Goh is one of about 20 initiatives raising equity from the public to form a bank.

Promoters of Goh Mortgage Bank have received a letter issued by the National Bank of Ethiopia (NBE), which clears them to conduct shareholders' signing on the memorandum of association and other articles to be held at the Federal Document Authentication & Registration Agency (DARA).

Goh is one of about 20 initiatives raising equity from the public to form a bank. The positive nod from the authorities is a landmark step towards its formation and a crucial requirement for gaining an operational license.

"It was under review for a while, now we've received the green light," said Mulugeta Asmare, appointee president of Goh.

Mulugeta is awaiting official approval from regulators at the central bank.

The document signing process is expected to be completed in two weeks, upon which Goh will submit a request for an operational license from the NBE. Promotors began floating shares to the public two years ago, mobilising 530 million Br in paid-up capital of the 1.2 billion Br subscribed. Shareholders held a founding general assembly in October last year, where they elected Getahun Nana, former vice governor of the National Bank of Ethiopia as board chairman and Mulugeta as chief executive officer.

Mulugeta is a veteran in the banking industry, kicking off his career at the state-owned Commercial Bank of Ethiopia (CBE), where he served in different posts for almost two decades. He graduated from Addis Abeba University in accounting before completing a postgraduate programme in business administration at Greenwich University in the UK. He was appointed as the President of the Bank of Abyssinia in 2015, serving for four years.

In establishing the first private mortgage bank in Ethiopia, Mulugeta and Goh's founders aim to alleviate gaps in the financing of housing development in the country. Once the Bank commences operations, customers will be allowed to take out loans to build, buy and renovate houses. But Goh has yet to make its operational strategy public, although its executives have signalled that they plan to operate with a limited number of branches.

Nevertheless, experts foresee that Goh will face challenges in light of the industry's unique nature and a lack of similar preceding experience. One of the obstacles experts point out is the possibility of a lack of specialised bankers arising from the inexistence of mortgage banking in the country.

"The result is lack of skilled power in a range of professions such as credit checking," said Abdulmenan Mohammed, a financial expert known to observe Ethiopia's banking industry for over a decade.

According to the expert, the valuation of property in the domestic real estate market is faulty and inflated. The existing banking model relies on the mobilisation of short-term savings and the provision of short- to medium-term loans, contrary to mortgage banking, which requires long-term financing with lower interest rates. This is difficult to raise and risky, says Abudlmenan, cautioning Goh promoters to consider these factors when setting interest rates and designing a financing framework.

"The size of mortgage loans given could be insufficient to sustain the Bank," says Abdulmenan. "This may force it to engage in commercial lending."

As a legal framework that sets different regulations for speciality banks is non-existent, the Bank might be put into a peculiar situation.

Goh Bank is also not exempt from the new directive issued by the central bank requiring banks to boost their paid-up capital to five billion Birr. Banks that are under formation are required to meet that threshold in seven years. Those under formation, such as Hijra and Tsehay, remain hopeful that it is attainable within the given period.

"They've been gracious with the period provided," said Getahun. "We shouldn't exist if we can't meet the requirement by then."

Amhara, Tsehay and Ahadu banks are under formation already holding founding assemblies, waiting for a green light for a license from the central bank.

PUBLISHED ON May 23,2021 [ VOL 22 , NO 1099]

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