YARDSTICK INTERNATIONAL COLLEGE

COLLEGE OF POSTGRADUATE STUDIES DEPARTMENT of BUSINESS

ADMINSTRATION

COURSE; - OPERATION MANAGEMENT

Title: A case Analysis on the bank of Abyssinia

ASSIGNMENT 1

SUBMITED BY: - HANA GIRMA

IDNO.MO/3116/14A

SUBMITTED To;

Dr.Dayal

SUBMISSION DATE; jan 29, 2023

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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
only131shareholders 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.

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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 stateof-
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 usingmobile or
internet banking. A customer can transfer up to 500,000 ETB through internet bankingper 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 fullestand to
create convenience banking service. Currently the bank is following the cost leadership strategy

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which is used to provide standardized and updated services to customers with fair and affordable
prices.

the product and service of Bank of Abyssinia

The Bank of Abyssinia (BoA) has different products and services for its local and diaspora
audience. These services are in 5 categories: local deposit accounts, loan services, E-commerce
services, international banking services, and interest-free banking (IFB)

Bank of Abyssinia is a pioneer in introducing non-interest-bearing account services targeting the

community segment that opted for interest-free banking services. BoA has launched window-based IFB
services in its branches stretching all over the country in December 2017 following the NBE’s directive
that allowed for the initiation of interest-free banking business in Ethiopia. The IFB services are
aggressively growing and being rendered in all branches of the bank (724 branches) in a dedicated
window model and 28 dedicated branches which are intended to deliver only Sharia-compliant
products/services as well as 26 focused branches in selected potential areas in Addis Ababa and regional
towns. The bank is able to mobilize a total deposit amount of Birr 10.2 billion from its more than 885,457
customers as of September 30, 2021. The Bank has also begun supporting IFB clients by availing
different IFB financing products to different economic sectors

Organisational structure of a bank

The typical organizational structure in a commercial bank is the following: a financial holding
company (or bank holding company) at the top of the pyramid; below the holding company is the
bank itself; finally, the bank may own subsidiary companies involved in credit card lending,
commercial finance, and equipment .

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.

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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 increase
Threats
 Growth of technologically advanced banks in future
 Emergence of non-commercial banks, such as industrial banks- perform
the function of

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 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.

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  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.
Conclusion
The general objective for this paper was to assess the internal control systems over cash with
five specific objectives which were to assess the operation effectiveness of systems of operations
of internal control over cash management, to assess the challenges encountered in the internal
control systems over cash management, to determine the steps to readdress the challenges over
cash managements operate .In the study it is tried to conclude the collected data in terms of the
five elements of control that are control environment, risk assessment, control
activities ,communication and monitoring.
In order to perform the assigned duty and responsibility in the bank, we have to make sure that
an employee understands and knows the procedures and policies of the bank. In Bank of
Abysinia the employees knows and have a good understanding on bank’s procedures and
policies which makes the job they perform more reliable and acceptable. In connection with their
knowledge about the policies they can tell how relevant the procedures are for internal control
over cash. Based on the collected data the bank’s policies and procedures are very relevant and
are supportive for the internal control systems over cash in the bank’s branches and protects the
internal controllers from mislead in other words it prevents inappropriate control system which is
outside the procedure and arbitrary controlling system in the bank’s branches.

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Segregation of duty is highly related to having enough employees and is one way of providing
efficient service by dividing the activities to employees other than assigning the job to an
individual. In addition to this since the banking business is almost entirely related to cash
operation, the purpose of this separation of duties is to make difficult for theft or errors to occur.
In Bank of Abysinia there is segregation of duty on average, means in some of the selected
branches there is a good segregation of duty but in some there is a poor segregation of duty in the
bank which leads to loading many activities on one person. The segregation of duties in the bank
is good but not good enough; this is one drawback for the bank to perform a good control in the
branches. In addition to this general duty segregation, the segregation duty in cash operation is
also similar, moderate segregation in cash operation duty. This moderate segregation of duty in
cash operation makes the internal control system difficult for the branch controllers in the
branches of the bank. The segregation of duties in the branches has connection with rotation in
cash handling duty. Cash handling duties are not rotated periodically resulted from poor duty
segregation and shortage in man power to segregate duties.
Internal audit function over cash operation is one of the internal control systems. And this
function is highly affected by the level of dependency of internal controllers from top
management. The dependency level of internal auditors to top management has an impact on the
control system in the bank. The collected data shows that most of the internal audit functions and
control systems are dependent on the top management decision and reactions. This dependency
highly affects the controlling style and system of the branch controllers because they are
responsible to the top management. These is due to change in structure of the bank, internal
auditors were responsible for directly to board of directors but now they are responsible for
branchmanager.Cash is the most sensitive asset and banking business is almost entirely related to
cashoperation,it requires maximum care. Safeguarding of cash can be seen in many ways: cash
vault key &password handling, balancing & counting cash daily referring transaction and
periodicchangeofpasswords. In BOA, there is a dual control on cash vault which make difficult
fortheftunlessboth are involved. And the password of the vault is not changed periodically unless
theemployee, who was operating the vault, leaves the branch this is because cash handling duties
are not rotated periodically and one person have no periodic limit to operate cash. Having these
difficulties, in order to have good internal control over cash internal controllers has some cash
controlling activities. Counting the branches over all cash in monthly basis and the chief cashier

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counts and receives tellers’ cash at the end of the day. And sometimes there is a surprise cash
count in the bank’s branches. This helps to control cash from theft or misuse both by internal and
external bodies. In operating cash in the bank’s branch, there a probability of cash excess and
shortage .Also BOA has this experience which happens sometimes. Regarding this the internal
controllers and
the branch managers tries to investigate the case by balancing teller’s cash on hand, till
transactions & vouchers (both deposit and payment) and then find a solution.
In banking business, there is a high customer and cash operation contact simultaneously in
giving financial service to its customers. And the banking operation is requires documents and
records of each transaction processed at a time. Documents include: vouchers (both deposit and
payment), reports, letters of instruction and each necessary files related to the banking operation.
These documents and records in BOA are kept and filed in strong manner. The strong filing
keeping actual documents of the bank makes it easy to find documents easily when they are
needed. The bank reports (send a report) cash operation summary on monthly basis to the
concerned organ.

Recommendation
To improve the effective and efficient internal control system over cash in the bank, problems
and deficiencies that were observed here above in the finding should be looked carefully. Thus,
some recommendations are forwarded to modify or alleviate them here under: - cash operation
transactions should be continued to maintain the overall efficiency of operations in the bank On
the other hand., to reduce probability of fraud and likelihood of unintentional errors in the
accounting data for cash operations, it is advisable to the management of the bank to follow up
and take corrective actions on employees’ combination of functions and unnecessary personal
relationships.
Even though internal control over cash is implemented in a good way in Bank of Abyssinia,
there are some problems. Therefore, the study recommends the following points based on the
analysis; To increase the analyzing skills and knowledge of the employees, the bank should have
specific characteristics for such competence and screen new employees based on the
criteria already set. Besides, to develop competence of the existing employees, the bank
should also provide its staff with educational opportunities and continuous training and

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orientation on new technologies and otherprocedures.

 BOA has to segregate duties and responsibilities to provide efficient and effective service
to its customers. This might be done via hiring additional employees, if necessary, to
distribute duties and facilitate the banking operation. In order to prevent cash theft and
misuse, the bank should rotate cash handling duties
periodically in regular. And also it should be experienced to change passwords in
periodic basis it shouldn’t have to be changed only when someone leaves the branch.
The dependency level of internal auditors to the management affects the controlling
system in the branch. So the internal auditors shouldn’t be highly dependent on the top
management. To perform their duties freely internal controllers have to be independent
from top management in general.

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