Background of Bank of Abyssinia

Bank of Abyssinia, one of the private banks in our country was established on February 15, 1996
according to the Ethiopian commercial code of 1960 and the licensing and supervision of
banking business proclamation no. 84/1994. The bank started its operation with an authorized
and paid-up capital of Birr 50 million, and Birr 17.8 million respectively with only 131
shareholders and 32 staffs. In about 20 years, since its establishment, the bank has registered a
significant growth in paid-up capital and total assets. It also attracted many professional staff,
valuable shareholders and larger number of customers.
The most critical challenge facing most organizations today is coping up with today’s game of
business, dynamism. For a past few decades, organizations have been facing severe competition
in their external environment in which they operate (Alkhafaji, 2003 & Ayub, Razzaq, Aslam &
Iftekhar, 2013).

In order to operate in a competitive environment organization needs strategic management. A

strategy is an integrated and coordinated set of commitments and actions designed to exploit core
competencies and gain a competitive advantage. According to Michael Porter, “Strategy is the
big picture of how the organization is going to win in its environment, whatever that is.
Strategy is not competing to be the best. Many managers and leaders and organizations
think that they are trying to be the best organization in their industry. The best bank, the
best coffee shop, etc. And to do so, we must make the best products. But that’s a wrong
approach and a very dangerous way of thinking about strategy. Indeed, there is no best
company in any industry…. Strategy is competing to be unique.”

Current Situation of the Bank

Over the last years the bank implement three strategy but left behind from peer competitor in its
deposit, market share, and overall performance, even if the bank start its operation by offering
best innovative product such as gift saving account, safe deposit boxes and saving account linked
with current account /SALCA/ to enable customers to transfer funds from one’s saving account
to one’s current account to write cheque when there is no sufficient balance in current account.
Even if the bank is pioneer to provide such kind of service the last fifteen years performance is
week when comparing with its peer competitor.

Through it’s over 600 branches in the country, BoA serves over 3 million customers with 6,910
employees.  BoA’s well-structured financial service system is connected through the T-24 core
banking system. This coupled with the 633 ATM machines placed in different locations to afford
customers to access their account from anywhere at any time. This also allowed BoA to increase
its capital hundred-fold from ETB50 million to ETB 5.5 billion.

Currently, employing the state-of-art banking technology, the Bank provides excellence
domestic, international and special banking services to its esteemed and valuable customers. It
also strives to serve all economic and services sectors via its ever increasing branch networks
throughout the country.

The bank also offer digital banking transfer from one BoA customer to other type of bank using
mobile or internet banking. A customer can transfer up to 500,000 ETB through internet banking
per day. BoA is the first bank to introduce this system to Ethiopia which makes it the leading
bank of Ethiopia.

VISION, MISSION AND VALUE

The following are brief statements on the Bank’s Vision, Mission and Values.

Vision
To become the leading commercial bank in East Africa by the year 2030

Mission
Provide excellent financial services through competent, motivated employees and digital
technology in order to maximize value to all stakeholders.

Values
Bank of Abyssinia is guided by the following values:
Integrity, Honesty and Loyalty, Efficient Customer Service, Commitment, Equal Employment
Opportunity, Employees Satisfaction, Team Spirit, Good Corporate Governance, Social
Responsibility, Innovation, and Fair return to Shareholders.

Objective of Bank of Abyssinia

The bank has three strategic plans which was set for 5 years from 2020-2025 which has three
main objectives, growth, operational Excellence and digitalization. These three strategies are
designed to obtain three results which are sustainable profit, customer satisfaction to the fullest
and to create convenience banking service. Currently the bank is following the cost leadership
strategy which is used to provide standardized and updated services to customers with fair and
affordable prices.

SWOT Analysis

Organizations use SWOT analysis to assess their current position before they decide on any new
strategy. They can use SWOT Analysis to make the most of what they have got, to their
organization's best advantage. And they can reduce the chances of failure, by understanding what
they are lacking, and eliminating hazards that would otherwise catch then unexpectedly.

Strength

Strengths are things that organizations do particularly well, or in a way that distinguishes the
organization from its competitors.

The Bank’s Strengths are:-

 Bank of Abyssinia provides a specialized Interest-Free Banking service with a brand name of

“Ameen” with unique product features and benefits. The product and services provided by BoA
fulfill the need of our esteemed customers and fully in compliance with the Shari'a principles.
 Virtual banking
 Transfer money from BoA account to other banks.
 Starting of T-24 technology, started POS and Mobile banking

Challenges
In order to survive in the market and to take a competitive advantage over other competitive
banks implementing technological oriented products and services is inevitable and being late
adopter of electronic payment projects made the bank to learn from the existed experience of
banks who adopted these products earlier. Yet, being late adopter made the bank to lose the
potential market available at the first phase of entry.

Opportunities

 The first bank currently serving with Virtual banking system in Ethiopia
 Plenty of available potential unbanked customers which made a reasonable opportunity
for implementing electronic payment technologies.
 Reduction in paperwork and improved service quality by overcoming geographical
limitations and reduces long lines in the banking hall
 Improves customers’ satisfaction considering the conveniences and ease of access
 So Productivity and profitability increases

Threats

 Growth of technologically advanced banks in future

 Emergence of non-commercial banks, such as industrial banks- perform the function of
advancing loans to industrial undertakings, investment banks - dedicated to financing the new and
upcoming project.

Industry analysis Using Porter Five Force model:

According to Michael Porter, the business while analyzing the environment should be considered
more with the intensity of competition determined by substitutes, potential entrants, rivalry
among firms, suppliers and buyers.

1. Threat of Substitute
Substitutes for the banking industry are;
 I. Microfinance and credit union; there are many microfinance and credit union in the country.
Their lending rate is higher compared to banks, which minimizes the threat of substitute in the
industry.
II. Stock /share market; until now there is no stock /share market in the country. Therefore, the
threat of stock/share market is zero.
In general threat from substitute is minimal in the banking industry.

2. Threat of new entry

The minimum paid up capital requirement for new entrants is birr five billion for the time being
as per the national bank of Ethiopia directive no SBB/78/2021 that entered in to force as of Apr
12, 2021 created entry barrier for new banks.

There is also Restriction to Foreign Bank to operate in the country.

Therefore, from the above points we conclude that threat of new entrants is low in the industry.

3. Rivalry between Banks

There are 18 banks in Ethiopia, 2 government owned and 16 private banks. There is high rivalry
among these banks because;

 There is no significant Product differentiation between banks.

 National bank of Ethiopia sets minimum bank’s deposit rate that is 7%. In most banks the saving
rate is 7% for normal saving accounts.
 The banking sector is more profitable and high growth.
4. Bargaining Power of buyer (Borrower and FCY user, in case of banks)
Bargaining power of borrower and FCY user is high due to the following circumstances;

 Scarcity of financial resources.

 There is Huge demand of FCY and loan.
5. Bargaining power of Supplier (Resource Owner)
In the banking industry depositor and exporter are considered as suppliers of money, because
banks lend the money which is collected from the customers.

Exporter have high bargaining power;

Depositor bargaining power is growing;

Undifferentiated service.

 The overall industry trend suggests that Banking in Ethiopia is growing, where there is
still wider scope to increase asset and profitability, as the potential of the economy is rich
to expand business.