. Creating a repeatable, scalable process in product
developmentstartswithawell-documented
planthatallowsallteammemberstogiveinputwhilekeeping the project moving forward.
In fact, it is very helpful to have a senior bankleader champion the development of
the process documentation to ensure thateveryoneontheteam buysinto thenew
framework.
Surprise:Surprising clients with unexpected benefits in a new product or

servicedrivesengagementandadoption.Thesurprisecanbeassimpleasaphonecallfromth
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e officer amaking sure a new debit card arrived as requested or as
complicatedasatiered cashrewardsstructureforanadvancedcheckingaccount.
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9.3.3 InternalAuditStrategies
Banking and other financial institutions in Ethiopia are ruled by regulations put in
placebythelawtoguardconsumersagainstfraudulentactivities orotherdangerscausedbya
violation. The most important purpose of a bank audit is to make sure that the bankis,
infact,abidingby allrules,aswell astoidentifyany potentialrisksofviolation.
In recent years, technology has advanced to allow for the development of

softwareto be used by financial institutions and their internal auditing departments
to easilymanage their internal bank auditing strategies and procedures. It is hoped
thatTsehay BankS.C., will put in pn place as it commences operation and that
thesoftwarecompaniesexpertsmayhelpwiththefollowing bankauditing strategies:
 Monitoringcybersecuritytoprevent losses;
 Analyzing the financial status, continuity plans, information security, and more
ofthird-partyvendorsforthepurposeof increasingknowledge;
 Document collection for improving regulatory compliance (insurance,
disasterrecoveryinformation,certificates,andmore);
 Reducingrisksthroughthereviewofexistingpoliciesandprocedures;
 Comprehensiveriskassessment
 Improvingexecutionandefficiencybyautomatingreports
With respect to audit, the Board will put in place a sub-committee which will follow-
upperiodically reportanditsfindings.
9.3.4 RiskManagementStrategies
Risk Management consists of many management techniques which helps the

bankto curb the adverse effect of credit risk. Techniques includes: credit
approvingauthority,riskrating,prudentiallimits,loanreviewmechanism,riskpricing,port
foliomanagementetc.
To this end, the NBE has issued a revised document, consistent with
internationalstandardsandbestpractices,whichisexpectedtoprovideminimumrisk
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managementof riskidentification,measurement,monitoringandcontrolstandardsfor
allbanksoperating inthecountry.
TheRiskManagementGuidelinecoversthemostcommonandinterrelatedrisksfacing
banks in the country, namely, credit, liquidity, marketand operational risks.Tsehay
BankS.C,will havetoput the guidelines into practiceupon
thecommencementofitsoperationswhichisexpectedtoassistrisk-
basedsupervisionandcontributetowardssafetyand soundness ofthebank.
TheNBEguidelinestipulates:
 activeboardandsenior managementoversight;
 adequatepolicies,proceduresand limits;
 adequateriskmonitoringandmanagementinformationsystem;and
 adequateinternal control.
Forimplementationoftheriskmanagementstrategy,andappropriateunithasbeendesign
edwith in the organizationalstructure of the bank basedon the
RiskManagementGuidelinesissuesbytheNBE..
9.3.5 HumanResourcesManagementStrategies
TheprincipleuponwhichTsehayBankS.C.,developsitshumanresourcesstrategywillbe
based on that People are the most important component of any business. Whetherthey
are customers or employees, people sell and buy products and services and
areresponsibleforproducingthemtoo.ThereforeeffectiveHumanResourceManagementisbyf
ar,oneofthebiggestcontributorstoanefficient,productiveandpositiveworkplace.Thefollowin
g arethestrategiesrecommended:
 ClearCommunicationwithnoCommand
Barking orders at the bank’semployees and team will only getit disgruntled andde-
motivatedteamsthatdonotwanttoperformattheirbestbecausetheygenuinelyhave no
reason to do so. All they come in for is they pay and they will do the workthatis
required togetthem that.
 EncourageEmployeesorTeamtoTakeOwnership
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Thebankshouldcommunicatewiththemandpraisethempubliclyforthegoodworkthat
they have done and solve any issues in private so that they do not feel
singledoutoruncomfortable.Itshouldhaveempathyandcompassiontowardsitsteamand
observe the best method of communication for them. While some employees
mayrequire a firm and professional approach others will respond to a more informal
andsofter approach.
 MakeRelationshipsaFfoundationtoGreatHuman Resource
Mosttrue leaders know the value of relationships with their team. It is the same for
anHuman resource professional too. If one does notknow his team, it is difficult
toaskthem to help propel bank’sbusiness forward. Some of the main components of
goodrelationships at work include; Trust, Mutual respect, Mindfulness, Equality and
opennesstodiversity,Effectiveandopencommunication
 Let themtoexploittheirpotentials
Great HR revolves around letting employees reach their full potential. When
employeesareofferedopportunitiestolearnandgrowtheirlevelofcreativity,skillandindepende
ncewillbebroadened.Ifonewantstohelpthebusinessgrow,hehastoeducatehimselffirstabout
effective HR administration and then facilitate the team to learn and
developcontinuously.Thesetrainingsshouldideallybescheduledwithinworkinghoursideallys
othat employeescantakepartconveniently.
 NurtureTeamwork
Insecurityandintimidationintheworkplacedoesn’tproducegreatresults.Theteamsshoul
d be encouraged to communicate openly with team members and share ideas.In
order to achieve this, one has to introduce the concept of brainstorming and
givethemteamincentivesthatmotivatethemtoopenupandworktogether.Afewheadsare
definitely better than one and this greatly improves the level of creativity
andefficiencyinabankingbusiness too.
 Identify,AppreciateandReward
Let’s walk a mile in somebody else’s shoes. If you put your heart and soul
intosomethinganditwasnotappreciateddespiteitbeinggoodworkandbeingapprovedver
yofficially,wouldyoureallyputthatmucheffortintoyourworkagain?Answeringthis
question is basic in human resource management strategy and hence,
TsehayBankS.C.,ishoped toconsiderduring itsoperations.
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 ConfrontwhenNecessary
When people work together disputes arise. Performance reduction can happen
orsomebody could break a rule unintentionally. Whichever situation it is, the
bankshould confront it professionally, give the employee respect and listen to what
theyhavetosay.Thendrawyourconclusionandsolvethematterinawaywhereitisfairfor all
parties involved. Don’t let rumors make their rounds in the workplace due
toinaction.
 HiringCorrectly
The Bank’srecruitment strategy should be spot on. It should shortlist the
rightcandidates, have a thorough interviewing process and hire quickly but correctly
andprovide the correct job descriptions,. It should make sure that employees who
havethe skills and the background in the subject matter while also being able to
thrive inyourworkplace.
 BeingTransparent
Being transparentandimplementingaworkingculture thatistransparenttooinimportant for
maintaining industrial peace. When employees know that the rule is
theruleforeverybodyitboostinnovationandmotivation.Whenyouareabletocommunicatewith
them freely, it builds trust and enhances the overall productivity of the bank’sbusiness.
X. PRODUCTSANDSERVICES
The financial products of Tsehay bank S.C (Under Formation) will be diverse
andinclude credit service, saving mobilization, current account service to
customers,foreign banking service, money transfers, guarantee, Interest free
banking, internetbankingandotherbankingproductsastheymayemerge.Etc.
Providing basic financial services to the low and middle income group has
alwaysbeenachallengeinallcountries.ButinEthiopia,thechallengeisurgentbecausetheco
untry must find ways to reduce the entrenched inequality of incomes,
economicopportunities, and access to services left over for many years. With over
half of theEthiopianpopulationlivingon$2aday,itisimperativethatthemajorfinancial
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institutions help redressing the historically of weak system of services for
lowerincome and middle people. The establishment of Tsehay Bank can play
tremendousrole in closing the gap between demand and supply for financial
services to the
lowandmiddleincomepopulation.TsehayBankS.Cshallprovidecomprehensivebankings
ervices to its clientele. Besides, the service products commonly provided by
privatecommercialbanks,TsehayBankmayhavetheadvantageofintroducingnewservice
productsusingmoderntechnologies.TheclienteleoftheBankhavediverseprofessional
and business background, the service products to be developed by thebank need to
address the interests of its clientele and tailored to their
businessrequirements.Thisrequiresapplicationofinnovativetechnologiesandskilledhu
manresources.Themenuoftheserviceproductsispresentedasfollows,butbynomeansexh
austive.Thereisaneedtobroadentheserviceproductsbyincludingnewservicesfrom time
to time to the existing list to satisfy customers and succeed in
thecompetitivemarketsoffinancialservices.
10.1 LoanProducts
10.1.1 LoanproductsbyMaturity
TheprovisionofloanstocustomersisthecoreproductoftheBank.Thereareseveraltypesofl
oanstheBankmayprovidetotheclients.Intermsoftheirtimeofmaturity,theyareclassified
as:
 Shorttermloans:thisis limited tooneyearonly;
 Mediumtermloans :thesetypesofloansspanbetweena year and five;
 Long term Loans: These types of loans are usually extended for
investmentandtheyspanoverfiveyears.Itincludesloanstoenterprises,agriculture
andindustrial businessessectors.
10.1.2 LoanProductsbyType
10.1.2.1 Working capital loans: this could be permanent working capital in

thecase of industrial plant to finance stock etc. Working capital loan is also given
forshortterm tofinanceinputs, tradestockforbusinesses.
10.1.2.2 Merchandizeloanproducts:thesetypesofloansaregiventotradingcompani
esengaged inmerchandizebusiness.
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10.1.2.3 Overdraft: this type of loan is given for companies based on volume
ofbusiness transaction. The business is, however, appraised first and
thesecustomers should have established relationship with the Bank. Limits
aresetonthefacilitybasedonthevolumeoftransactionsandtradingbusinessesa
ndguarantees providedup tothelimit.
10.1.2.4 Housing Loan: There are many individuals who don’t have their
ownresidentialhousesduetolackofaccesstohousingloanandotherreasons.Tse
hay bank S.C will serve individuals with housing loans for purchase
orconstruction. However, housing loan is long term loan that requires
longtermamortization,theseneedstobetreatedcautiouslyinamannerthatitdoe
s not pose liquidity risk to the bank. Besides, long term loans are
riskproneandneedtobemanaged.Hence,tomanagerisks,itisveryimportanttoli
mitthebank’sexposurebytaggingtothebank’scapital.Therefore,theloansmay
belimitedtoadvancepaymentforCondominiums.
10.1.2.5 Business loans: Several enterprises in Addis Ababa are engaged

indifferent income generating businesses. The businesses they run include
servicessuchascateringservices,pettytrade,buildingmaterialsproduction,woodandmet
alproductsproductioninworkshops,urbanagriculture(poultry,dairy,horticulturefarm,fat
tening,andbeekeeping),miningandquarrying,butcheringandothertypes.Ruralenterpris
es including Cooperatives are also engaged in crops production, coffeeproduction
and processing etc. All these cooperatives require loans tailored to
theirbusinessesfrom theBank. Theloansshouldthereforebeflexibletofinance;
 Investmentsonassetssuchasequipment,shadesetc;
 Workingcapital
needstofinanceinputsuchasfertilizerschemicals,seeds,urbanservicecooperat
ivesconsumptioncommoditiesstocks,andforservices.
 Servicessuchascatering,pettytradeetc.
 Other incomegeneratingactivitiesthatfocusonpovertyreduction
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10.1.2.6 Household Assets Acquisition Loans:Several individuals who
havebuilt new homes or purchased new houses require furnishing their
houses.Someindividualsmayalsowanttosolvetransportproblemsbyacquiringvehicles.T
herefore there is a high demand for such type of loans for furniture and
motorvehicles. The policy of the bank should, therefore, provide for the
development ofhouseholdassetsloanproducts,butthisneedstobelimitedand regulated.
10.1.2.7 Emergency Loans: These types of loan products are designed to

meetemergenciesonmembersofthecommunity.Theyincludefinancingweedingceremon
ies,childrenschool fees, consumptionsmoothingetc.
10.1.3 ProposedCreditPoliciesoftheBank
10.1.3.1 Loanto Individuals

Loans shall be granted to individuals for projects that are found to be
financiallyprofitableand economicallyviable.
10.1.3.2 LoansandadvancestoBusinessOrganizations
Loans and advances shall be granted to business organizations for projects that
arefoundtobefinanciallyprofitableand economicallyviable.
10.1.3.3 LoansthroughMicrofinanceInstitutions
Currently,thereareabout38microfinanceinstitutionsregisteredwithnationalBankofEthi
opiaandtheseMFIsoperateatthegrassrootslevelwithsomeofthemfocusingonwomenand
withveryhighrecoveryrates.MostoftheMFIsufferfromlackofloanable funds to expand
their outreaches. While the Bank shall serve as depository forthe MFIs, it shall also
look for mechanisms of creating linkage for reaching thegrassroots through them.
In the long run the bank shall promote and facilitate
theestablishmentofanaffiliateMicrofinanceinstitution.
10.1.3.4 LoansthroughCooperativeUnions
Cooperative Unions of different types shall be used as intermediaries in
extendingcredittotheirmembercooperatives.
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10.1.3.5 Loans through Rural Saving and Credit
Cooperatives(RUSACCOs)
RUSACCOswhicharefoundtobesuitablefor thepurposesoftheBankmaybeusedas a
means for channeling credit to their members. However, such credit will belinked
withtheamountofsavingsdepositedwiththeBank.
10.1.3.6 LoansthroughWomenGroups
Thoughmostwomenarepoor,theyhaveprovedtobecreditworthy.Incooperationwith
organizations involved in promoting the welfare of women, credit shall
beprovidedthroughrecognizedwomengroupsandthosewhichareexpectedtotransform
themselves into Saving and Credit Cooperatives. For this, emphasis
shallbeplacedonhowtolinktheestablishedpracticeonsavingsofsuchgroupswiththatofthe
BankandtousetheirsavingsasasourceoffundsfortheBankandguaranteefor the credit to
be provided. This will be part of the social responsibility of the
bankthatitshalldelivertothesociety.
10.1.3.7 LoansthroughMicroandSmallEntrepreneurs
Micro and small entrepreneurs, particularly by the Youth, are growing
throughindividual and collective approaches forming association of various types. As
thesecan be the breeding ground for future investors, the Bank shall look for ways
andmechanisms for reaching the group. Experiences of other counties shall be used
inusing thisapproach.
10.1.4 LoanProcessingProcedures
10.1.4.1 EligibilityCriteria
Individuals or business organizations that are acceptable to the Bank should

havecertificate of legal entity naturally or legally or supporting letter from the
organizingagency.Inaddition, borrowersarespecificallyexpectedtodemonstratetheir;
a) WillingnesstosaveacertainamountofmoneyperiodicallywiththeBank,
b) Willingness toabidebytherules andregulations oftheBank,and
c) Presentaviableprojectsupportedwithabusiness plan;
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However, there will not be any restriction on the type of activity to be financed
aslong as the activity is socially acceptable and believed to generate income and
profitfor theapplicant.
10.1.4.2 AcceptingandProcessingofLoanApplications
One of the major reasons that make formal financial institutions inaccessible to
thegrassroots is their loan and complicated loan processing procedures. In most
cases,theyrequirethesubmissionofmanydifferentkindsoflegaldocumentswhicharenoti
ntelligibletoilliterateorsemi-
literateruralentrepreneurs.Loanprocessingtimesarealsolongandfrustrating.Even
though the policiesandprocedurescannot beforegone in view of ensuring the
sustainability of the institution, the Bank shouldmake efforts to simplify the policies
and procedures to create an advantage for boththeruralandurbanclients.
Asopposedtothetraditionalwayspracticedbyinstitutions,TheBankisexpectedtoovercom
e all these problems by introducing simplified and flexible loan
applicationprocedures that would fit the type of clientele envisaged. The loan
application formsshould not exceed a page and the applicant’s business plans
should be criticallyreviewedbytheloanofficersoftheBank.
Themajor contentsoftheloanapplicationshouldbrieflyincludethefollowing;
a) Dateofapplication
b) Thenameof theapplicant
c) Address oftheapplicant
d) Summaryofbusinessplan
e) Loanamountrequired
f) Tenureofloan
g) Termsofpayment
h) Purposeforwhichtheloanisrequired
i) Signatureoftheapplicant
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10.1.4.3 BorrowerSelectionTechniques
TsehayBankS.C.(Underformation)willusethewellknown5C’scriteriainthe
selectionofitscreditcustomersorborrowers.ThefiveC’sofcreditare:
 Character: Used to measure how trustworthy and reliable the applicant is
asaborrower.Inthisrespect,thebankwillgenerallyevaluatetheapplicantusinghiscr
editscore,credithistory(bankruptcies,foreclosures,andjudgments)andhowhe/
shehashandled his/herdebtobligations.
 Capacity: This considers the applicant’s level of cash flow and

measureshis/her ability to repay his/her debt obligations. The Bank will
ensure that thepotential
borrowershaveenoughcashtopaybackwhattheyborrow fromit.
 Capital:Tsehay Bank S.C (Under formation) will look at the

applicant’slevel of debt and use his/her capital as a measure of his/her
leverages; themoreequitythepotentialborrower
has,thelowerhis/herleverage,whichisapositivething totheBank.
 Conditions:Tsehay Bank S.C will endevour to understand the
currentcondition of the market, industry in which the business operates,
economicenvironment, how the borrower intends to use the money, interest
rate, andthe size of the loan. The Bank will also make maximum effortto
know howthe applicant/borrowerplans on using the funds from the loan and
how theconditionscould impactthatplanned use;
 Collateral:Thisisthebusinessandpersonalassetsoftheapplicantthatcanbe
pledged to back the loan. For loans that don’t require collateral, like
anunsecured loan, the other four characteristics may have a higher level
ofimportance.
TsehayBankS.C.(UnderFormation),byknowingthe5C’sofcredit,willprepareforwhat is
needed during the approval process of a loan. In addition to knowing whateach
characteristic is, it’s important for the bank to know how to use these
criteriaduringtheapplicationandapprovalprocess.
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10.1.4.4 LoanApproval
The review of the loan applications shall be done in a cost effective way since it
willdirectly affect the administrative cost involved as well as the transaction cost to
theborrowers.Animportantmatterinthisrespectisthedegreetowhichtheresponsibility
for loan approval is assigned to the intermediary. Under the proposedbank, loans
will be approved at various levels depending on the type and riskinvolved. The loan
approval limit at each level would be determined by the Board
ofDirectorsfromtimetotimeanddependingontheeconomicactivityoftheareawheretheBa
nk’sbranchesarelocated.
10.1.4.5 ModeofLoan Disbursement
After loans are approved to the clients, disbursement may be effected in a

mannerthat is convenient to both the borrower as well as to the Bank to ensure
effectiveutilization of the money for the intended purposes. To this end, loan
disbursementschedules will follow the operational program of the activity for which
the loan isearmarked. Depending on the nature of the loan, disbursement will be
effected inoneofthefollowing ways.
10.1.4.6 DeterminationofLoanRepaymentPeriod
This is particularly in regard to medium and long term loans that are granted
toprojects.Therepaymentperiodofloanwoulddependonthecashflowpatternoftheproject
or the income generating capacity of the project financed. For instance,
therepayment period of an off-farm income generating activity which generates a
dailyincome to the borrower and an agricultural production that involves cereal
cropproduction which generates income once a year can not be the same. Same is
withtrading activity and industrial production project. Therefore, the frequency of
loanrepayment should depend on the income generating pattern of the project to
befinanced by the Bank. Borrowers can also repay loans from other income,
wheneverthey wish to do so, but such considerations should be made during loan
appraisalprocess.
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In general loan repayment period is based on a cash flow analysis of the project
tobefinanced.Itshouldalsobenotedthatrepaymentscouldbeonmonthly,quarterlyandse
mi-annualand onannualbasis.
10.1.4.7 LoanSupervisionandFollow-up
The experience of successful financial institutions shows that staffs going to
clientsto check from time to time result in good loan collection performance.
Frequentfollow-up of client’s projects and proper reports may be used to make
timely
andalternativedecisionsonthestatusofthecredits.However,repaymentschedulesthatco
nformtothecashflowsoftheborrowersaremoreimportantandcosteffective,towhichBank
willhavetoadhereinordertominimizethecostofitslending.Monitoringthe business
activities of borrowers and provision of technical advices to
clientsimprovesdebtrecoverythroughreinstatingcreditdisciplineamongtheborrowers.
10.1.5 LendingPolicies
The proposed Bank is expected to register profits after covering its basic fixed
andvariable costs. The Bank’s modalities of operation will strictly be such as to
enable itto attain financial self-sustainability and profitability in the short, medium
and long-terms and reward its shareholders. To monitor and ensure that this
objective iseventually achieved, the Bank is expected to strictly adhere to standard
accountingproceduresparticularlyatthebranchlevelincludingthetimelydisclosureofconv
entional financial statements such as balance sheets, income statements andcash
flow. Further, its financial mode of operation, including that related to
thedeterminationofratesofinterestandvariousfinancialincentiveswillfollowcommercial
directions. It would be commercially oriented in anticipation of financialviability. To
this end, the Bank’s policies on major financial instruments will be asfollows:-
10.1.5.1 Collateral
The Bank will strictly adhere to all Commercial Banking policies with respect
toensuring its loan recovery by maintain up to 100% of outstanding loan
guarantee.Theloanswillbesupportedwithfixed,moveableandliquidassetsthataremarke
tableundernormalconditionsincludingshareholdings.Blockedsavingsor
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currentaccountsofborrowersorguarantorsmayalsobeusedforthispurpose.GroupGuara
ntee system may be used for women groups that have proved effective
butsuchsystemshouldbeendorsedandguaranteedbypromotinggovernmentagenciesor
otherinterested agencies.
Loanguaranteefundsforspecifictypesofborrowerssuchasforinstanceruralwomenorthey
outhgroupsthatmaybeallocatedfrombilateralorinternationalsourcesmaybesoughtand
used tosupportsuchgroups.
10.1.5.2 Debt/EquityRatio
Inordertoinculcatesavinghabitandenhancethespiritoffinancialcommitment,theBank
may require its credit beneficiaries to contribute a certain proportion of
theirfinancial requirements from their own resources. Although it is difficult at this
statetodeterminetheexactdebt/equityratiointhisrespect,asitmayvarydependingonthe
financial positions of individual borrowers and also possibly on peculiar
regionalcharacteristics,aproportionupto30percentmayberequiredtobecontributedfro
mthefinancialresourceofcreditbeneficiaries.Thisratioshallbedecided
bytheBoardofDirectorsinaccordancewiththedirectivesoftheNationalBankofEthiopia.
10.1.5.3 LendingInterestRate
The Bank’s financial policy on lending interest rate is expected to be guided by

themarketandinflationrate,whiletheinterestonsavingswillbeinaccordancewiththemini
mum set by the NBE from time to time. The bank will always strive to
maintainitslendinginterestratepositiveoratleastbreakevenpoint.
Table 13: Interest Rate Structure of Commercial Banks for the

yearsendingJune30.
(Inpercentper annum)
Rates 2012 2013 2014 2015 2016 2017 2018 2019 2020
1.DepositRate
Savings 8.00 8.00
Deposit(SimpleA 5.38 5.38 5.38 5.38 5.38 5.38 8.00
verage)
Minimum 5.00 5.00 5.00 5.00 5.00 5.00 7.00 7.00 7.00
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Maximum 5.75 5.75 5.75 5.75 5.75 5.75 9.00 9.00 9.00
1.2 Time 5.55 5.66 5.77 5.59 5.54 8.09 8.07
5.66
deposit(WeightedAverag
e
Upto1Year 5.48 5.57 5.55 5.71 5.53 5.43 8.05 8.02 8.02
1-2years 5.57 5.68 5.68 5.78 5.60 5.57 8.10 8.07 8.07
Over2years 5.61 5.7.4 5.74 5.81 5.64 5.63 8.13 8.11 8.12
1.3 Demand 0.02 0.03 0.04 0.04 0.04 0.04 0.04 0.04
0.03
Deposit(WeightedAvera
ge
2. Lending 11.88 11.88 11.8 11.88 12.75 12.75 13.50 13.5 13.5
Rate(Average) 8 0 0
Minimum 7.50 7.50 7.50 7.50 7.50 7.50 7.00 7.0 7.0
Maximum 16.25 16.25 16.2 16.25 18.00 18.00 20.00 20.00 21.50
5
3.T-bills(Nominal) 1.25 1.86 1.59 1.43 1.44 1.42 1.39 1.39 1.39
Source:NBEAnnualReport,2011/12-.2019/20
As shown in the above table 13, the current average lending rate is 13.5 %
forprivatebanks,whilethemaximumis21.5%.Asitisaprivatebankinginstitution,itslendin
g rate will be around the average rate of the private banks. However, smallerloans
are often associated with high loan administration costs that have to be offsetby
charging remunerative lending rates.Since, Tsehay Bank may lend to
primarilytolowandmiddleincomehouseholdsandcooperativemembers,lendingratessho
uldcover the loan administration costs, cost of capital, and profit margins that
leavestheinstitutionfinanciallysustainable.FromtheexperiencesofMFIs,thelendingrates
cannot be less than 12 percent. While charging remunerative lending rate is
onefactor to ensuring financial profitability and sustainability, by no means is the
onlyone.Expanding outreach and scaling up lending are the most critical to
ensuringprofitabilityandlastingsustainability.Thisagainrequireseffectivesavingmobiliz
ationand diversifyingfunding sourcestomatchlendingactivities.
10.1.5.4 QualityofLoanPortfolio
Thequalityoffinancialassetsheldintheformofloansextendedmaybeassessedonthefollow
ing majorcriteria:-
 Loansmust earnadequateinterest income;
 Repaymentofloanmustbesecured:
9
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 Creditriskmustbereasonablywelldistributedbydiversifyingthetypesofloan
sgranted;
 Thematuritystructureofcreditsmustbegenerallycompatiblewiththematuri
tiesofdepositliabilitiesand loan/credits;
Tothisend, asindicatedabove,
theaveragerateofinterestonloansshouldbehighenoughtoensurethelong-
termfinancialviabilityoftheBank,loanrepaymentshouldbe adequately guaranteed
through group pressure and collective liability, creditextension by purpose and
maturity should be as diversified as possible. Prudence inlending and adopting
sound lending criteria all help in ensuring asset quality andsustainabilityoftheBank.
10.2 OperationalStrategies
10.2.1 DepositsMobilization
10.2.1.1 SavingsMobilization
Most of the literature on financial services in developing countries has focused
oncredit programs for low-income people. Much less attention has been given to
thedesign of depository serviceseven though many more low-income people
usedepository services than have access to credit. Access to depository services
isimportantasitallowsthepoortosafeguardtheirsavings,accumulatetheirfundsforlarge
purchases, and insure for unexpected expenditures. Many more people can
bepositively impacted by the quality, quantity, return, convenience, and safety
ofdepository services than can be by the scattered fragmented micro-finance
creditprograms. Tsehay bank S.C shall give more emphasis to provision of
depositoryservices as this is instrumental in mobilizing resources to finance diverse
economicactivities.
Saving mobilization is thus one of the important service products of the Bank.
Theimportant function of banks is financial intermediation that is the process
whichencompassessavingmobilizationandtochannel
thoseresourcestodevelopmentbyway of lending to finance development activities.
Tsehay bank S.C shall henceintroduce an innovative approach to mobilize deposits
from members its
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communityandthepublicatlargetofinanceincomegeneratingactivitiesanddevelopment
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activities. To these ends, the bank shall create and promote diverse brands
forsavingspromotion.
10.2.1.2 Demand Deposit

Demand deposit is among the traditional menu of product offerings at
Ethiopianbanks.Itisnormallyanon-
interestbearingcheckingaccount.However,competitionfordepositshasledtosomebanks
offermodestinterestpaymentsof1-2percentonchecking account balances as well. This
option may be used by Tsehay Bank S.C
inordertobalanceandoptimizeitscostoffunds.However,itispreferabletouseothermechan
ism of linking it with export and import credits or other types based on
thecustomersneeds.
10.2.1.3 TimeDeposit
The deposit is also among the traditional menu of product offering by
commercial.Time deposit is the most costly product but permanent in nature for
finance longertermloans.Timedepositrateswereintherangeof8-
10percentformostofthelastdecadebuthavenowmovedinto therangeof10-
12percentwithinthelastyearsatmost banks. The demand for time deposits increased
as most banks also movedtowardsproviding medium and longtermloans.
10.2.1.4 Interest-freedepositofferings
Interest-free deposit services have been established in several banks as windows

orstand alone branches as Islamic banking services. Banks offering such
depositsinclude CBE, Awash, Dashen, Wegagen, OIB, Abay, United and CBO with
theirproductscarryingdesignationssuchasWadiah,Mudarabah,Salam,Sharia,orAmana
accounts.With the Exception of Berhan Bank S.C others are also under
preparationtoenterintotheBusiness.WhileanumberofIslamicBanksarealsounderformat
ion,Zemzem and Hajira Banks have already joined the Banking Business
Community. Inview of this, the interest free deposit mobilization does not seem to
be of potentialarea. However, Tsehay Bank S. C (under Formation) may further
investigate as tohowtoenterthebusiness after
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itsformationandcommencementofoperation.
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10.3 ForeignBankingServices
The service product of the bank shall include foreign banking services. This
includesletter of credit service, Cash against document (CAD), guarantee etc. This
service isprovided to those businesses involved in import and export. The income
from thisservice product as the experiences of commercial Banks suggest is big
contributingsignificantly to the profitability of the Bank. Tsehay bank S.C shall,
therefore givemore emphasis to foreign banking services to ensure its financial
sustainability.However, this area needs innovative technology, efficient IT Service
and
skilledmanpower.Therefore,theBankshouldmakesurethatallthenecessaryinfrastructur
e is in place and employees are trained in foreign banking
services.Besides,theBankshouldidentifycorrespondentbanksabroadandconcludeagree
menttoopenforeigncurrencyaccountand conductL/CServices.
10.4 Transferservice
Transfer service is also one service product. Income from transfer service
augmentsthe bank’s income from other lines of banking services. Transfer services
may beprovided free of charge if the transfer is made to the Banks’ Customer
Accounts inanyofitsbranches.
10.5 Guaranteeservices
The provision of guarantee service contributes to income diversification.
However,since this line of business involves risks, the bank needs to manage this
line ofbusinesscautiously.
10.6 InternationalMoneytransferServices
This service product will be also an important source of income to the bank.
Formaterialization of this service, the bank has to negotiate with international
moneytransfer servicessuchasthewesternunion,moneygram andotherknownones.
10.7 OtherInnovativeServiceproducts
Ethiopian banks have joined the electronic banking revolution seen globally in
thepastfiveyears, withvirtuallyall now offeringsomecombinationofdigital banking
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ServicesthatincludesATMs,POS,internetbanking,andmobilebanking13.Accordingstudy
conducted on the sector and published on May 30,2019 by
CEPHEUS,CBEalonehaselectronicbankingofferingsthatinclude1,708ATMs,11,796POS
machines,4.4 million cardholders and 1.7 million mobile banking customers;
someofthelargeprivatebankseachofferasmuchas300ATMs,nearly1,000POSdevices,an
d above 700,000 card users. Per NBE data, for the sector as a whole, as of end-
2018therewere4,220ATMs;7,203POSdevices;over9milliondebitcardusers;
5.7 million mobile banking users; close to 200,000 internet banking users.
Theinnovations in this area arethe interconnectivity established among all bank
ATMs,via a common switch service named ET-Switch, that allows account holders at
onebank to withdraw funds at another bank’s ATMs; the ability to transfer funds,
viaonlinebanking,toanaccountholderatanotherbank;theabilitytowithdrawcashatan
ATM via one’s phone number and secret pin rather than use of a physical card;and
the ability to send/receive money via mobile wallet offerings such as CBE’s ‘CBEBirr’
and Dashen Bank’s ‘Amole’ products. The bank can introduce these
innovativeserviceproductsgraduallyasitdevelopstheexperiencesandtheexpertiseinban
kingservices.
XI. TECHNOLOGICALCOMPETENCIES
In recent times, the emergence of Information Technology has been

incorporatedinto the Banking Industry. This advent of Information Technology (IT)
has propelledanoticeablechangeintheBankingSector.InformationTechnology(IT)toall
13
Ethiopia’s BankingSector.RESEARCH &ANALYTICS,May30,[email protected]
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computerbasedinformationsystemsareusedbyanorganizationandtheirunderlyingtechn
ologies14.
`
InformationTechnologysystemsarerevolutionizingtheoperationsoffirms,industriesand
markets.ITsystemisalsodefinedasasetofinterrelatedcomponentsthatcollect(orremove
),process,storeanddistributeinformationtosupportdecisionmaking, coordination and
control. It also helps managers and workers to
analyzeproblems,visualizecomplexsubjectsand createnew products.
ITisoneofthemostimportanttoolsalongwiththeinnovationsin
organizationsandmanagement. Research has shown the investment in IT plays a
critical role inincreasingtheproductivityoffirms.
The business world is in the midst of a networking and communication

revolutionsdriven by the growth of internet, internet based technologies, new
business modelsandprocessesthatleveragethenew products.
11.1 BankingTrendsWorldwide
Over the past decade, service organizations including commercial banks have
beendriven by such trends such as advancements in technology and deregulation
toenhance their distribution channels. Technology in Banking can mainly be found
inthe form of computer based applications and information technology.
Currently,delivery trends in banking include, PC Banking, Internet Banking, Mobile
Banking,Managed networks, TV-Based, Automated Teller Machines(ATM), Electronic
FundsTransfer atPointofSale(EFTPOS) etc.
11.2 ImportanceofTechnologyinBanking
A number of studies have concluded that IT has significant positive effects on
bankproductivity, cashiers’ work, banking transactions, bank patronage as well as
itsservicedeliverythusapositiveeffectongrowthofbanking.Ithasalsobeensaid
14
LangdonandLangdon,2006
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that, technology enables banks to reduce costs, i.e., reduction of operating
laborcost, cost of collecting, storing and processing information fall and interest
expenseis more competitive because technology enables banks to access liabilities
morecheaply. Also, technology enable banks to serve their customers better and
faster(convenience of having 24 hour access to ATMs, internet banking and
telephonebanking)and alsoitenablesbankshavediversebankingproducts.
Finally, technology enables banks increase revenue and capture new markets
byofferingbroaderarrayofservicesanddoingbankingbusinessworldwide.Technologyisth
eisthekeytoqualityserviceinbanking
11.3 SixCoreCompetenciesforaNewRetailBank
With the onset of competitors seeking to carve out market share in virtually
everyline of business within retail banking, traditional banks need to consider both
long-termstrategiesand short-term adaptations.
For a long-term strategy, we suggest that banks transform how the customer
thinksabout a retail bank. Such institutions must focus on a broad range of
underlyingneeds in order to become the “Center of the Customer’s Financial
Health.” Just as ahealthy lifestyle consists of diet, exercise and regular visits to a
doctor, a healthyfinancial lifestyle includes sound financial advice that extends
beyond just budgetingandsaving.
Themotivatingideaisthatbankshavetheopportunitytobeknownastheplacethatconsume
rsgo fora financialhealthcheck-up,and thefirstplacetoturnduringalifetransition or a
personal crisis. By gaining a true understanding of their customers’financial
situation, banks can make themselves indispensable partners to
theircustomers’personalandbusiness lives.
Thisapproachrequirescustomerstohaveadifferentmindsetabouttheirbank.Theyno
longer need a bank with a transaction-focused mode of operations. Instead,
thebankofthefuturehastobeatrustedresourcetowhichpeopleturnwhenthey’re
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contemplatinglifechangesorcopingwithanunexpectedsituation.Thisnewbusinessmodel
isagrowthmodelwitharecurringrevenuestreamthathasprofitopportunitiesfor
financialinstitutionswithconnectionsinto adigitalworld.
In the short term, we recommend that banks develop a set of six essential
corecompetenciestoenablethistransition.Thesecompetenciesgivebankstheflexibilityan
dspeedtorespondtochangesinthemarketplace,whileatthesametimecreatingthetechnic
alarchitecturerequiredtosupportthebank’sfutureasthe“CenteroftheCustomer’sFinanci
alHealth:”
Be ready to co-create innovative solutions. In the hyper-connected

economy,bankswillnolongerbecapable–orexpected–
tobuildentiresolutionsontheirown.That’s why it is recommend that banks deploy
legacy technology behind a standardset of application Program Interfaces
(APIs) that can be deployed
internallywithinabankacrosschannels.UsingthoseAPIsasastartingpoint,bankscanshare
those APIs and work with external partners to co-create innovative new
solutionsthatlead theindustry.
Capture Total Lifecycle Knowledge of the Customer: In order to evaluate

andimprove the financial health of a customer, banks will need to aggregate
customers’informationfromvariousproviders.Acomprehensivecustomerrelationshipm
anagement (CRM) solution will encompass customer profiles, records of
bankingtransactions and other user-supplied data from outside the traditional
confines ofcorebanking systems.
Uncover trends using analytics: In order to provide solid advice, banks will
havetobeleadersinanalyzingandunderstandingcustomerbehavioracrossapopulation.St
rong capabilities in analytics will offer banks a way to improve customer profilesand
market segmentation, toward the ultimate goal of predicting consumer
needsandserving them astrusted advisors.
Providepersonalizedadvice:Whileitmaybepossibletoautomaticallygenerate
advice,ittakesthehumantouchtogetsomeonetofollowthatadvice.That’sone
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areawherebankshaveanimportantroletoplayinthefuture,asthepointofcontactbetween
automated systems and the mass market. Banks can prepare by
buildingflexiblecontentmanagementsystemstocreatelibrariesofcontentthatcanbeshar
edwithcustomersasappropriateforanygivensituation.
Guide the customer journey: Banks should be able to detect trigger events in
thecustomer lifecycle and guide them toward the appropriate resources within
theinstitution. From an operational standpoint, this can be accomplished using a
digitalmarketingplatform.Thesetoolsallowmarketerstosegmentcustomersaccordingto
common profiles, and then launch targeted messaging for relevant products
andservices.
Support omnichannel access: The combination of devices that customers use

tocommunicate with a bank should have little bearing upon their underlying
financialhealth. Accordingly, as long as those channels can be adequately secured,
banksshouldbepreparedtodealwiththeircustomersnomatterwhichdevicesoroperatings
ystems they use. The fundamental step banks should take is to separate
thepresentation layer from business logic, thus ensuring fast adaptation to new
devicesandoperating systems.
By focusingon these core competencies the bank canbe ready to make

thetransformation to become the Center of the Customer’s Financial Health
tomorrow.Thisapproachtobankingrepresentsthestrongestwaytomaintaina
retailpresencecapableofwithstandingthefastgrowthofdigitalsolutionsinfinancial
services.
Moreover,itisbelievedthatabankthatoperatesassuchacenterwillbestrengthened by the
continued growth of the non-bank fintech sector. That is,
themoreservicesandoptionsthatisavailableinthemarketplace,thegreaterroletherewill
be for consultative bankers that can match the right products and solutions to
agiven client’s financial needs. With this approach, the bank can stop fighting
thetechnology upstarts and redirect the building energy in the fintech
marketplacetoward itsownobjectives.
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XII. ACCOUNTINGPRINCIPLESANDPOLICIES
12.1 Principles
12.1.1 AccountingMethod
It is the policy of Tsehay Bank S.C to apply the accrual basis of accounting for
theentitywidefinancialstatementsduringthefiscalyears.TsehayBankS.Cwouldadoptthe
cash basis for specific reports. This basis recognizes income when earned
andexpenseswhenincurred.
12.1.2 ForeignCurrencyTransactions
 ItisthepolicyofTsehayBankS.Cthatalltransactionsinforeigncurrencyaretranslate
dintoUSdollarsattherateofexchangeprevailingonthetransactiondate.
 Year end balances in foreign currency are translated into ETB Dollars at
theyear end exchangerate.
12.1.3 Revenue Recognition

It is the policy of Tsehay Bank S.Cthat incomes are recognized as revenue
uponreceiptofthefundsintoTsehayBank’sBankaccount.
12.1.4 MatchingPrinciple
The matching principle states that revenue is reported when earned and
expensesare reported as incurred and should be matched against revenue, even if
no cashoutflow hasoccurred.Thisistherationalefortheaccrual basisofaccounting.
12.1.5 Prudence
 Prudence istheinclusionof adegreeof cautionin theexerciseofthejudgments

needed in making the estimates required under conditions ofuncertainty,
such that assets or revenue are not overstated and liabilities
orexpensesarenotunderstated.
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 The prudence concept states that revenue and income are not anticipated
butarerecognizedbyinclusionintheincomestatementsonlywhenrealizedinthefor
m of cash or other assets or when the ultimate cash realization can
beassessedwithareasonabledegreeofcertainty.
 All known liabilities are provided for whether their amounts are known
withcertaintyorareabestestimateinthelightoftheinformationavailable
 Where the matching concept is inconsistent with the prudence concept,

thelatterwouldprevail.
12.1.6 AccrualPrinciple
ItisthepolicyofTsehayBankS.Ctoaccruerevenueandexpenditureatyear-
endtoreflectunrecordedtransactionsthataffecttheyearthenended.Inordertomeetthere
quirementofinternationalStandardTsehayBank’sentitywidefinancialstatementsshall
be prepared on the accrual basis. This is to ensure that revenue and cost
are;recognizedwhenearnedorincurred,notnecessarilywhenmoneyisreceivedorpaid),m
atched with each other so far as their relationship can be established or
justifiablyestimated,anddealtwithintheincomestatementfortheperiodtowhichtheyrelat
e.
12.1.7 HistoricalCostPrinciple
 The financial statements of Tsehay Bank S.C would be prepared under

thehistoricalcostconventionandinaccordancewithInternationalAccountingStandard
s.
 Historicalcostimpliesthatthecarryingvalueofassetsisbasedontheirpurchaseprice.W
herethehistoricalcostconventionisdepartedfrom,thisshouldbestatedintheaccountin
g policies,specifying thenatureofdeparture.
12.1.8 GoingConcern
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 TheFinancialstatementsshallbepreparedontheassumptionthatTsehayBank
S.Cisagoingconcernandwouldcontinueinoperationintotheforeseeablefuture.
 Itisassumedthattheinstitutionhasneithertheintentionnortheneedtoliquidateor
curtail materially the scale of its activities unless there is an intention toliquidate
the entity by the Supervisory Authority due to failure by the Bank
tomeetitsrequirementsbyLaw.
 If the intention to liquidate the entity exists, the financial statements may
havetobeprepared ondifferentbasisand,ifso,thebasisused shallbedisclosed.
12.1.9 Consistency
The consistency concept explains the fact that there shall be consistency in
themethods and bases for the treatment of similar accounting variables within
eachaccounting period and from one accounting period to the other.Tsehay Bank S.
C.will uphold thisprinciple.
12.1.10 FairValuePrinciple
Fair value is the amount at which the asset could be bought or sold in a
currenttransaction between willing parties and Tsehay Bank S.C. will adhere to
using theprevailingmarketpricesarealso usedtodeterminefairvalue.
12.1.11 DisclosurePrinciple
This requires the presentation of sufficient information to permit the reader to

reachan informed understanding of the financial statements. Tsehay Bank S.C will
adheretothisprincipleaswellasthatofthebanking businessproclamation.
12.2 Accountingpolicies
 Accounting policies are the specific basis judged by Tsehay Bank S.C to
bemostappropriatetoitscircumstancesandadoptedforthepurposesofpreparingfi
nancialstatements.
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 AccountingpoliciesappliedwouldbebasedonInternationalAccountingStandardsa
swellastherequirementsofBanking BusinessProclamation:

Representfaithfullythefinancialposition,financialperformanceandcashflowsofth
eentity,
 Reflecttheeconomicsubstanceoftransactions,othereventsandconditionsand
notmerelythelegalform;and
 Arefreefrombias;
12.3 RequirementsbyBankingBusinessLaw
In addition to the universally accepted accounting policies, the National Bank

ofEthiopia puts requirements and limitation through Proclamation No. 592/2008”.
Therequirements and set limitations are stated as financial obligations and
Limitationsunder articles18-22oftheproclamation.Underthesearticlesare:
 MaintenanceoftheRequiredCapital
 MaintenanceofLegalReserve
 MaintenanceofAdequateLiquidityand
 ReserveBalance
 Provisioning,Depreciation,LossCoverage
 andAmortizationRequirements
 LimitationsonCertainTransactionssuchasinvestmentsbybanks
12.4 AdoptionofIFRS 9
IFRS9wasreleasedin2014andbecameoperativein2019.Thesystemprovidesacommongl
oballanguageforbusinessandmakesthe
accountsofanycompanyunderstandableandcomparableacrosstheglobe.
TheimportanceofIFRS9isthatitintroducesreformsinhedgeaccountingtobetter
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alignbanks’accountingpracticeswiththeirrisk-managementactivities.Furthermore,
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it increases the range of exposures that can be hedged to include
derivativesembeddedinfinancialliabilitiesornonfinancialcontracts,andnonderivativefor
eign-exchangefinancialinstrumentsmeasured atfair value.
The banksin Ethiopiahave decidedtoupgrade theirfinancialreportingsystemasit is an

internationally acceptedsystemandisin line withthe country’ s
goalofembracingIFRS.Currently,KPMGAdvisoryServicesLimited,aglobaladvisoryfirm,i
sconsultingwith17 localbankson upgradingtheirfinancialreportingsystems.
TsehaybankS.C(underformation) willfollow suit,onceitislicensedtostartoperations.
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XIII. PROJECTIMPLEMENTATIONSCHEDULE
TheimplementationscheduleisconcernedwiththeactivitiesthathavetobeundertakenbythePromotersofTsehayBankS.C.fr
omtheconceptionoftheideauptotheobtainingofoperationlicenseandcommencementofoperations.Eachoftheactivitieswit
htheirmilestonesand expecteddeliverablearelisted presentedasfollows:
SCHEDULEOFPROJECTIMPLEMENTATION
Months
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
PreparationofProspectus
AuthorizationforBlockedAccountbyNBEOb
tained
PreparationandLaunchingofMeetingandforma
tionofOrganization Committee
SalesPromotionandRaisingofRequiredCapital
BusinessPlanPreparation
Required CapitalbyNBESecured
PreparationandConductofFirstGeneralmeetin
gofShareholders
Preparation and Submission
ofdocumentationforexaminationbyNBE
ExaminationofDocumentsbytheNBE
AuthorizationbyNBEforAuthenticationByN
BE
Signing
processbyShareholdersatAuthenticationa
nd RegistrationAgency
RegistrationwithMinistryofTradeandIndustrya
nd OperationLicenseObtained
Preparation for Commencement

ofOperations
OperationCommenced
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XIV. ASSUMPTIONSFORFINANCIALPROJECTIONS
14.1 GeneralAssumptions
Most of the assumptions are based on the current norms set and regulations by
theSupervisory Authority to ensure prudence in the banking sector.Accordingly, a
fewofthegeneralassumptionsused areshownasfollows.
Variable Assumed%
RatioofLoan toPaidUp Capital 3-4 times
LoantoDepositRatio 75.0
SavingsdepositwithinTotaldeposit 50.0
TimedepositwithinTotalDeposit 40.0
DemandDepositwithinTotalDeposit 10.0
Shortterm loans 40
MediumtermLoansoftotaloutstanding loans 40
LongtermLoansoftotaloutstanding 20
InterestrateonSavingsoftotaloutstanding 7
AverageInterestrateonloansandadvances 15
AnnualDepreciation Aspertaxpolicy
14.2 SpecificAssumptions
The specific cost refers to administrative costs which are determined by the
market.In order to reflect cost increases due to inflation, yearly costs are adjusted
by afactorof5%everyyear. Thedetailsofthespecificcostsareshownbelow.
Salaries+Benefits(21%ofGrossIncome)increasedby8%everyyear
Travelcosts(2%ofSalary)
HeadOfficeRent@800,000/month)
BranchOfficerent(@Birr50,000/month/branch
Property maintenance@2%of investmentcost
Stationary andsuppliesatHeadOffice%Birr50,000/month
Stationery@Birr30,000/month/branch
Utilities@Birr30,000/month atHeadOffice
Utilities@Birr10000/branch/month
CostofEnergy@Birr15,000/branch/month
CostofEnergy@Birr5,000/month
AdministrativeCosts@Birr 15,000/branch/month
AdministrativeCosts @Birr50,000/month
[email protected]%of totalincome
Staffcapacitydevelopmentat2%ofrecurringbudget
Note:All costsareincreasedby5% everyyear
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XV. FINANCIALPROJECTIONS
15.1 InvestmentRequirementsandCostEstimates
The envisaged investments at this initial stage are, in Vehicles, Office
Equipment,OfficeFurnitureandComputersincludingsystemsandtheiraccessories.Invest
mentduring the first and second years also includes purchase MIS software which
will beessentialforsuccess oftheBank. Thedetailsareshownintable14.
Table14:TsehayBankS.C.EstimatedInvestmentcosts(Birr)
CostCategories Yr-1 Yr-2 Yr-3 Yr-4 Yr-5
1.HeadOffice
Vehicles 15,600,000 2,730,000 2,860,000 2,990,000 3,120,000
OfficeEquipment 809,950 850,448 445,473 232,860 121,493
OfficeFurniture 1,070,250 1,123,763 588,638 307,697 160,538
(IT)Computers,Accessoriesa 8,200,000 1,606,500 1,980,000 2,300,000 2,400,000
ndsystem
Subtotal 25,680,200 6,310,710 5,874,110 5,830,558 5,802,031
2.Branches
Numberofbranches 20 20 20 20 20
CumulativeNumberofbranches 20 40 60 80 100
Investments
Vehicles 16,700,000 17,535,000 18,370,000 19,205,000 20,040,000
OfficeEquipment 5,100,000 5,355,000 5,100,000 5,865,000 6,120,000
OfficeFurniture 3,360,000 3,528,000 3,696,000 3,864,000 4,032,000
ComputersandAccessories 12,000,000 12,600,000 13,200,000 13,800,000 14,400,000
Sub-total 37,160,000 39,018,000 40,366,000 42,734,000 44,592,000
TotalInvestmentinFixedassets 62,840,200 45,328,710 46,240,110 48,564,558 50,394,031
CumulativeInvestment 62,840,200 108,168,910 154,409,020 202,973,578 253,367,609
15.2 ProposedSourcesofFinance
The following are the expected sources of finance for the Bank (Table 15).
Theamountsshownarebalancesbytheendofeach year.
Table15:AmountsbySourceoffinance,TsehayBankS.C
Year-1 Year-2 Year-3 Year-4 Year-5
PaidUpCapital
500,000,000 1,250,000,000 2,000,000,000 2,500,000,000 3,000,000,000
GeneralReserve 15,545,724 67,813,953 165,107,463 294,400,997 460,083,233
Depreciation 13,578,040 23,452,818 33,511,545 43,941,484 50,345,642
Deposits 1,995,000,000 5,403,125,000 9,310,000,000 12,468,750,000 15,960,000,000
TotalResources 2,524,123,764 6,744,391,771 11,508,619,008 15,307,092,481 19,470,428,875
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15.3 FinancialResults
15.3.1 ProjectedBalanceSheet
TheprojectedbalancesheetoftheBankisshowninTable16.Theprojectedbalancesheet
shows that the total assets of the Bank will grow from Birr 2.6 billion in thefirst year
to Birr 19.9 Billion in year 5. Hence, the growth of the assets of the Bankwill be
about eight fold within a period of five years if implemented as planned.
ThetotalcapitalincludinggeneralreserveoftheBankwillalsobeBirr515,545,724millionbyt
heendoffirstyearandreachBirr3.5Billionbytheendofyear5.ThenetdepositswithoftheBan
kinyearfivewillalsobeabouteightfoldofthatofthefirstyear.Morethan50%ofthedepositisa
ssumed tobesavings.
Table16:TsehayBankS.CProjectedBalanceSheet
Particulars Year1 Year2 Year3 Year4 Year5
CurrentAssets
CashonHand 626,980,184 1,705,593,397 2,927,688,444 3,899,373,127 4,966,749,465
andOtherBanks
ReserveAccountwithNBE 2,463,108 2,768,503 2,811,711 2,676,955 2,506,604
Otherassets 1,260,140,553 3,643,446,857 6,760,565,333 8,625,619,381 10,627,748,394
OutstandingLoansanda 620,800,000 1,473,333,333 2,022,500,000 3,072,500,000 4,272,500,000
dvances
TotalCurrentAssets 2,507,920,737 6,822,373,587 11,710,753,778 15,597,492,508 19,866,997,858
NetFixedassets 49,262,160 55,370,053 56,234,218 53,539,091 50,132,080
TotalAssets 2,557,182,897 6,877,743,639 11,766,987,995 15,651,031,599 19,917,129,938
Liabilities
Deposits 1,995,000,000 5,403,125,000 9,310,000,000 12,468,750,000 15,960,000,000
OtherLiabilities
TotalLiabilities 1,995,000,000 5,403,125,000 9,310,000,000 12,468,750,000 15,960,000,000
Capital
SubscribedCapital 2,000,000,000 1,000,000,000
SubscribedCapitalPaidUp 500,000,000 750,000,000 750,000,000 500,000,000 500,000,000
CumulativePaidUp 500,000,000 1,250,000,000 2,000,000,000 2,500,000,000 3,000,000,000
GeneralReserveDuringtheY 15,545,724 52,268,229 97,293,511 129,293,534 165,682,235
ear
CumulativeReserve 15,545,724 67,813,953 165,107,463 294,400,997 460,083,233
TotalPaidUpCapital+LegalR 515,545,724 1,317,813,953 2,165,107,463 2,794,400,997 3,460,083,233
eserve
DividendforDistribution 46,637,173 156,804,687 291,880,532 387,880,602 497,046,706
TotalCapital 562,182,897 1,474,618,639 2,456,987,995 3,182,281,599 3,957,129,938
TotalLiabilitiesandCapital 2,557,182,897 6,877,743,639 11,766,987,995 15,651,031,599 19,917,129,938
15.1.2 ProjectedProfitandLossStatement
Theprojectedprofit/
andlossstatementisshowninTable17.TheStatementshowsthattheBankwillearnanetpro
fitaftertaxofBirr62.2millionduringthefirstyear
FinalReport-2
ofitsoperations.ThisnetprofitaftertaxisprojectedtoreachBirr662.7millionduringthe fifth
year of its operations. The profit and loss statement is projected afteraccounting for
all financial costs including the average opportunity cost of money of8%p.a.
Table17:Tsehay BankS.C,ProjectedProfitandLossStatement(Birr)
Description Year1 Year2 Year3 Year4 Year5
InterestIncome 168,750,000 457,031,250 787,500,000 1,054,687,500 1,350,000,000

AverageCostofFund 13,500,000 36,562,500 63,000,000 84,375,000 108,000,000
ProvisionforLoanLosses3%ofO/ 19,200,000 44,200,000 60,675,000 92,175,000 128,175,000
SLoans)
TotalCost 32,700,000 80,762,500 123,675,000 176,550,000 236,175,000
GrossMargin 136,050,000 376,268,750 663,825,000 878,137,500 1,113,825,000
OtherIncome(30%interestincome) 55,687,500 150,820,313 259,875,000 348,046,875 445,500,000
TotalIncome 191,737,500 527,089,063 923,700,000 1,226,184,375 1,559,325,000

AnnualOperatingCosts
Salaries+Benefits(21%ofGrossIncome) 40,264,875 119,543,799 209,495,160 278,098,616 353,654,910
Travelcosts(2%ofSalary) 805,298 2,510,420 4,608,894 6,396,268 8,487,718
HeadOfficeRent@800,000/month 9,600,000 10,080,000 10,560,000 11,040,000 11,520,000
BranchOfficerent(@Birr5 12,000,000 25,200,000 39,600,000 55,200,000 72,000,000
0,000/month/branch
Propertymaintenance@2%ofinvestmentco 1,256,804 2,163,378 3,088,180 4,059,472 5,067,352
st
Stationaryandsupplies(Birr5 4,800,000 4,800,000 4,800,000 4,800,000 4,800,000
0,000/month)
Stationery@Birr30000/month/branch 7,200,000 15,120,000 23,760,000 33,120,000 43,200,000
Utilities@Birr30,000/ 360,000 378,000 396,000 414,000 432,000
monthatHeadOffice
Utilities@Birr10000/branch/month 2,400,000 5,040,000 7,920,000 11,040,000 14,400,000
Cost of Energy @ 3,600,000 7,200,000 10,800,000 14,400,000 18,000,000
Birr15,000/branch/m
onth
CostofEnergy@ Birr5,000/month 60,000 60,000 60,000 60,000 60,000
AdministrativeCosts@Birr1 3,600,000 7,200,000 10,800,000 14,400,000 18,000,000
5,000/branch/month
AdministrativeCosts@Birr50,000/month 600,000 630,000 660,000 690,000 720,000
StaffcapacityBuilding(Training) 805,298 2,390,876 4,189,903 5,561,972 7,073,098
MarketingExpensesat0.02%oftotalinc 383,475 1,054,178 1,847,400 2,452,369 3,118,650
ome
InvestigationFee 1,000 0 0 0 0
Licensefee 10,000 10,000 10,000 10,000 10,000
Licenserenewalfees 10,000 10,000 10,000 10,000 10,000
NineDirectorsfuel 1,320,000 1,320,000 1,320,000 1,320,000 1,320,000
allowance@Birr10,000/month
AuditFees 250,000 250,000 300,000 350,000 350,000
DepreciationCharges 13,578,040 23,452,818 33,511,545 43,941,484 50,345,642
Totalannualcosts 102,904,789 228,413,469 367,737,082 487,364,181 612,569,370
GrossProfit/Lossbefore tax 88,832,711 298,675,594 555,962,918 738,820,194 946,755,630
ProvisionforTaxation 26,649,813 89,602,678 166,788,875 221,646,058 284,026,689
NetProfitAfterTax 62,182,898 209,072,915 389,174,043 517,174,136 662,728,941
LegalReserve 15,545,724 52,268,229 97,293,511 129,293,534 165,682,235
BoardofDirectorsfee 1,350,000 1,350,000 1,350,000 1,350,000 1,350,000
FinalReport-2
Profitfordistribution 46,637,173 156,804,687 291,880,532 387,880,602 497,046,706
Earning/shareEarning/share 12% 17% 19% 21% 22%

Dividend/share 9% 13% 15% 16% 17%
15.1.3 ProjectedCashFlow
TheProjectedcashflowstatementoftheBankhasalsobeenanalyzed.Accordingtheprojecti
onstheBankwillhaveanetpositivecashbalanceofBirr
3.3billionmillionattheendofthefirstyearandBirr9.7billionattheendofthefifthyear.Thepro
jectedcash flow statement shows that the Bank will not face any liquidity problem.
Theprojectedcashflow statementisshowninTable18.
Table18:TsehayBankS.CProjectedCashFlow(ETB
Inflows
Beginningbalance 0 3,340,483,564 6,099,867,567 8,879,482,513 9,682,577,974

CapitalPaidUp 2,000,000,000 750,000,000 750,000,000 500,000,000 500,000,000
Depreciation 13,578,040 23,452,818 33,511,545 43,941,484 50,345,642
NetprofitafterTax 62,182,898 209,072,915 389,174,043 517,174,136 662,728,941
Increase/decrease 1,995,000,000 3,408,125,000 3,906,875,000 3,158,750,000 3,491,250,000
inDeposits
Provisionfordoubtfulloans 19,200,000 44,200,000 60,675,000 92,175,000 128,175,000
LoanCollections 860,000,000 2,589,166,667 4,977,500,000 6,302,500,000 7,727,500,000
TotalInflows 4,949,960,938 10,364,500,964 16,217,603,155 19,494,023,133 22,242,577,557
Outflows
Investment 62,840,200 45,328,710 46,240,110 48,564,558 50,394,031
LoanDisbursements 1,500,000,000 4,062,500,000 7,000,000,000 9,375,000,000 12,000,000,000
DividendforDistribution 46,637,173 156,804,687 291,880,532 387,880,602 497,046,706
TotalOutflows 1,609,477,373 4,264,633,397 7,338,120,642 9,811,445,159 12,547,440,737
NetCashbalance 3,340,483,564 6,099,867,567 8,879,482,513 9,682,577,974 9,695,136,820
15.4 RatioAnalysis
15.4.1 ProfitabilityRatios
Return on Assets employed (ROA) and return on equity (ROE) is the two
mostimportantindicatorsformeasuringtheprofitabilityinvestmentinfinancialinstitutions
. In this respect, the ROA turned out to be 2.5% during year-1 and 3.4%during
year 5. The industry average for 2014-2019 was 4%, while the
internationalstandard is >1.5%. On the other hand, ROE also turned out to be 11%
during year1 and 18% during year 5. The industry average for the period 2014-
2019 is also20.1%, while the limit by the National Bank of Ethiopia is
10%.Therefore,
bothratiosarebeyondtheindustrystandardsandlimits.Normally,theBankisnot
FinalReport-2
expectedtobeprofitableduringthefirsttwoyearsthoughitcanbeachievedifimplementedaspla
nned. ThedetailsareshowninTable 20.
Table19: TsehayBank S.CProjectedFinancialRatios
Ratios YR-1 YR-2 YER-3 YR-4 YR_5

Return on
Assets(ROA)(%) 2.4 4.4 4.2 3.8% 3.7%
ReturnonEquity(%) 11 14 16 16 17
15.4.2 CAMELRatios
TheseareCapital,AssetQuality,Management,EarningsandLiquidity
ratiosthatareassumedtoreflectthefinancialperformance,financialcondition,operatingso
undness and regulatory compliance of a banking institution. The outcomes of
theanalysisareshownundertable23.
i) CapitalAdequacy
Capital adequacy measures the adequacy of the amount of capital to meet

anyunfortunate shocks that the bank may experience during its operations. It
reflectsthe overall financial condition of the banks and also the ability of
management tomeet the need for additional capital requirements. It is also the
capital expected tomaintain balance with the risks exposure of the financial
institution such as creditrisk, market risk and operational risk, in order to absorb
the potential losses andprotect the financial institution‘s debt holder. Though the
minimum required by theNBE is 8%, the capital adequacy ratio of Tsehay Bank S.C.
under the statedassumption is 20% during the first year of its operations, which
declines to 15%duringthefifthyear.Capitaladequacyrationormallydecreasesover
time.
ii) Assetquality
The asset quality of the bank is another bank specific variable that affects
thePerformance of a bank. The quality of Asset held by the individual bank affects
thehealthofthebank.Thedimensionofassetqualityisanimportantfactorthathelps
FinalReport-2
the bank in understanding the extent of credit risk defined in terms of credit risk
astheriskoflossduetoadebtor’sfailuretomakerepaymentofloani.e.principalandinterest.
The asset quality indicators highlight the use of nonperforming loans ratios(NPLs)
which are the proxy of asset quality, and the allowance or provision to loanlosses
reserve.Though the limit set by the NBE is at 5%, the target set by
underthisbusinessplanis3%.
iii)EarningsQuality
Abank'sabilitytoproduceearningstobeabletosustainitsactivities,expand,remaincompet
itive are a key factor in rating its continued viability. Examiners
determinethisbyassessingthebank'searnings,earnings'growth,stability,valuationallow
ances, net margins, net worth level, and the quality of the bank's existingassets. In
the case of Tsehay Bank S.C, the earnings quality turned out to remainbetween 87
and 88% under the general assumption made designing the businessplan.
iv) Liquidity
Toassessabank's
liquidity,examinerslookatinterestraterisksensitivity,availabilityofassetsthatcaneasilyb
econvertedtocash,dependenceonshort-
termvolatilefinancialresourcesandAssetliabilityManagement(ALM)technicalcompetenc
e. Under the general assumptions made the liquidity remained between31and 32%
(Table20).
Table20:CAMEL Ratios
Indicators YR-1 YR-2 YR-3 YR-4 YR-5
CapitalAdequacyRatio(%) 20 19 18 18 17
Assetquality(%) 3 3 3 3 3
EarningsQuality(%) 71 71 72 72 71
LiquidityPerformance(%) 26 26 26 25 24
15.5 SensitivityAnalysis
In the sensitivity analysis two scenarios (factors) are assumed. A 2% decrease
ininterest rate on the original assumption of 15% and a 2% increase on the
originalassumptiontodeterminethechangesintherateofprofitabilityoftheBank.This
FinalReport-2
meansusinganaverageinterestrateof13%underthefirstscenarioand17%underthe
second scenario. The results under both scenarios are shown in Table 22
below.Ashowninthetablethemovementfrom15%to13%ininterestrateresultedinthedec
rease of the ROA by 0.6%, while that of ROE by 2% during the first year.
ROAdeclined by 0.6% and ROE by 3% during year 5. On the contrary an increase of
theaverage interest by 2% resulted in an increase of the ROA by 0.6%, while that
ofROE by 3% during the first year. Similarly, ROA increased by0.6%, while
ROEincreased 2% during year 5. This showed that increase in average interest
rateimpactsmoreontheprofitabilityoftheBank.
Table21:SensitivityAnalysis
YR-1 YR-2 YR-3 YR-4 YR-5
1.Profitabilityat15%averageInterest
ReturnonAssets(ROA)(%) 2.4 4.4 4.2 3.8 3.7
2.ProfitabilityRatiosat13%averageInterest
ReturnonAssets(ROA) 1.8 3.6 3.5 3.1 3.1
ReturnonEquity(%)
9 12 13 14 14
3.Profitabilityat17%averageInterest
ReturnonAssets(ROA) 3.0 5.3 4.9 4.4 3.0
XVI. CONCLUSIONSANDRECOMMENSATIONS
16.1 Conclusions
The assessment of the global banking industry prospects, the overall
Ethiopianeconomyingeneralandthefinancialsectorinparticularhasshownthatthepotenti
alfor banking business is still untouched. More specifically, the rural sector in
Ethiopiais under banked. On the other hand, the economy is growing and the
demand
forfinancialservicesinvariousformsisalsoincreasing.Allexistingbanksarestrivingtomeet
thedemandforfinancialservices,buttheyarefarfromsatisfyingtheincreasingdemand for
financial services. To-date, both the profitability and return to equity ofthe capital
invested in the purchase of bank shares are still attractive. Even though,the impact
of COVID-19 pandemic is yet to be seen in the years to come, both
themeasuresofreturnoninvestmentindicatethatitiswisetoestablish theBank.
FinalReport-2
To this end, Return on Assets (ROA), which is a widespread measure of
bankprofitabilitythatiscalculatedbydividingthebank‘snetincomebyitstotalassethasturn
ed out be 2.4% atthe assumed 15% interest rate during the first year ofoperations
and 3.7% during the fifth year of its projected operations. When
theassumedinterestrateisraisedto17%,ROAincreasedto3.0%duringyearonewithno
changeduring year five. When the interest rate declines to 13%, the ROAdeclined to
1.8%, during year one and 3.1% during year five. All of these ratios
areabovetheinternationalstandard of1.5%.
The other measure of profitability, usually considered in conjunction with ROA,

isROE, which is calculatedby dividing net income by average shareholders‘
equity.TheROEmeasureisthemorerelevantperformancemeasureforshareholders.Bank
sthat rely heavily on deposits to support assets tend to have higher ROEs than
thosethat depend on shareholder‘s funding.In the case of Tsehay Bank S.C
(underformation)theresultbasedonthebasicassumptionsmadeturnedouttobe11%at15
% interest rate during year one of operations and 17% during year five. On
theother hand, when the interest rate is raised to 17%, the ROE turned out to be
14%during year one and 19% during year four but started declined during year
fivebecauseofthegrowthinthecapitalpaidup.Whentheinterestratedeclinesto13%,the
ROEturned out to be 9%, during year one and 14% during year five. While
theROEisbelowtheacceptablestandardof10%,duringthefirstyearofoperations,theratio
exceedstheaccepted standardinthefollowing yearsofoperation.
In addition, Yield on earning assets have also been evaluatedas banks can
achievethe desired profit level in a variety of ways. In the case of Tsehay Bank S.C,
theearnings quality turned out to remain between 71% and 72% under the
generalassumptions made for designing the business plan. Under the general
assumptionsmade, the liquidityalso remained between 24 and 26%, is which close
to
theoperationalresultsofthelatelyestablishedprivatecommercialbanksinthecountry.Ho
wever, capital Adequacy ratio declined from 20% during the first year to
17%duringthefifthyear,whichisnormalasbankingoperationsexpand.Theminimum
FinalReport-2
requirementbytheNBEis8%,whichisalsotheminimumstandardaccordingtotheBasil
agreement.
Finally, the earning per shareearnings per share (EPS) which is the net
profitdeclaredbytheBankforpaidupshareshasbeencalculated.Thefigureiscalculatedbyd
ividingtheNetProfitaftertaxdividedbythenumberofsharepaidupmultipliedby100,overap
eriodoftheprojectedfiveyears.Theresultshowedthatearnings/shareduringthefirstyear
is12% whichincreaseto22%duringyear five.
Similarly, the dividend/share (DPS) to be paid out after deduction of the

reserverequirementturned pout to be 9% during year one and 17% during year
fiveoperations.Theseresultsareencouragingatthisinitialstageofthebanksoperations.
Fromthesummaryoftheanalysisabove,itcanbeconcludedthatthefinancialresultsbased
on the assumptions made are healthy forming the bases for establishment
ofTsehayBankS.C(underformation)asplanned.
16.2 Recommendation
In view of the availability of unmet demand for the financial services in the
country,emergingbusinessactivitiesthatneedthesupportofdedicatedfinancialinstitution
s,the need for mobilization of local resources for meeting development needs of
thecountryandinterestofthepromoters,toparticipateintheestablishmentoftheBank,it is
recommended that Tsehay Bank S.C (Under Formation) be
establishedandimplementedbasedantheplannedassumptionsandthedevelopmentofap
propriateriskmitigationstrategies.
Tothisend, theactionsneeded tobeundertakenbytheOrganizingCommittee:
 Preparing action plan for the various activities for fulfillment of all legal
anddocumentation requirements of the NBE as per Directive No.SBB/56/2013
fortheestablishmentoftheBankandfixingthecommencementdateofoperations.
FinalReport-2
 Selecting
ofofficesitestheheadofficeandinitialbranchesandrentingofficesinadvance,forim
mediatecommencementofoperationsfollowingtheobtainingofoperationlicense;
 Selecting of the Chief Executive Officer and Seniorofficers following the

NBEdirectivesbased ontheCriteriasetbytheNationalBankofEthiopia;
 PreparingapplicationtoNBEfollowingNBEdirectivesforobtainingregistrationando
peration license;
 Designingmechanismsforshorteningoftheregistrationprocesswithcourt;
 Facilitating all the processes for required for the legal registration of
theCompanyand obtainingofoperationlicensefrom theNBE;
 Simultaneously,identifyingandpurchasingtheofficeequipmentandfurniture
requiredincluding banking operations software required in advanceand ;
 RecruitingandtrainingstafffortheHeadOfficeandBranchestobeestablished
inadvance;and
 Selecting and putting in place an appropriate MIS hardware and software

attheearlystagesandplanfortheprocessstageof itsintroduction
andimplementation;
16.3 RecommendedImplementationStrategies
FinalReport-2
 Starting with Twenty branches in Addis Ababaand in regions with
highpotential during the first year and with additional Twenty new branches
eachyearfollowing ZonalandWoredalevelsduring earlyyears.
 OrganizingstrongPlanningandBusinessDevelopmentDepartmentandconducting
applied research to identify appropriateand innovative
productsandservicesusingdigitalizationfrom theinitialstage;
 Listeningto customers and offering the best services continuously ;

anddetectingandrespondingtoemergingriskfactorsusinganup-to-
datemanagementinformationsystem.
ANNEX-1: BASICASSUMPTIONFORFINANCIALANALYSIS
FinalReport-2
Description YR-1 YR-2 YR-3 Yr-4 YR-5

Totalloandisbursement 1,500,000,000 4,062,500,000 7,000,000,000 9,375,000,000 12,000,000,000
Short-termLoans(40%) 600,000,000 1,625,000,000 2,800,000,000 3,750,000,000 4,800,000,000
MediumTermLoans(40%) 600,000,000 1,625,000,000 2,800,000,000 3,750,000,000 4,800,000,000
LongTermLoans(20%) 300,000,000 812,500,000 1,400,000,000 1,875,000,000 2,400,000,000
Deposits
Savings(57%) 1,137,150,000 3,079,781,250 5,306,700,000 7,107,187,500 9,097,200,000
TimeDeposits(15%) 299,250,000 810,468,750 1,396,500,000 1,870,312,500 2,394,000,000
DemandDeposits(28%) 558,600,000 1,512,875,000 2,606,800,000 3,491,250,000 4,468,800,000
TotalDeposits 1,995,000,000 5,403,125,000 9,310,000,000 12,468,750,000 15,960,000,000
LoanCollection
Short-termLoans 600,000,000 1,625,000,000 2,800,000,000 3,750,000,000 4,800,000,000
TermLoans
Year1:MediumTerm Loan 200,000,000 200,000,000 200,000,000 200,000,000 200,000,000
Year2:MediumTermLoans 541,666,667 541,666,667 541,666,667 541,666,667
Year3:MediumTerm Loans 933,333,333 933,333,333 933,333,333
Year1:LongTermLoans 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000
Year2:LongtermLoans 162,500,000 162,500,000 162,500,000 162,500,000
Year3:LongTermLoans 280,000,000 280,000,000 280,000,000
Year4:LongTermLoans 375,000,000 375,000,000
Year5:LongTermLoans 375,000,000
TotalTermLoans 260,000,000 964,166,667 2,177,500,000 2,552,500,000 2,927,500,000
TotalLoanCollections 860,000,000 2,589,166,667 4,977,500,000 6,302,500,000 7,727,500,000
OutstandingLoansatEndofYe
ar 640,000,000 1,473,333,333 2,022,500,000 3,072,500,000 4,272,500,000
Noneperformingloans(3%) 19,200,000 44,200,000 60,675,000 92,175,000 128,175,000
OutstandingPerformingLoans 620,800,000 1,429,133,333 1,961,825,000 2,980,325,000 4,144,325,000
FinalReport-2
ANNEX-2: ESTIMATED UNIT PRICES OF INVESTMENT ITEMS AT
HEADOFFICE
Basic Price/Unit Estimated Price

in2019 in2020
CategoriesofInvestmentItems
HEADOFFICE
OfficeFurniture Per/Piece Price/Unit
ManagerialTable 23,000 25,300
HighbackChair 5,000 5,500
Officetable 3,400 3,740
Guest Chairs 1,367 1,504
Coffee Table 1,467 1,614
Coathunger 2,200 2,420
Computertable 3,000 3,300
Woodenbackshelf 13,000 14,300
Printer/Fax machine/
Computerstand 1,000 1,100
Mediumback Chair 3,500 3,850
BookShelf 13,000 14,300
SortingTable 3,500 3,850
faxStand 3,400 3,740
Swivel Chair 3,500 3,850
TellersStool 2,200 2,420
LobbyChairs 4,400 4,840
SuggestionBox 10,000 11,000
COMPUTERSANDACCESSORIES
DeskTop 26,000 28,600
Computerstand 1,000 1,100
Ups 7,000 7,700
ExternalhardDisk 4,000 4,400
OFFICEEQUIPMENT
FilingCabinet 7,692 8,461
Faxmachine 10,000 11,000
Coathanger 4,400 4,840
ventilator 8,000 8,800
Photocopymachine 4,500 4,950
Cheque scanner 17,000 18,700
Printer 18,000 19,800
ScannerJet 18,000 19,800
Vehicles
ToyotaParado 5,000,000 5,500,000
DoubleCabin 3,200,000 3,520,000
Toyota Yaris 1,300,000 1,430,000
Generator 1,200,000 1,320,000
Vanfor CashTransport 1,500,000 1,650,000
FinalReport-2
ANNEX-3: ESTIMATEDUNITPRICES OFINVESTMENTITEMSATBRANCHES
Categories pdf
InvestmentItems BasicPrice/Unitin2019 EstimatedPricein2020
OFFICEFURNITURE Per/Piece Price/Unit
ManagerialTable 23,000 25,300
HighbackChair 5,000 5,500
Officetable 3,400 3,740
Guest Chairs 49,200 54,120
Coffee Table 13,200 14,520
Coathunger 2,200 2,420
Computertable 3,000 3,300
Woodenbackshelf 13,000 14,300
9,000 9,900
Computerstand
Mediumback Chair 3,500 3,850
BookShelf 13,000 14,300
SortingTable 3,500 3,850
faxStand 3,400 3,740
Swivel Chair 7,000 7,700
TellersStool 2,200 2,420
LobbyChairs 4,400 4,840
SuggestionBox 10,000 11,000
COMPUTERS
DeskTop 18,400 20,240
Ups 5,600 6,160
OFFICEEQUIPMENT
FilingCabinet 14000 15,400
WoodenBackshelf4Drawers 13,000 14,300
CountingMachine 126,000 138,600
CashierBox 48,000 52,800
ChequeScanner 17,000 18,700
TelephoneApparatus 9,000 9,900
Fax machine 10,000 11,000
Printer 18,000 19,800
VEHICLES
Hyundai Grand1.1 750,000 825,000
Generator 85,000 93,500

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TSEHAYBANKSHARECOMPANY(UNDERFORMATION)

IX. STRATEGICANDOPERATIONAL PLANS.............................................................77

14.1 GENERALASSUMPTIONS........................................................................................................... 111

BoD : Board of Directors

CAMEL : Capital, Asset. Management,

CBE : Commercial Bank of

EthiopiaCBO : Cooperative Bank of

OromiaDBE : Development bank of

GTP : Growth and Transformation

MFI : MFI Micro Finance

ROE : Return onEquity

Developments in Global Banking Industry

The Ethiopian Economy

Tsehay Bank S.C(Under Formation)

The assessment of the global banking trend, overall Ethiopian economy in

 Select office sites and rent offices in advance,for immediate

 Facilitate the legal registration of the Company and obtaining of

 Simultaneously, purchase the office equipment and furniture required

 Listeningto customers and offering the best services continuously ;

decade1. While the roots of this disruption may be technological,

rgence of these factors may unleash unprecedented change in the

broadersocietyand economy, and, consequently, inthebanking industryaswell.

Furthermore, fundamental demographic changes across the globe may likely

altergrowth dynamics significantly. Moreover, aging populations in advanced

As feared, the outbreak of COVID-19 pandemic towards the beginning of 2020

the global banking industry. The low-growth scenario, in

coreidentity as financial intermediaries: matching demand with supply of capital.

Banks’competitive advantages should continue to be their ability to manage risk

scale. No matter what, banks will remain trusted custodians of customers’assets.

2.2.4 EthiopiaGDPPerCapita PPP

The Ethiopian Economy was projected to grow by 11.1% in 2017/18 in contrast

Total 519.5 571.7 630.3 696.5 752.0 1,597.6 1,739.2 1895.

GrowthrateinPercapitaGDP 32.2 6.8 14.4 13.4 9.5 7.8 0.9 11.6

Mid-yearpopulation(inmillions) 82.7 84.8 87.0 89.1 91.2 93.4 95.5 97.6

Agriculture 43.1 42.0 40.2 38.7 36.7 36.3 34.9 33.3

Service 45.9 45.5 46.6 47.0 47.3 39.3 39.2 39.8

 Political disruption, associated with social unrest, could negatively impact

Indicators Actual Forecast

2.4.1 ImpactofInflationon CommercialBanking

Item 2015 2016 2017 2018 2019

Food & non- 7.4 11.2 7.3 14.1 19.8

Table4: InflationVSActual InterestRateStructurefor thePeriod2012-2019Year

2013 2014 2015 2016 2017 2018 2019

1.1.SavingsDeposit(SimpleAverage) 5.38 5.38 5.38 5.38 5.38 8.00 8.00

However, critically, a private sector-led economy is dependent on a well-

The state-owned Commercial Bank of Ethiopia (CBE) dominates the market in

Moreover, NBE aims to foster monetary stability and a sound financial

The banking industry is a fairly fragmented and made up of various

between that of the Government and Banks. Government’s objective is to

In Ethiopia,the banking Industry is a leader in economic growth.It is because

Though it is at an infant stage, the banking industry in Ethiopia is trying to

There is also shortage of skilled workforce, because of the absence

Rural areas in Ethiopia do not have access to banking services, because of

Another factor which directly influences the performance and “blossom”

Furthermore, the growing number of middle income households and

Table6:CapitaloftheBanking System attheCloseofJune30…

Table 9 below shows the amounts of outstanding loans of private commercial

Figure 6: Annual Growth Rate of Loans

Import 19,267.60 25,722.60 28,878.00 22,190.20 30,202.50 36,106.50 44,851.40 29,602.69 7%

3.2.2.6 ProfitabilityofPrivateCommercial Banks