The Bank of Abyssinia has reported a 30pc rise in its net profits to 375 million Br, slightly lower than industry competitor Wegagen Bank. The bank has faced a profit growth slowdown in recent years, making this year’s growth rate a record-high since 2010.
Last year, Wegagen’s profit was 22.4pc higher than of BOA’s. However, in 2016, the gap contracted to two percent. Wegagen was the third highest profit earner in 2015, next to Dashen and Awash International Bank S.C.
Abyssinia’s growth rate was two times higher than the rate registered by the most capitalised bank, Awash.
Last year, the private banking industry amassed a profit before tax of 5.43 billion Br, an increase of 15pc from the previous year. Abyssinia’s share was around seven percent.
The bank’s earning per 1,000 shares (EPS) increased by 13.2pc to 315.4 Br, marking a comeback for the Bank which experienced a fall in EPS over the past two year.
In 2014/15, the EPS of big banks dropped by 23pc to 50.4pc. Medium banks, a category which includes Abyssinia, Wegagen, Nib and United banks, faced an average of a 41pc decline to 27pc. The biggest decline during the spiral was seen in Abyssinia. In 2014/15, its EPS plummeted by 51pc to 278.4 Br.
“Abyssinia has been grappling with challenges arising from the rapidly changing banking environment, such as shifts in customers’ expectations and behaviors, rapid technological advancements, tight regulatory requirements, changing demographics and economic developments, among others,” said Messeret Taye, Board Chairman of the Bank.
To aid the adjustment, the Bank, with the assistance of the internationally recognized consultant, Deloitte Consulting PLC, designed a Five-Year Strategic and Organizational Transformation Plan to take full advantage of the above opportunities and attain better growth during the strategy period.
Overall, the factors behind the better profit performance of Abyssinia are the huge improvement in revenues from financial intermediation and other banking activities.
Income from foreign dealings soared by 45pc to 167.1 million Br. Although this is almost two times lower than Wegagen’s gain from the same source, it is higher than its closest rivals, United and Nib by 49 million Br and 90 million Br, respectively.
The last fiscal year has been marked by a chronic shortage of foreign currency, largely due to the deteriorating earnings from exports. Nationally it declined by 7pc to 2.8 billion dollar.
The bank’s increase in income has been accompanied by a massive expansion in expenses.
BOA spent 70 cents to earn one birr of income last fiscal year. The private banking industry overall spent 64 cents to earn one birr last year. Five years ago, the industry average was 50 cents to earn one birr.
The bank earned one billion Br in interest income and paid 41pc of their earnings as interest expenses.
The bank spent 285 million Br, a quarter of its income, on general administrative expenses.
On the other hand, salaries and benefits surged by 63pc to 389.1 million Br. Further expansion is expected as the bank has introduced a new salary adjustment for its employees four months ago, based on the findings of a study conducted by Deloitte. This has made Abyssinia the highest payer among the Ethiopian commercial banks.
The new salary raise saw a 100pc overshoot for junior clerks at the front desks of branch offices to a 50pc raise for the president of the bank, who earns around 100,000Br a month.
However, some BoA mid-level employees still claim that the raise is less significant for mid-level staff. While some staff members saw their salary shoot up by as much as 200pc, others were completely left out with a below 25pc addition to their monthly income.
Provision for doubtful loans and advances has increased by twenty times to 19.43 million Br from negative 2.12 million Br.
“Despite the surge, the provision at BoA is still reasonable,” Abdulmenan Mohammed Hamza, an analyst at London Portobello Ltd commented.
During the recently ended fiscal year, provision for doubtful debts has shown a phenomenal increase in mid-sized banks. The average has gone up by four times to 136 million Br. Close to one-third of that total is provided for by Wegagen.
“Special efforts made to collect loans enabled the bank to bring down the level of Non-Performing Loans (NPLs) to below two percent,” said Mulugeta Asmare, BoA’s CEO.
Specifically, cash and bank balances have gone up by 8pc to over 3.1billion Br.
Liquid assets to total assets ratio have decreased to 18pc from 21pc and the liquid asset to total liability ratio has also dropped to 23pc from 26pc. This reduction may have been due to increased investments in fixed assets, prepaid rent and branch opening.
“BoA should take care against a further reduction in liquidity,” Abdulmenan underscored.
“We are in a good stand in terms of liquidity,” Mulugeta told Fortune. “There is nothing to fear about.”
As part of the bank’s new strategic plan, in the 2015/16 fiscal year, the bank opened 53 new branches, raising its network to 185. BoA has increased its paid up capital by 14pc to Birr 1.2 billion Br. The figure is lower on the curve as compared to mid-sized banks.
Named after the first bank in Ethiopia, which was founded a century ago, Abyssinia has been in the banking industry for the past two decades.