Open Letter to the Policy Makers at the National Bank of Ethiopia

Re: Suspension of the Executives of the Cooperative Bank of Oromia

In a baffling decision, you have suspended the top officials of the Cooperative Bank of Oromia (CBO) for reasons that have not yet been made clear to the public. The news that they were sacked “due to alleged mishandling of foreign exchange trade” cannot be taken seriously until further evidences emerge. During one of my recent trips to Ethiopia, I had the opportunity once to meet the President of the bank – Obbo Wondimagegnehu Nagaraa – who, by many accounts, is credited with rescuing an ailing institution headed in the wrong direction, and making it the fastest growing bank in the country, by all indicators.

I realize that supervising and regulating banks and other financial institutions are some of your core responsibilities, although judging by how rampant inflation has been in the country, you have failed in the most important function for which you were established – devising and implementing sound monetary policies. Your regulatory role would, I hope, aim mainly to ensure (I’m copying here from a certain publicly available document of the US Federal Reserve for the sake of brevity), “the safety and soundness of financial institutions, stability in the financial markets, and fair and equitable treatment of consumers in their financial transactions.” In order to meet these objectives, you are empowered by appropriate laws to undertake a number of specific functions, including: an assessment of the regulated banks’ financial conditions, riskiness of their business activities, accounting and auditing practices, compliance with consumer protection laws, compliance in matters pertaining to their fiduciary activities and information technology, among others.


The CBO is a bank par excellence by any standard, impressively contributing to the economic and social development of the country, despite being established much later than Awash, Dashen, Abyssinia, Wegagen, United, and Nib. It is the third most-profitable privately-owned bank in the country next only to Dashen and Awash, creating enormous value for its shareholders. The robust expansion of its branch network is also another indicator of how brilliantly the bank has been performing in its short span of existence – it has 146 branches and counting – a network that only Awash and Dashen could match and exceed. Abyssinia and Wegagen have about 130 and 120 branches respectively, even though they started their operations nearly ten years before the CBO was launched.


What makes these achievements even more remarkable is CBO’s choice of its branch locations and the type of customers it is serving. Whereas all the other privately owned financial institutions are concentrated in urban areas, the CBO is providing crucial financial services in the rural parts of the country, reaching communities that have been largely (and severely) underserved, successfully adopting a business model that ought to be encouraged and emulated, not discouraged. The bank has less than a quarter of all its branches operating in the capital, where over 50% of all the branches of the remaining private banks are located. The bulk of CBO’s customers are thus small farmers who would otherwise be shut out of formal banking services; yet, remarkably, a quick review of the bank’s financial statements reveal that its bad debts are well within the acceptable bound.


It would thus be reasonable to deduce that the CBO, whose executives you have dismissed without offering sufficient rationale for doing so, has been well run by all measures. Needless to say that I am stupefied by your actions and would like to ask the following questions, with hopes that you will shed some light on your troubling decision. I intend to publish these questions on a few print media outlets dealing largely with issues related to Oromia and Ethiopia. Here are the questions:


1) What were the precise offenses that you found so objectionable to opt for what amounts to essentially arresting the great strides the CBO has been making, thus arguably negatively and materially affecting the potential benefits that would be accruing to its shareholders, employees, customers, and the country at large? A specific enumeration of the transgressions, not a vague accusation, is what is being requested.

2) What were the nature and volume of the “mishandling of the foreign-exchange trade” that the CBO was alleged to have engaged in? Was it a systemic problem, or was it likely to be random? Are these alleged infractions unique to the CBO, or do they come up in your supervision and regulation of the other financial institutions?

3) How did you discover the alleged offenses?
4) How did you adjudicate these purported wrongdoings?

5) Do you have mechanisms in place that would help you determine the seriousness of any violations by any financial institution under your supervision and regulation?

6) Assuming the violations you discovered with the CBO were material, did you consider other redeeming characteristics of the bank (which are undeniably numerous and substantial) in your decision making?

7) Before carrying out the penalties against the bank and its management, did you consider the damage your decision might cause to the shareholders, employees and customers of the bank, not to mention the government that you serve as central bankers?

8) Did you consider and attempt to quantify the potential net impact on the social welfare of your actions? I presume that, as responsible social planners, you have thoroughly examined the benefits and costs of your decisions on the social welfare.

9) Are you convinced that your decision would promote, “the safety and soundness of financial institutions, stability in the financial markets, and fair and equitable treatment of consumers in their financial transactions?”

10) Are there precedents from around the world that would justify your actions?


Teferi Mergo, PhD
Assistant Professor of Economics,
University of Waterloo



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