The Crawling Banking in Eritrea:

by Kidane Tekle

1. Background:
The purpose of this article is to review the banking sector in Eritrea. I used crawling
because there are not much changes in the way the banks operated in Eritrea. Banking
started in Eritrea over a century ago and the changes it made in its operation with
advent of new technologies, softwares and internet banking is negligible. The progress
made in Eritrean banking sector is noted to be of a linear growth and not an upward
sloping curve.

Banking is among the money stimulants of economic development in any country. It

mobilizes deposits from its customers and advances the deposits as a loan to
businesses. It undertakes import and export trade by opening letter of credit and
settling bills through its correspondent banks. It handles domestic and foreign
remittances. The list is not only these few but much more. In many studies, it is
ascertained that there is a positive relationship between financial development and
economic growth. Private investment can be enhanced by banks through provision of
credit and international banking services.

Banking has not grown ever since it started in Eritrea. During the 100 years, the banks
still serve using their old systems. In this perspective, it is worth reviewing the ‘tortoise
and hare’ digital banking transformation around the world. Because, there is much talk
about it in Eritrea. This widely known fabled story can serve as an excellent primer for
examining the pros and cons of seemingly opposing forces in a familiar format utilizing a
compare and contrast context. There certainly have been several perspectives offered
on the why and how of the winner's result and the lessons to be learned and carried
forward. From a traditional interpretation perspective, the old adage of "slow and steady
wins the race" while acknowledging the value of stability and perseverance simply can
no longer apply universally in today's fast paced digital customer experience race. Not
when the parameters, rules, technology of the race course are constantly changing mid-
lap.

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Alternatively, a "push the pedal to the metal" approach in an effort to exceed the
exponentially growing customer demand, establish market differentiation against an
ever-changing competitive baseline all the while maintaining the highest standards of
performance, stability and security is not necessarily the ready answer. Meaning,
financial Institutions cannot afford a new shiny awesome front-end to run the wheels off
the back-end as a number of recent global bank news events can attest.

Banking has changed from a traditional one to a digital banking in the world. Given the
forces and changes, it is conceivable that leadership in banking services could be taken
up by a new generation of customer-focused, technology-savvy enterprises. Although
the field is open to incumbents and challengers alike, without investment and adaptation
in customer service, operational efficiency and agility, some of the present incumbents
could find that they are not among the winners. As part of this reshaping, we could see
a new era of specialization where customer service and operational specialists are
connected through a network of alliances and business-to-business service provision,
replacing the traditional vertically integrated model. This scenario presents both
opportunities and threats for incumbent banks, depending partly on whether their
instinct is to embrace and lead this transformation or resist it. Either way, the decision
will shape their future.

2.History of Banking in Eritrea:

In 1914, the Italian government authorized the  Banca d'Italia, which is the the Italian
central bank, to operate under special regime to carry out commercial banking in the
colonies operations that were not allowed in Italy. The Banca d’Italia established its first
two branches in Asmara and Massawa. Then, Banca Cooperativa Popolare Eritrea with
its headquarters in Asmara was established in 1915.  Banca per l'Africa Orientale was
established in 1917, with its head  office  in Massawa. These, latter mentioned, two
private banks however collapsed just few years later.

By the end of the Italian colonial period in 1941, there were four banks and one credit
union operating in Eritrea. These banks were: Banca d'Italia, Banco di Napoli, Banco di
Roma,  Banca Nazionale del Lavoro  and Cassa di Credito Agrario e Minerario. These

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banks had 13 branches in six Eritrean cities: Asmara, Massawa,  Keren, Adi Keyh,
Dekemehare and Assab. These banks mostly served the Italians and foreign
businessmen (Armenians, Egyptians, Greeks, Indians, and Yemenis) living in the
colony.

During the arrival of the British military administration in Eritrea in 1941, Barclays Bank
established two branches in Asmara (1941) and Massawa (1942). Barclays Bank
closed its doors after the British left when Eritrea was federated with Ethiopia. In 1943,
the British authorities permitted only the two banks of Banco di Napoli and Banco di
Roma to reopen their branches, which and continued their operation up until they are
nationalized by the Dergue.

Commercial banking continued in Eritrea during the federation with Ethiopia. In this
period the  Commercial Bank of Ethiopia  had branches in Asmara (two offices),
Massawa and Assab. Banco di Roma had branches in Asmara, Massawa, and Assab
and Banco di Napoli had one branch in Asmara.

former office of Banco di Roma in Asmara

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In 1974, when the Dergue came to power, it nationalized all private sector
establishments, including the banks. Banco Di Roma and Banco di Napoli, which were
nationalized, were merged with the Addis Ababa Bank (first private bank in Ethiopia) to
establish Addis Bank. Addis Bank merged in 1980 with the Commercial Bank of
Ethiopia, which enjoyed monopoly of banking services in Ethiopia up until the EPRDF
led government allowed private banks to be established and start business.

When Eritrea achieved its independence in 1991, the Commercial Bank of Eritrea took
over the branches of the  Commercial Bank of Ethiopia in Eritrea. The Eritrean
government formally chartered the Commercial Bank of Eritrea in 1994.

3. Banks in Eritrea After Independence:

The Eritrean government established the  Bank of Eritrea  (BoE) as its central bank.
BoE is responsible for regulating lending and deposit interest  rates  while keeping a
handle on inflation and other macroeconomic indicators.

Office of the Bank of Eritrea

Central banks serve as the bank of any government in any country by managing money
supply and overseeing the commercial banking system of the countries. They pump
money (increase in liquidity) to the economy by decreasing interest rates and lending to
the production and service sectors to stimulate economic growth. However,
uncontrolled increase in money supply is inflationary. Hence, the Bank withdraws the

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money supply in order to decrease inflation by using high interest rates for depositors
to attract more savings and time deposits and high interest rate for lending to
discourage lenders. They also give permits to newly established banks and control
foreign exchange of their respective countries. They conduct economic research and
provide pertinent advices to the government.

Review of the Bank of Eritrea in contrast with the theoretical or practical functions of
central banks across the globe is crucial. Examining the functions of BoE, it is dismal
the way it is faring in adopting monetary policy tools to pursue and stimulate economic
development, enhance employment and control inflation. There are a lot to learn and
emulate on how the Federal Reserve Bank operates in the United States by the Eritrean
central bank, the BoE. Being a governor of the central bank requires the technical
knowhow of operating it. The education and the experience required to run such a bank
goes without saying.

The below legislations pertaining to the Bank of Eritrea look impressive albeit the
practical application is non existent. It is posted in http://eritrean-embassy.se/invest-in-
eritrea/banking-in-eritrea/, with regard to the Proclamation No. 59/1994b and Central
Bank Proclamation No. 93/199. Both had completely dispensed the previous restrictive
and prohibitive rules and regulations governing investment and the administration of
Foreign Exchange and fully liberalized foreign exchange through a Public Notice issued
on May 1 1998. Hence, based on the legislation, the Bank of Eritrea has been assumed
to undertake:
• The rate of exchange has been left to be market determined.
• Surrender requirement has been dispensed with and exporters may retain up-to
100% of their proceeds.
• Except for internationally prohibited items, no negative list is maintained for the
import of goods.
• No limitation exists with regard to the transfer of profits, dividends, patent rights
and capital etc.
• Individuals and enterprises may freely maintain foreign currency accounts. All
convertible currencies are acceptable in Eritrea.

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 • Visitors are not required to declare their foreign currency holding on entry and
exit from Eritrea.
• Banks are free to determine their deposits and lending rates.

These rules and procedures are related to modern banking and prone to capitalist
economic endeavor. However, may be due to reasons unknown or the border dispute
with Ethiopia, none of the above were applied. The rate of exchange was fixed for long
time without any change despite economic and market changes.

At present there are three banks operating in Eritrea in addition to BoE. These are the
Commercial Bank of Ethiopia, the Housing and Commerce Bank, and the
Eritrean  Investment  and Development Bank. All the banks with the exception of the
Housing and Commerce Bank are under state ownership, while the Housing and
Commercial Banks is owned by the ruling party, the PFDJ.

After independence, the Commercial Bank of Ethiopia's branches in Eritrea were taken
by the Commercial Bank of Eritrea. The office of the Northern Regional Office of the
Commercial Bank of Ethiopia, which also housed the Asmara Main branch, became the
Headquarter of the Commercial Bank of Eritrea maintaining the Asmara branch as it
was.

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Commercial Bank of Eritrea was founded as a state-owned bank by the legal entity of
1994 by a government decree and is based in Asmara, Eritrea.

The Commercial Bank of Eritrea is the dominant bank in the country. It is taken to own
nearly 80% of all the banking sector assets in the country. Commercial Bank of Eritrea
provides commercial and retail banking services. It also offers working capital financing,
lending, and foreign currency exchange services. It renders services to foreign
remittance and export/import businesses. The Bank has correspondent bank
arrangements with Citibank for international money transfer, as well as with Deutsche
Bank.

Housing and Commerce Bank of Eritrea  is the second biggest bank in the country
based on its current operation. The Bank was established as a share company in
January 1, 1994 to provide banking service to residential buildings with an initial capital
of Nakfa 500,000 and 13 employees. Later, in 1996 it decided to expand its services by
transforming itself from a strictly mortgage bank into a universal full-service giving Bank,

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which included all areas of commercial banking.

Thus, it adopted its present name “Housing and Commerce Bank of Eritrea (HCB)” to
reflect the change and mission of the Bank. The mission of the HCB has been to help
alleviate the acute housing shortages of the country by providing mortgage loans to
individual customers, as well as financing the fast development of housing complexes in
the country.  The long term and medium term loans that it caters aimed at developing
construction of dwelling homes, business buildings, stores, community centers and
others. In addition, it gives loans for repairs, maintenance, modification and extension
of existing structures.

It renders services with wide ranging conventional banking by providing savings account
in Nakfa, dollar and and Euro. It also operates dollar-denominated certificate of deposit
(CD) and current accounts in Nakfa, US dollar and Euro for individuals and business
enterprises.

It has also services pertaining to foreign remittance, foreign exchange, local transfers,
letter of credits, advance payment guarantee. It takes care of bid bonds and
performance bonds with respect to large scale housing sale by the Bank to the public.

The Bank financed the development of three multimillion large-scale housing projects
sponsored by the government. This consisted of more than 2100 residential units
together with a number of offices, social and commercial centers in the Sembel Housing
Complex, the Mai Temenai Low-cost Housing Development, and the Massawa Housing
Project. It partially financed these projects and they were completed in 1997, 1998, and
2000 respectively. It has undertaken the sale and finance of the Asmara Housing
Project that is being carried out in Halibet, Sembel, and Space since 2016. 25% has to
be paid in foreign currency for any purchase of the house. The houses are meant for
the diaspora and the local people seem to be neglected in the face of an urbanization
rate of three percent and strong demand for affordable housing both for rental and
purchase.

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At present, HCB has extended its coverage and has three Branches in Asmara, namely:
Head Office,  Wushti Ketema Branch and Sembel Branch. The other branch offices
outside Asmara are in Massawa, Assab, Tessenei, Ghindae, Keren, Barentu,
Mendefera, and Nakfa. Dubarwa is a new addition. Besides these, other branches are
in the pipeline to be opened.

Nowadays, the Bank has significantly expanded its banking activities and manpower
strength, which have changed both quantitatively and qualitatively. As of 2012, the
manpower strength of the Bank reached 365, out of which 146 (40%) are male and
219(60%) female. It had a capital of Nakfa 882,000,000 during the same financial year.

It is a representative of MoneyGram in the country.

The third bank is the  Eritrean Investment and Development Bank, which was
established on 28 October 1996. It started its operation in 1998 in its single office in
Asmara. The Bank was financed by the Ministry of Finance as a government-owned
bank.   Primarily, the Bank’s mission is to finance development projects by providing
loans to agricultural and commercial investors.

The National Insurance Corporation of Eritrea share company is the sole insurer
operating in the Eritrea. It is supported by highly renowned and prominent underwriters,
such as Munich, Africa, Zep, Kenya and East Africa reinsurance companies. Its
international brokers include J B Boda (Mumbai), Afro-Asian Insurance Services
(London), Jordan Global (Lagos) and CK Re (London).

The company has a prudent underwriting policy and adheres to the best practice and
good governance principles. It presented its annual report for the year ending 2017 and
posted it online for anyone to look into. The coverage and the performance of the
Company is incredible and exemplary to the other financial institutions, the banks. Its
performance by way of profit was (Nakfa 91 million) and total assets worth Nakfa 957
million. But it lacks in its report the information on human resource strength and service
coverage of the country by way of branch networking.

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Irrespective of the other banks, the National Insurance Corporation of Ethiopia has
board of directors and conducts an annual meeting with its shareholders at the close of
each financial year. Its audited financial statements have been presented and dividends
paid to shareholders. It is, I believe, a professionally managed company with sound
financial statements that are audited and transparent. It produces annual reports and
responds to any queries that one have through its email address. It really does
commendably and the other financial institutions have to emulate the way of handling its
business in accountable and transparent way.

According to the  International Monetary Fund, commercial banks in Eritrea, which are
all government-owned and operated, appear to be in compliance with prudent
regulations. Although the commercial banking sector is largely profitable, mostly owing
to income from foreign exchange transactions, the sector is burdened by a high
proportion of non-performing loans. Core lending activities do not generate sufficient
income to cover operating costs at most commercial banks.
[https://en.wikipedia.org/wiki/Economy_of_Eritrea#cite_note-cp-6

The government owns Himbol Exchange that undertakes currency exchanging services.

4. Recommended Reforms in the Bank’s Modus Operandi:

There are some bank reforms that have to be made to streamline the banks’ system of
operation in Eritrea to facilitate efficient handling of their services that are conducted in
a transparent and accountable way. The reforms may be critical and indispensable for
the banks to be in fold of changes of banking or to be at par with the contemporary
banks in the world today.

4.1 Annual Report:

An annual report provides information on the company’s fiscal year. It provides

information on the company’s mission and history and summarize the company’s
achievements in the year. While financial achievements are included, with other

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achievements,  in the annual report, in the majority of cases, organizations produce a
report for two main reasons:

a) Compliance: Many areas of society, like government departments, listed

companies and even some private  companies, associations and not-for-profit entities,
have to publish an Annual Report to comply with their rules of operation. This is part of
acting in an open and transparent method and being accountable to others.

b) Archival purposes: Drawing a line in the sand once a year and documenting what
you have done, how well (or not) you have done and what you are planning for the next
year ensures that your activities are documented for posterity.

None of the financial institutions in Eritrea, except the National Insurance Corporation
of Eritrea, produce annual reports. All over the world, banks produce annual reports
and either distribute them in hard copies or post them in their website addresses. The
bank depositors, loanees, the government should be getting information on the
operation of these financial institutions. Hence, the banks have to produce annual
reports and it is imperative to do so for these financial institutions as they are connected
to many banks internationally or having correspondent banking relationship and to their
customers at large, which need information on how their banks fare in their operations.

4.2 Automation of Banking Services through Computers:

Banks in Eritrea are pursuing their operations in a traditional banking way. There are no
changes in the system, which was adopted from the predecessors of the Commercial
Bank of Ethiopia, Housing and Savings Bank and Agricultural and Industrial
development Bank of Ethiopia. As technology changes, service catering takes the pace
to comply with new developments. The banks have to be abreast with the changing
world. Trade grows within a boundary of a country and, also, globally. Banks also
change as a reaction to growth in industry, agriculture, service and trade.

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Automation used in the banks in Eritrea are NCR machines to post transactions.
Nowadays, computers are used, which are connected in local and wide area networks.
This allows banks to access accounts outside their branch locations.

There are no automatic teller machines (ATMs) used in all the banks in Eritrea. Credit
cards are rarely used in banking transactions in Eritrea, and are only accepted by few
major Eritrean hotels and some major travel agencies like Oasis, Asmara Grande, and
Eagle.

4.3 The Brick-and-mortar Banking:

The Eritrean banks are brick and mortar banks. Brick and mortar businesses are
sometimes considered “traditional” when compared to online-only operations.
Traditional banks were catering their services to their customers in large buildings.
They use brick and mortar way of handling their business. Brick-and-mortar definition is
- relating to or being a traditional business serving customers in a building as contrasted
to an online business. Banks use the big buildings to create a sense of security and
safety of money in the minds of their customers. 


In the world of banking, brick and mortar banks operate with branch offices. Many of
them also offer online banking (just as many brick and mortar retailers allow you to
make purchases online), but the  online  services are optional. To look at it in another
way, an online-only “internet bank” is the opposite of a brick and mortar bank. There is
no way to visit a branch or take care of business in person in online banking. There are,
of course, offices where bank employees work and answer phone calls from customers,
but customers do not visit those locations.

4.2 Online Banking:

The brick and mortar banking services now forced to change with the advent of the
internet age. Nowadays, many handle a good portion of their routine bank business by

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computer or smartphone. You can log in to check balances, transfer funds, and send
payments. Also, one can deposit checks using bank’s application in tandem with
phone’s camera. The ability to manage deposit accounts from wherever one is, and
without stepping foot inside a physical branch, has not only never been greater, it is
likely to continue expanding.

In an online banking, a bank customer can print bank statements (e-Statements) with
regard to accounts, handle fund transfer between its accounts (savings to checking and
vice versa), effect fund transfers (wire transfers), make stop payments, and pay bill to
domestic payees.

So with the necessity of brick and mortar branches becoming ever slimmer for most
customers, are banks trimming their location numbers? And what about credit unions?
Yes. In the United States, from 2004 to 2016, two clear trend lines stand out. First, we
see that the number of bank branches has indeed been in decline for several years.
Since that high-water mark, the number of branches has dropped slowly but steadily for
seven years, with annual decreases ranging from 0.4 to 1.6 percent. In the Federal
Deposit Insurance Corporation ’s (FDIC) latest reporting, the number of branches stood
at 90,269. By the Way, FDIC ensures that depositors are insured at least to $250,000
per insured bank.

Comparison is made here-below on online and branch services to see their merit or
demerit.
Online Advantage:  Online-only banks claim that they offer better deals because they
do not have to pay all of the overhead associated with brick and mortar locations. There
is probably some truth to that: Online banks typically pay higher interest rates on
savings accounts, and they are more likely to offer free checking services.

Branch Advantage: At the same time, physical branches still offer get from an online-
only bank. Branches sell money orders, notarize documents, and hold  safe deposit
boxes. You can get those services from a variety of other places (usually), but it might
be easier to do everything at the bank.

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The system of telecommunications has not developed per se in Eritrea to support online
banking. Also, the people are not in a position to use such a system as it requires
exposure to technology. It may be a day dream! The only option is to stay with brick
and mortar banking by expanding the banking services through branch opening in many
places, where they are feasible by way of savings and credit potential of the areas.

4. Managing Long Queues:

There are lots of complaints in queues in the banks in Eritrea. I heard of a complaint
on the service queue in the bank in Eritrea in a recent certain interview through youtube.
I also witnessed same, especially in the Commercial Bank of Eritrea.

Banks are service catering institutions. In contrast to the way banking is handled in
Eritrea, banks are more prone to care to their customers by providing efficient services.
In this perspective they put their customers first, caring for the community and they are
willing to change. These are high and cherished values that they attribute to better
banking improvement in their services. It is said that the branch office or the bank is
designed with marvelous look from inside and outside, pictures hanging in the walls,
plants in the corner of the offices, and some music that one hears, are among others,
that make customers’ stay as pleasant as possible and not a boring one.

For customers, time is money. Long queues are unacceptable to them. In this regard,
banks want to manage long queues. Managing long queues during peak business
hours has always been a huge problem for banks. Queue management systems are
specially designed for banks allowing them to reduce queue lengths and increase staff
productivity and operational efficiency. In recent years, the banking industry has
transformed and banks are now competing for a higher share of customers wallet. This
can only be achieved if banks provide exceptional service with a delightful customer
experience. The queue solutions have to be equipped to make customer service more
superior and seamless.

During December 2015 when the Government introduced new Nakfa notes, Eritrean
citizens have been obliged to put all their money into bank accounts. Once their money
is in the bank, citizens are allowed only to withdraw 5000 Nakfa per month from their

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account. It is common to see people queuing at the bank from early morning (before
dawn) and spend the whole day on the queue to withdraw their monthly quota of 5000
Nakfa. Those who are not lucky because the bank hour is over will have to come
back the next day. Hence, lots of people waste their precious time to withdraw their
hard-won currency and leave in disdain when the banks close their doors because of
the working day is over. I remember the ‘evening service’ of the Commercial Bank of
Ethiopia that opens its doors during the evening to allow government or company
workers to use the evening service either to deposit money or withdraw.

Here, the Bank of Eritrea issued a Notice. The Commercial Bank of Ethiopia distributed
this information as follows to the public: “Important Notice to customers of all banks, 9
December, 2016: You deposited cash money to the bank during the period of change of
currency; and the Bank of Eritrea had subsequently issued a directive that limits to the
amount of money that one can withdraw from his/her bank account. Those of you who
withdrew more than such a limit (that is, individuals who withdrew more than 200
thousand Nakfa and businesses that withdrew more than 400 thousand Nakfa) are
hereby informed to the return the money back to their accounts by 31/12/2016. Should
you fail to do so within the specified date, you will be held accountable and that your
matter will be forwarded to the relevant government body for consideration.“

As a consequence of bypassing the above notice, some businesses were taken to be

closed. Some argue that the business licenses, when given, presume that licensees
follow law and rules of the country. It may be true.

Bank customers are technically allowed to make money transfers or make payments by
cheque. But nobody wishes to receive a cheque for any goods sold, because, upon
producing the cheque at the bank, there is no possibility of withdrawing the money in
cash or there is a fear that may not be sufficient fund in the account. Moreover,
businesses and individuals are obliged to return all the withdrawn funds to the original
bank accounts or face investigation and punishment by the government.

There are rules even in United States. Federal law allows a person to withdraw as
much cash as he/she wants from bank accounts. It is their money, after all. Take out
more than a certain amount, however, and the bank must report the withdrawal to the

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Internal Revenue Service, which might come around to inquire about why you need all
that cash. For instance, the 1970 anti-money-laundering law known as the Bank
Secrecy Act spells out the rules for large cash withdrawals. In general, banks must
report any transaction exceeding $10,000 in cash. That includes not only withdrawals
but also deposits, currency exchanges (such as swapping dollars for euros or Japanese
yen) and the purchase of traveler's checks.

The withdrawal of cash, from the branches of the Commercial Bank of Eritrea, creates
work pressure on the bank and long queues to customers. Cash should be replaced by
cheques as an instrument to effect payment. People have to be taught and awareness
creation to be pursued through trainings given by television and radio programs or
through brochures on how checks and other alternative payment mechanism can be
used. The world is being now a cashless society. People do not carry much cash in
their wallet nowadays.

In addition to what has been mentioned in the foregoing, virtual queue management
system has to be in place to make sure that customer is entertained by the right banking
representative. There should be a kind of system that is designed to increase a branch’s
performance and operational efficiency. “In the Commercial Bank of Ethiopia, the
Organizations and Methods Department used to study the time taken in serving a
customer using stop watches to measure time. Say a customer is coming to the bank
branch to withdraw money from his savings account. The OM Officer puts his watch on
and follows him up until he goes out of the bank branch. The operation goes in the first
encounter, when the customer fills a withdrawal voucher. The Savings Clerk attending
at the counter will pick the savings ledger, identifies the customer and check his
signature. He takes it to the staff, who posts the withdrawal in a machine. It goes then
to the Auditor, who checks the transaction if it is appropriate and correct. If the
withdrawal is over a certain limit, it has to be checked and okayed by the Supervisor.
Then the Office-boy takes the voucher with the booklet to the Teller to effect the
payment.” This takes longer time than it should. The purpose of the OM Officer is to
study and recommend how to shorten the process and the time taken.

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Take the same transaction in the United States. The customer goes to the cashier and
the cashier does the verification, posting and effecting the payment. It is a one stop
shop. You can guess how much a time difference there is in the attendance of same
customer between USA and Eritrea.

Customers who are happy with the service you provide are likely to stick around and do
more  business with you. So if you are bringing back a fair amount of customers
regularly, that is a pretty good indication that you are providing good customer service.
Customers, who are happy, stays with the same bank. Customer retention is not a
problem in banks in Eritrea. Whether they are happy or not they stay in the same bank
because they do not have choice.

5. Bank branches:

5.1 Branch Network:

The Commercial Bank of Ethiopia had 9 branches when it ceased operation in Eritrea.
The successor, the Commercial Bank of Eritrea has 17 branches. It has four branches
in Asmara. The rest are in Adi Keyh, Akordat, Assab, Barentu, Dekemehare, Edd,
Keren, Mai Mine, Massawa, Mendefera and Tessenie. The Housing and Savings Bank
has 2 branches in Asamra, and Assab, Barentu, Dubarwa, Ghindae, Keren, Massawa,
Mendefera, and Tessenie.
Branch expansion looks not to have been given proper attention. The Commercial
Bank of Eritrea increased its branch network from 9 to 17 during the last 27 years,
meaning close to a branch in 3 years. There are cities and towns not served by bank
branches at all. Even in Asmara city, the branches are limited to the market area.
There was a branch of Commercial Bank of Ethiopia in the 1960s and 70s in Gejeret
and there was a branch in Edaga Berai in Massawa.

In Eritrean administration, there are zones, sub zones and districts. The banks have to
expand to cover as many places as possible. First priority on Zonal capitals, then sub
zones, and districts. Of course, branch opening depends on the number of people, the

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business undertakings, deposit mobilization potential of an area. There are lots of
towns like Adi Qwala, Adi Teklezan, Afabet, Elabered, Foro, Nakfa, Nefasit, Segeneiti,
and Serejaka, to mention few, that can be bankable.

5.2 Bank/Population Density:

Taking the 17 branches of the Commercial Bank of Eritrea, 11 branches of the Housing
and Commerce Bank, and one main office and a branch of the Investment and
Development Bank, altogether adding up, there are 30 branches.

The current population of Eritrea is 5,612,716 as of October 31, 2018, based on the
latest countrymeters estimates. This is of course changing every second

• 2,991,157 persons between 15 and 64 years old ( 1,467,103 male / 1,524,054

female)
• 200,568 persons above 64 years old ( 89,699 male / 110,869 female)
• Adult population is estimated as 3,191,725 (2,991,157+200,568)
Bank population density = 3,191,725/30 = 106,391

Thus, the adult population of 106,391 are served per a bank branch. You can figure out
how it may be difficult to serve this big number per a branch and how it can cause
overwhelming queue.

Eritrea remains as one of the under-banked economies. Expanding branches will allow
banks to increase their deposits and enable them to have enough resource to cater to
credit needs of businesses.
https://countrymeters.info/en/Eritrea

On the average, 47.55 Automated Teller Machines (ATMs) serve 100,000 adults in 2016
in the world. There is none in Eritrea. Australia had 165, Portugal 168, followed by the
United States of America 166 in 2017. Ethiopia had 0.02 during the same year in ATM
service.

5.3 Mobile Banks:

Mobile  banking  enables people to conduct business even miles from their
local  bank  using their cellphones.  Mobile banking  is a service provided by a  bank  or

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other  financial institution  that allows its customers to conduct  financial
transactions remotely using a mobile device such as a smartphone or tablet. Unlike the
related  internet banking,  it uses software, usually called an  app (mobile access and
applications), provided by the financial institution for the purpose. Mobile banking is
usually available on a 24-hour basis. Some financial institutions have restrictions on
which accounts may be accessed through mobile banking, as well as a limit on the
amount that can be transacted.

Consumer visits to retail bank branches are set to drop, with mobile transactions rising,
as customers increasingly shift to accessing their banking information via apps and
secure, responsive sites on their mobile devices. Branch traffic will not be the only
metric to suffer, as mobile devices become the primary mode of contact.

This may not be feasible in Eritrea with the stage of development of telecommunication
services and the retarded banking services.

5.4 Mobile Bank Truck Trailer:

There was a plan by the Commercial Bank of Ethiopia to use truck that serves as a
bank to areas which do not have access to banking services. There are costs in staff,
rent, utility and other related costs to run a branch office. Some of the towns may not
be feasible to open a bank branch. However, the towns and even villages can be
catered with a bank service using a Mobile Bank Truck. It serves many places in
shorter time and allows many to be accessible. The Truck Trailer looks as shown
below. It has office room where customers are attended. It is well secured. Hence a
driver and another staff can do the job of a branch with less cost by driving from place to
place.

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6. Private Banks:

At present there are no privately owned banks in Eritrea. There is a bank mentioned
under a name of Augaro Bank, which was presumed to be established but believed to
have short-lived. There is no reason found why it was closed.

What we have now in Eritrea are all public banks. Public sector bank is a bank in
which the government holds a major portion of the shares or the government holdings
are more than 50 per cent. In Eritrea, the banks are 100 percent owned by the
government except the HSB, which is assumed to be owned by the PFDJ.

Private sector banks are banks in which greater part of stake or equity lies in the hands
of private shareholders. Private sector banks are usually known for their highly
competitive outlook and technological superiority. As a result, careers in private sector
banking also tend to be more competitive where professionals are required to meet stiff
targets and perform above par to ensure good career growth. Risk-reward component is
also higher and remuneration could be better but job security may not be on par with
publicly-owned banks.

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A private bank may have retail banking facilities for their clients. They are known for
better customer services and investment opportunities. The private banks are well
equipped with all kinds of contemporary technologies and techniques.

In Ethiopia, during the last 27 years, there were over 10 private banks established. In
Eritrea, we have to emulate such developments like in Ethiopia.

7.  Conclusion:

As discussed in the foregoing part of this article, banking in Eritrea has remained a
traditional banking. Efforts have to be put forth to adopt new technology and introduce
Automatic Teller Machine.

Eritrean is taken to be underbanked. Hence, branch expansion has to be given proper

weight so as to reach as many people as possible in every corner of the country.

Bank reform has to be conducted to stimulate opening and growth of private sector
banks. Such will create competitive atmosphere and stimulate economic growth of the
country. In line with this, Public Notice issued on May 1, 1998 has to be put into
practice to allow the determination of the foreign exchange regime by market through
competition.

New private banks should be able to be established and enhance competition and
serving businesses and individuals with quality services that can drive economic
development in the country.

Banks in Eritrea are moving in the slow lane. We need movers and shakers that get
things done and modernize banking in Eritrea by moving the gear and speed-up by
adopting new changes. There is a need to move with time to be at par with banks
across the globe.

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Banks create money. By taking deposit from customers, it lends it to businesses. By
expanding its customer base and reaching as many people as possible by opening
branches all over the country, it can mobilize much higher deposit than it has now.
More deposit enables it to increase its liquidity and, thus, increase its lending.

The banks in Eritrea should develop working relationship with MoneyGram, Western
Union, Dahabshiil, worldRemit, Amal Express, Al-Mustaqbal Express, Ria that are
widely serving in the international remittances. These remittance agents can help
Eritreans all over the world to remit money to their family or for other reason and the
foreign exchange can go directly to the banks in Eritrea.

NB: I wrote an article on the 75th anniversary of the Commercial Bank of Ethiopia,
which can be useful by way of information and it can be educative as well.

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