Wednesday, June 12, 2024
BusinessOVID Construction makes foray into finance with mortgage banking venture

OVID Construction makes foray into finance with mortgage banking venture

Promoters looking to meet NBE 5bln minimum capital threshold

The executives of a fast-growing construction firm have decided to take a chance in the financial sector with the formation of a new mortgage bank. Backed by thirteen founding shareholders and prominent promoters, OVID Betoch Bank hopes to enter the market as the country’s second mortgage bank despite a total lack of legal frameworks governing mortgage banking in Ethiopia.

Among OVID Betoch Bank’s founding shareholders and promoters are Yonas Tadesse – board chairperson of OVID Group; Yitbarek Takele (PhD) – CEO of OVID Real Estate and Venture Capital and board chairperson for the bank under formation; Ermias Sehai – regional managing partner for Bluehawk Consulting; Abiy Girma – chief financial officer for OVID Group; and Zemedeneh Negatu – chairman of Fairfax Africa Fund.

OVID Betoch Bank secured a business license from the Ministry of Trade in May 2023, and gained the central bank’s approval to begin offering shares last month.

Promoters have raised 1.2 billion birr of the five billion birr minimum capital threshold imposed by the National Bank of Ethiopia (NBE), according to Zemedeneh, whose name was tied to another mortgage bank that was raising equity from the public in 2021.

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“We raised 1.2 billion birr during a two-and-a-half hour dinner,” Zemedeneh told The Reporter.

He says the promoters expect to reach the central bank’s minimum threshold “in a very short period of time.”

OVID Betoch Bank is looking to raise 20 billion birr in capital in the near future, according to Zemedeneh.

The under-formation Bank plans to introduce a financing system tailored to the needs of homebuyers. It will begin with a 20/80 financing model and envisions transitioning to a 70/30 and eventually 50/50 structure based on investors’ financial capacity.

The foray into banking follows the success the OVID Group has found in construction, and the Group’s construction division is expected to be the bank’s leading borrower. OVID made its name via the timely construction of a number of projects under the Office of the Prime Minister.

Yonas, the head of OVID, is also a notable donor to the City Administration’s welfare programs, including initiatives to provide housing and food security to low-income groups.

“OVID, the bank, is completely separate from OVID, the construction company,” said Zemedeneh. “OVID Bank will provide financing for housing projects, including to OVID, the contractor.”

Abiy Girma, deputy chairperson of the organizational team behind OVID Betoch Bank, emphasized the promoters’ commitment to providing swift housing solutions.

OVID Bank will use the borrower’s home as collateral, using a meticulous review of financial and credit history to ensure timely repayment, according to Abiy.

“Knowing borrowers’ detailed information will help the Bank avoid bankruptcy and ensure on-time loan repayment,” he said.

Abiy hopes the Bank will live up to its promise of making home ownership more accessible and sustainable in the Ethiopian financial landscape.

Zemedeneh is also excited about the opportunities offered by the huge housing finance deficit.

“As of now, the housing market in Addis Ababa alone needs nearly a trillion birr of finance. Housing needs are very significant in Ethiopia, and there is a need for several large mortgage banks,” he said.

Nonetheless, the lack of laws governing mortgage banking in Ethiopia is a point of concern for Zemedeneh.

“We’re hoping the NBE will issue a mortgage banking directive. Until then, we will operate based on the existing laws,” he told The Reporter. “Though we are looking to obtain a commercial banking permit, we will operate as a mortgage bank. The NBE is becoming dynamic and we expect mortgage banking laws soon.”

The lack of such laws is one of the factors that forced the promoters of Selam Bank – a mortgage banking hopeful that began offering shares in May 2021 – to abort the formation process. It was also among the banks under formation that were squeezed out by the NBE’s 10-fold raise on the minimum capital requirement a few years ago.

 Zemedeneh was among Selam Bank’s founding shareholders and foremost promoters, along with prominent business personalities like Bethlehem Tilahun, founder of SoleRebels.

Selam was raising capital before the decision to merge with Goh Betoch Bank.

“This happened around a year ago,” said Zemedeneh. “The NBE approved, and the shareholders of Selam were transferred to Goh.”

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