The Harer city administration has shut down 43 bank branches, including those of Commercial Bank of Ethiopia (CBE), Awash, Dashen, Zemen, and Berhan banks. The city administration attributed the closure to safety risks as the branches were operating in unfinished buildings.
However, bank executives state the closure stemmed from the fact that banks refused to make corridor development contributions demanded by the city government.
The closures, which began on December 13, targeted 15 banks operating in the city. As of December 21, at least 43 branches have been shut down. The Ethiopian Bankers’ Association (EBA) claims the action followed the city administration’s request for two million Birr per branch to support local corridor development projects. Banks that delayed payments faced immediate shutdowns, according to EBA.
“This is completely against banking law,” said Demissew Kassa, secretary general of the EBA. “Closing branches without warning disrupts financial services and violates regulatory procedures.”
Berhan Bank had two branches shut down, leaving 15 employees without work. The Bank’s president Ermias Tefera said the closures were unjustified, as the bank had permission to operate in two of the buildings cited as unfinished. “We weren’t given time to make decisions through the board,” he stated.
Gadaa Bank also reported branch closure, with president Wolde Bulto insisting that development contributions should not be forced. Banks should not be obliged to commit contributions, he argues.
The action has sparked uproar among bankers. The Ethiopian Bankers’ Association (EBA), led by Abie Sano, who also heads the CBE, has appealed to the NBE, the Ministry of Finance, and Harer Regional State President Ordin Bedri for a solution.
The National Bank of Ethiopia (NBE) is now stepping in. “We will take action to reopen the branches,” said Frezer Ayalew, head of banking supervision at NBE. He argued that only NBE is mandated to shut down branches and authorize branch operations. “The city administration has no legal basis to take such actions,” he said. "Opening and closing branches is only within the authority of the National Bank."
The NBE is currently assessing what actions they can take in response.
The regional state’s Bureau of Finance & Economic Cooperation recently requested banks for financial support for corridor development projects in the city with contributions of two million Birr per branch. Shortly, the bank branches in Harer began to be shut down by the Urban Development & Construction Bureau and Investment Office.
Demissew stated that the closure will have impacts as the branches make daily transactions of hundreds of millions of Birr. "This is completely against the banking business law," he argued. The recently ratified banking business law grants only the NBE the authoritative power to close, open, and relocate branches.
The Association stated only bank branches have been targeted for closure, while other businesses in the same buildings remain open.
Worku Lemma, a financial consultant, says that corporate entities have faced persistent pressure to make contributions. He recommends banks balance their corporate social responsibility (CSR) initiatives with their financial obligations.
“They should not be forced to make contributions,” he said, stressing the potential for overburdening banks, which could lead to decreased profits, reduced dividends, and this in return could impede growth.
The closure of branches means banks could not mobilize deposits from the region, and forex dealings have stopped.
The incident followed a recent request by the Ministry of Finance (MoF) for financial institutions to support corridor developments. Four months ago, Eyob Tekalign (PhD), a state minister for Finance, called on banks to support projects in four zones in Wollega. The development projects are a part of Prime Minister Abiy Ahmed's (PhD) second phase of the corridor development initiative.
Financial institutions have often been called upon to support national initiatives. They have been required to engage in CSR activities in war-affected areas. In December 2020, banks contributed nearly 200 million Br through the EBA, just a month into the civil war in northern Ethiopia. They were also required to donate over 800 million Br to the Ethiopian National Defence Forces (ENDF), with half of that amount coming from the state-owned CBE.
Henok Muluneh, the city’s communications head at Harer city administration denies the closures were related to contributions. He stated that the measures were taken against building owners and renters occupying semi-finished buildings, which pose safety risks.
However, experts disagree. Abebe Dinku (Prof), a civil engineer, says that the recently ratified building proclamation allows semi-finished buildings to be occupied if there is no ongoing construction. Occupants will need to vacate should construction restart.
PUBLISHED ON
Dec 22,2024 [ VOL
25 , NO
1286]
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