Amhara Bank is at loggerheads with 10 banks over repayment of interest on the paid-up capital it has collected.
The dispute arose one and a half years after the Bank officially started selling its shares to the public after coming to terms with 10 commercial banks to create accounts in which investors would deposit the money they would like to invest.
These accounts opened by the bank that has collected over six billion Birr in paid-up capital so far are closed accounts.
Executives argue that they are not obliged to pay interest on closed accounts, while Amhara Bank argues that the interest should be paid.
“We have requested commercial banks to pay us interest, but they are dragging their feet citing common practices and the fact that the account is closed,” stated Mesenbet Shenkutie, Project Manager of Amhara Bank.
Currently, minimum interest rate on savings stands at seven percent, while it reaches as high as 13 percent in case of time deposits. Taking this into account, Amhara Bank expects an interest payment of 420 million Birr to 780 million Birr.
“It is something that we cannot leave. It is a lot of money and the banks earned interest income from it as they don’t just put it idle,” remarked Mesenbet.
The Bank has already asked the National Bank of Ethiopia (NBE) to intervene in the matter, questioning the intent of the central bank’s law that requires banks under formation to put their paid-up capital in a closed account.
“Closed account does not mean the banks should not pay interest payments. It is just a law put in place to protect investors from misappropriation and misuse of their money,” explained Mesenbet. She went on to point out that her Bank is even willing to seek legal means to settle the matter.
The commercial banks, for their part, defended their decision, asserting the nature of such agreement prevents them from paying interest.
“We are required to pay the money immediately after the organizing committee gets a license from the National Bank of Ethiopia. So we cannot lend it or use it for other purposes because the payment’s due date is unknown, unlike time deposits and huge amounts of deposits,” said a Senior Executive working at one of the banks partnering Amhara Bank.
With a subscribed capital of eight billion Birr, three-fourth of which is paid, Amhara Bank, which is amongst over 25 financial institutions that are under formation, will be the most capitalized bank in the country following Commercial Bank of Ethiopia that has a paid-up capital of 40 billion Birr.
Amhara Bank plans to hold a general assembly next month since it has already met pre-requisites needed to do so. This has been delayed for over six months due to the Coronavirus and the availability of a hall that can hold over 185,000 shareholders, a majority of whom have now decided to participate in the general assembly through their representatives.