Ethiopian Banking Industry at Risk from Growing Operational Threats

The National Bank of Ethiopia shared in the Financial Stability Report that the Ethiopian commercial banking industry faces significant operational risk, which are expected to increase soon. Recent reports show a sharp rise in bank fraud and forgeries, with costs climbing to 1.3 billion birr, up from 1.0 billion birr last year. Almost every bank in the country has experienced incidents of fraud. Common methods include fake cash notes, forged cheques, unauthorized bank guarantees, and stolen ATM card withdrawals. Social engineering tactics, such as phishing calls and texts, have also become prevalent.

As banks introduce new technology-based products to enhance efficiency and promote financial inclusion, they expose themselves to more significant risks. The move towards digital microcredit and savings services often involves partnerships with third-party providers. This trend increases opportunities for fraud. Additionally, more customers use online banking platforms, mainly when access to physical branches is restricted. This shift raises the potential for cyber threats. Many banks struggle to verify customer identities remotely, making them vulnerable to fraud.

The Ethiopian banking industry must implement effective risk management strategies to combat these rising operational risks. They must regularly evaluate their vulnerabilities, focusing on insider threats and third-party risks. Establishing strong security protocols is crucial to protect against data breaches and fraud attempts. Training employees on social engineering tactics and other fraud schemes can help mitigate insider threats and improve overall security.

Collaboration with regulatory bodies is essential for ensuring compliance with evolving standards that safeguard financial systems. By working closely with regulators, banks can better navigate the complexities of operational risks while maintaining trust within the financial ecosystem.

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