Wegagen Bank has taken a pioneering step in the emerging capital market, releasing a prospectus for listing and registering its shares on the nascent Ethiopian Securities Exchange (ESX). The Bank, which has registered 6.2 million shares at a par value of 1,000 Br, is not issuing new shares but provides its current shareholders a formal avenue to buy and sell stakes.
According to Tilahun Esmael (PhD), CEO of the ESX, the Bank has been granted primary approval, after confirming compliance with the relevant standards.
Wegagen Bank’s prospectus arrives ahead of the expected launching of Ethiopia’s first securities exchange, set to become operational by the second half of 2025. A legislation passed in 2021 that established the Ethiopian Capital Market Authority (ECMA) laid out a regulatory framework for trading stocks, bonds, and other securities. Wegagen Bank’s listing-by-introduction represents a key milestone in operationalising the capital market.
“The moves that Wegagen strives to seem unreachable,” said Aklilu Wubet (PhD), Wegagen Bank's president. “I can assure you that our efforts will lead us to a better position ahead.”
He declined to comment on the prospectus's content. However, he expressed optimism about a capital market development in a country where share trading has rarely occurred under official regulation. According to Aklilu, a public listing could demonstrate the potential benefits of transparency. Rather than an initial public offering (IPO) that involves offering new shares, Wegagen Bank's listing could lead to price discovery for the shares already held by existing shareholders.
Incorporated in 1997 with a paid-up capital of 30 million Br, Wegagen Bank grew into one of the five largest private commercial banks. Its total assets, as of June 30, 2024, were 65.7 billion Br, while loans reached 45.1 billion Br and total deposits amounted to 52.1 billion Br. A financial analyst cited these numbers as evidence of the Bank’s expansion and the nationwide demand for banking services. He noted that Wegagen’s diverse offerings, including digital solutions and trade finance, have fueled its competitiveness in a crowded market of 32 banks.
Nonetheless, the Bank has also encountered major setbacks. In the two years beginning in 2020, war in northern Ethiopia disrupted 87 of its branches, mainly in Meqelle and Shire towns. It prevented Wegagen Bank from paying shareholders dividends for two consecutive years. Its net profit dipped to 126 million Br at one point, causing earnings per share (EPS) to slump from 31.3pc in 2021/22 to 4.2pc the following year.
Having recovered since then, it runs 443 branches across the country and has resumed dividend payments in the past two years. Aklilu's arrival in 2023 as the new president coincided with the Bank's resilience. It recorded an EPS growth of 16.6pc that same year, roughly tripling the previous rate. By the end of the 2023/24 fiscal year, the Bank nearly doubled its net profit, raising it to 1.6 billion Br and boosting EPS to 36.9pc, up by 14.2 percentage points, although still short of the industry average of 38.4pc.
According to Mekbib Tesfaye, a London-based analyst, the Bank’s rapid rebound and strategic move to list on the soon-to-be-launched Exchange give it a notable advantage in a market still learning to operate under formal regulations.
“They will reap first-mover advantages,” he told Fortune.
Wegagen’s paid-up capital reached 6.2 billion Br but shareholders agreed in December 2022 to raise it to 20 billion Br by 2028.
Over the past three years, the Bank held around four percent market share across key performance metrics. In the 2023/24 financial year, its share in profit before tax stood at 4.2pc, with a three-year average of 3.9pc. Its total number of branches averaged six percent during the same period, serving more than three million customers.
According to Mekbib, certain risks in the prospectus were insufficiently explained, lacking accurate quantification. He noted that commercial banks might one day need mergers or acquisitions to remain competitive, but Wegagen Bank’s position on this possibility remains unclear from the prospectus. The Bank’s management declined to discuss these concerns, including issues such as liquidity and top-loan exposures.
As of June 30, 2024, Wegagen Bank's top 10 depositors held a combined total of 10.9 billion Br, accounting for about 21pc of overall deposits. The top 20 depositors held 14.2 billion Br, representing roughly 27pc.
"The Bank’ should worry about over-dependence on a small group of large depositors," said Mekbib.
Industry experts familiar with the Bank describe concerns on the deposit issue “exaggerated,” arguing that it has worked with these major depositors for years without suffering a severe negative impact.
Wegagen Bank’s corporate governance practices could draw criticism from international investors who value diversity in senior leadership. Its Board of Directors consists of 10 men, and its executive team has only one female member. According to Mekbib, greater inclusivity could raise the Bank’s international appeal. However, people familiar with the Bank recalled Wegagen Bank previously had a female President - Brutawit Dawit - and those who served on its board. The Bank is also said to be preparing to add more female board members, and recently sent 38 female staffers to Turkey for specialised training.
The prospectus disclosed that Wegagen Bank has potential exposure to legal proceedings totaling 1.09 million Br, compared to half a billion Birr the previous year. It recognised 60.11 million Br in provisions, a jump from 10.92 million Br. The Bank does not foresee additional substantial liabilities from these cases.
Mekbib commended the disclosure of ongoing litigation as a step toward positive transparency. However, the expert argued that Wegagen Bank's focus, which includes interest-free banking services known as Mudarabah, could benefit from sharper strategic definition. However, people familiar with the banking industry contend that interest-free banking is a relatively new line of business and requires time and inclusivity to develop, noting that these services cross deposit, credit, and digital platforms.
As of June 30, 2024, Wegagen Bank mobilised a total deposit through current accounts reached 16.7 billion Br, with around half a billion Birr secured under interest-free programs through a Qard arrangement. Another 1.7 billion Br came from various savings products linked to interest-free banking.
"To stay competitive, Wegagen Bank should differentiate itself and find ways to become more efficient, including heavier investment in digitalisation," Mekibeb told Fortune.
According to him, banks typically allocate less than 0.5pc of their revenue to digital transformation, a shortfall that could impact long-term growth. However, people familiar with Wegagen insisted the Bank is rolling out distinctive digital services and exploring new products to enhance its product portfolio.
Solomon Zewde, senior legal advisor at ECMA, said the Authority’s guidelines prohibit companies from including risk mitigation sections in their prospectuses.
"Prospective investors should have a clear-eyed view of all risks," he told Fortune. “Banks, being strictly regulated by the National Bank, are expected to present clear financial statements and prospectuses. We anticipate a unique prospectus from future listing companies."
Wegagen Bank's prospectus reflects a general optimism about future economic prospects, attributing recent growth to the working-age population and accelerating urbanisation driving demand for financial services. However, inflation, foreign currency shortages, and external debt remain serious drawbacks for the macroeconomic environment, and the Bank acknowledged that a high budget deficit can also affect investment.
Prime Minister Abiy Ahmed’s (PhD) administration has pursued economic policy reforms, such as allowing foreign banks to enter the domestic market, easing the foreign currency shortage through improved remittance inflows, and negotiating to restructure external debt. Officials hope a more stable macroeconomic climate can lower inflation and stimulate expansion in the banking industry, including increasing deposit mobilisation. The share of adults with bank accounts in Ethiopia remained below 45pc, a considerable growth potential experts say, especially in digital and branch-based financial inclusion programs.
Tourism offers another opportunity for foreign currency inflows, as does a large diaspora population whose remittances could help strengthen commercial banks’ liquidity. Policy measures, such as the entry of a foreign telecom firm, Safaricom, signal a broader liberalisation agenda that could spur further investments in areas previously closed to foreign capital. Many analysts view the prospective capital market launch as central to this process.
Yet, questions about whether the new Exchange can handle robust market demand linger. Experts see few large institutional investors, such as pension funds or insurance firms, capable of providing sustained liquidity. Given a tradition seldom involving public share trading, retail shareholders might need time to warm up to equity investments. They fear macroeconomic strains, including persistent inflation and political unrest, may discourage foreign investors.
Wegagen Bank has indicated an interest in launching an investment bank in partnership with other investors, though there are concerns about the large sums needed for such ventures. People familiar with the Bank believe this new initiative could help address liquidity issues by introducing new income streams. They say that regulators at the National Bank of Ethiopia (NBE) have already provided approvals after reviewing the Bank’s proposals. Wegagen Bank disclosed in the prospectus that this project will be established through a share company, as no single institution shoulders all the financial burden.
According to Tilahun, Wegagen Bank is not required to present future investment plans as a firm that is not issuing new shares. However, he disclosed that trading would begin once the Bank finished the dematerialisation process of migrating shares into an electronic format and obtained final sign-offs from regulators.
Mekbib anticipates Wegagen Bank’s inaugural listing would resonate more strongly if it offers a clearer vision for growth, robust risk management strategies, and a distinct value proposition that sets it apart from other banks.
“We aspire to be a learning company that has the potential to embrace any change in the financial landscape,” Aklilu told Fortune. “What the future holds for Wegagen is a dazzling basket that all craves to enjoy.”
PUBLISHED ON
Mar 02, 2025 [ VOL
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