Unborn Hawassa Bank Requests Transfer of Equity to Berhan Bank

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Promoters of the under formation Hawassa Bank requested the central bank to transfer the equity contributions  of their shareholders to Berhan International Bank (BIB), one of the nine existing banks expected to fulfil the half a billion Birr threshold capital requirement after four years. National Bank of Ethiopia (NBE) raised the capital requirements for banks from 75 million to 500 million Br with the motive to create strong banks, in September 2011. The regulator’s directive put 13 private banks under formation, including Hawassa in limbo. Some of the banks have still not decided their fates, including some contemplating liquidation. Hawassa Bank started floating its shares in 2009, through 43 promoters, and was able to raise 20 million Br in capital from 530 shareholders. But, before it accomplished collecting the previously required amount, the central bank issued the new directive. The majority of the promoters were frustrated by the new capital requirement and gave up their ambition of forming a commercial bank, advocating, instead, for liquidation. A few promoters, who preferred to stay in the sector, proposed the merger idea with an established bank and convinced others. After the promoters reached an agreement they started to look for a bank that would buys their idea and finally settled on Berhan, founded in December 2009 with a 95.7 million Br capital. Berhan, which has around 6,753 shareholders, raised its capital to 134.7 million Br in June 2011. “Berhan is the most active amongst the already established banks, and the management of the Bank has shown good faith to work with us,” Solomon Afework, promoter of Hawassa Bank, explained of the selection. Promoters discussed with senior managers of Berhan and signed a memorandum of understanding (MoU) for a merger a month ago, according to Solomon. However, the central bank rejected their move, stating that Ethiopian law did not allow such unions between established and non-established banks.  “We do not recognise Hawassa as a bank, so it does not fulfil the major requirement of merger,” an official at the central bank told Fortune. NBE advised the individuals behind the formation of Hawassa Bank to liquidate it formally and buy the shares of Berhan with their individual capacities. Following to the decision of the central bank, promoters of Hawassa came up with another option last week. The promoters officially asked the central bank to transfer the equity contributions of shareholders into the closed account of Berhan. Celebrities and well-known personalities, such as the late artist Afework Tekle and the renowned long-distance runner, Haile Gebrselassie, are among the shareholders of Hawassa. NBE did not have any regulation prohibiting the transfer of equity, but could not approve the move of a shareholders’ money without their full consent, according to the official from NBE. To obtain the agreement of the shareholders, the promoters prepared a petition form, last week, and requested the central bank to approve their move. “This is the easy way to transfer the already collected amount of money to Berhan rather than dealing with it individually,” one of the promoters of Hawassa told Fortune. The National Bank is positive about the arrangement between the two banks but still demands the overall shareholders’ agreement. They did not hold any meeting with all of the shareholders, but they have contacted the majority of them, informally, and received their individual consent, Solomon claimed. The equity transfer is a preferable option, if the arrangements turn out to real, believes an industry analyst, who is aware of the negotiations. The arrangement is a positive contribution for Berhan by increasing their lending capacity as well as attaining the threshold capital required in 2016, he said. Belachew Bogale, president of Berhan Bank has declined to comment, stating that the issue is at an infant stage.

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