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Ethiopia Bank Glitch Caused By ‘Government Destabilisation’

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Earlier this week, the state-owned Commercial Bank of Ethiopia (CBE) suffered a technical glitch that allowed customers to withdraw more money than they had in their accounts. The glitch lasted for several hours, during which time news rapidly spread on social media, particularly amongst university students, who flocked to ATMs on campuses to withdraw as much cash as possible.

Local media reports in Ethiopia suggest that the bank has lost more than 2.4 billion Ethiopian birr ($42 million), although that amount has been disputed by the CBE’s president Abe Sano. He has said that the total amount taken was far smaller but that the bank cannot know how much was lost exactly until after an audit takes place. 

That said, an audit is likely to be a complicated task given that almost 500,000 transactions took place during the glitch, with a significant proportion of those transactions also being entirely legitimate transactions.

Sano said, however, that the bank would be taking legal action against those who do not return funds by the end of the week. “There is no way they can escape because they are digital transactions, and they are our customers. We know them. They are traceable and they are legally accountable for what they did,” he said. The Ethiopian police have reportedly already arrested suspects in one southern city, with further legal action likely to take place.

The specific cause of the technical glitch is currently unknown. However, Getachew Temare, a human rights activist in Ethiopia, told Disruption Banking that “the recent financial debacle at the Commercial Bank of Ethiopia is indicative of a wider state of affairs at play.”

“Despite the significant financial loss, the bank has not acknowledged the issue fully or provided a satisfactory explanation. The government and bank officials attributed the problem to a sudden glitch. However, the root cause of the major disruption lies in the government’s measures, which have destabilised the bank’s operations,” he argued.

Temare suggested that the Ethiopian government has been meddling in the CBE’s operations which, while not directly responsible for the technical glitch, have created the conditions under which mistakes are more likely.

“This includes rapidly reshuffling senior officers and heads of the bank, leading to a decline in the institution’s trust and workforce confidence. Furthermore, the government, through new bank officers, has made unstudied and reckless management decisions, such as firing long-serving employees under various pretexts like educational qualification irregularities and fake credentials, to replace them with its thousands of own loyalists,” Temare explained. “This raises questions about how thousands of people could have been hired with fake educational credentials in the first place.”

Although CBE’s technical glitch is almost certainly a one-off, black swan event, does the environment which Temare identified say anything about the wider state of the banking industry in Ethiopia? Temare is concerned that the glitch could reveal the shoddy state of the East African country’s banks.

“The influence of government-related investors is heavy-handed, and this has led to a financial disruption,” he told Disruption Banking. “Many customers have complained, and from what I’ve gathered from my closest friends and family members, there is no guarantee of the safety of depositing your hard-earned money in the bank. There are concerns about financial information being easily leaked and the risk of robbery and kidnapping due to information obtained from bank workers.”

CBE’s turmoil comes at an inconvenient time for the Ethiopian government, which has tried to liberalise its state-dominated banking sector in the hope of attracting greater levels of foreign investment. However, CBE’s costly glitch is likely to raise eyebrows in many quarters, and potentially cause some investors to reassess whether the Ethiopian banking industry is sufficiently mature. In Temare’s words, “the situation is critically complicated and concerning.”

Author: Harry Clynch

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