Looking skyward in Addis Ababa, it's impossible to miss the towering achievements transforming Ethiopia’s skyline. Dozens of cranes weave between rising giants as the banking sector pours billions into ambitious headquarters projects pushing construction ever higher. But what do these lofty ambitions symbolize for the country’s financial future - harbingers of a new era of stability and prosperity or monuments risking unnecessary dependence on endless growth?
LAYING FOUNDATIONS
The ascent began in 2010 when Awash Insurance and Awash Bank inaugurated 18-floor landmark twins on Ras Abebe Aregay Street, where what industry players today call the Financial District is located. This kicked off an urgent need for state-of-the-art headquarters to “house permanent national bases accommodating natural operations and customer expansion long-term,” explains Zemen Bank CEO Dereje Zebene.
Gaining momentum, Wegagen and Dashen Banks pursued similarly bold 21-floor missions in 2017, unveiling ambitious complexes empowering stability by insulating against risky rental market turbulences or unpredictable landlords.
As the banking expert Abdulkadir Nuredin, clarifies, while property investments align with banking laws, excessive diversions from core lending risks destabilizing results. Careful discipline remains key. Still, properties can prove strategic national assets, and buildings empower long-term management, he reasons.
THE SKYSCRAPERS RISE
Construction’s scale and ambition intensified rapidly, notes longtime industry leader Eshetu Fanataye, CEO of Ahadu Bank. Ethiopia’s second tallest arose as Nib International's 37 floors topping 2 billion birr in 2021, with Hibret Bank raising standards unveiling Africa’s loftiest at 37 stories for 2.7 billion birr the same year.
Nowhere is the ambition more apparent than at Zemen Bank, one of over 30 Ethiopia’s private lenders. The bank recently broke ground on a multimillion-dollar headquarters extension that will more than double its existing facility.
“Our current building simply cannot accommodate the scale of operations we foresee in the next five years based on projected growth rates,” explains Zemen Bank’s Dereje. “This expansion allows us to consolidate multiple satellite offices under one roof for greatly improved efficiency.”
Zemen poured over 1.5 billion birr into constructing its first skyscraper headquarters, which was inaugurated in 2023. The latest addition is anticipated to cost nearly as much. Dereje notes the projects are funded entirely from the bank’s 14 billion birr in shareholder equity rather than utilizing depositors’ money. He argues physical assets ultimately create wealth for investors.
“Over time, property values tend to appreciate significantly,” Dereje said. “While buildings require heavy initial capital outlays, they deliver returns to shareholders that compensate for inflation and rising costs.”
For behemoth Commercial Bank, only the ultimate symbol would suffice to epitomize Ethiopia’s rising economic might. Its iconic 209-meter tower now towers overhead, completed in 2022 as Africa's tallest following a record 303.5 million USD (16 billion birr) investment affirming Addis’ prominence on the continent.
Yet unchecked aspirations stretched further. Colossal proposals include Awash Bank's planned 50 floors reaching sky-piercing 12 billion birr, while rival Cooperative Bank of Oromia eyes shattering height records with a 65-story marvel. But will such speculative overreach risk costly instability questions veteran Eshetu, reiterating a gradualist "scale-to-capacity" philosophy guiding multiple banks across decades.
BALANCING HIGH HOPES AND PITFALLS
"Banks require buildings to house natural growth supporting long operations," reiterates Dereje, yet overdependence endangers foundations should volatility strike.
For some smaller startups, the benefits of ownership may be more immediate. An executive of Hijra Bank recalls how, as a new entrant, depending on leased offices posed sizable risks.
“Landlords could hike our rent or even evict us with little notice if a larger tenant made an offer. Control over our own space reduces uncertainty,” the executive explains.
Hijra purchased a modest nine-story property located at Bole around Denbel city center for gradual expansion over the next decade based on projected growth. The building cost 130 million birr of the startup banker, accounting for over a quarter of its paid-up capital.
Eshetu warns smaller players ill-advisedly precipitating hasty headquarters plays imperils hard-won financial strength.
Fortunately, regulations guide property investments confirms Abdulkadir, as banks must judiciously reinvest depositor funds through loans, not international real estate speculation. Still options exist like long-term rentals protecting against inflation notes Eshetu, or contributions into housing and real estate development tackling socioeconomic challenges.
With recorded investment now exceeding 35 billion birr scattering cranes across the Financial District skyline, serious questions emerge regarding sustainability. Will flashy towers boost international prestige while nourishing inclusive shared prosperity? Or symbolize fragile dependence on never-ending growth vulnerable to economic cycles.
Playing Defense, Offense
While erecting marquee structures conveys ambitions of longevity, there are pragmatic motivations behind real estate accumulation too. For one, it guards against escalating local inflation which routinely tops double digits and chips away at capital in checking and savings accounts over the long-run.
Owning appreciating land cushions shareholders against the constant erosion of cash holdings—converting paper assets into bricks and mortar hedges. It also allows capturing gains from exponentially rising property values in urban centers experiencing explosive infrastructure-fueled population booms.
Equally significant, well-located buildings can generate dependable rental income to diversify revenue sources beyond interest margins alone. Occupied office space in central Addis Ababa commonly fetches over 500 birr per square meter monthly in the current market. Major properties like CBE’s multiplex have vast leasable areas producing millions in annual topline contributions without relying entirely on loan portfolios.
Regulatory Considerations
Independent analyst Abdulkadir say regulators see buildings as a way to help banks withstand any financial downturn they may face, seeing them as a cushion.
“Owned premises provide a layer of security to the financial system in times of stress,” says Abdulkadir, who spent 18 years in senior positions before transitioning to private research. “Authorities can utilize tangible property more easily than leased facilities during an intervention.”
Of course, banks must weigh property development judiciously against other investment channels and obey stipulations from supervisory bodies. “Regulations reasonably restrict how much capital we can dedicate to fixed assets at any one point,” acknowledges Eshetu of Ahadu Bank.
The National Bank of Ethiopia, aware of risks from concentrations, enforces prudent limits on property holdings. It also imposes tough liquidity requirements to guard against illiquidity should property values suddenly fall—encouraging diversified portfolios.
Still, the central bank has proven tolerant of banks’ organic expansion plans partly out of acknowledgement for their multiplicative impacts. “Constructing offices spurs activity in cement, steel, furniture and more,” highlights Dereje of Zemen Bank. “Our projects employ thousands and stimulate supplier industries.”
Macroeconomic Benefits
With real estate rising strategic amid fast growth, banks may tap other opportunities too, Eshetu says. Industry leaders foresee selling holdings when values peak to reinvest gains elsewhere or issue bonds secured against prime assets. Eshetu advises acquiring stakes in major developers to participate upstream in land redevelopment and housing megaprojects transforming the nation, while assisting the private sector in addressing ever-growing housing demand.
As Ethiopia maintains breakneck economic progression into the next decade on the back of public works like dams, rails and airports, strategically structured real estate investments could bolster not just individual banks but the entire financial ecosystem and macroeconomy. If executed prudently in line with expanding balance sheets, buildings may become pillars supporting Ethiopia’s rise.
