Abay has posted a 146.5 million Br net profit under tight liquidity conditions.
The Bank has been reporting a positive profit growth over the past five years. The current year’s profit is six times higher than 2011/12 fiscal year.
Abay showed the results despite the economic slowdown in the country. Last year, the country was hit by El Niño-caused drought and recorded the lowest economic growth rate in a decade, at 8.5pc.
These encouraging results were achieved as a result of the Bank’s strategy of employing diversified income generating activities through aggressive branch expansion, according to Tadesse Kassam, Chairman of the Board of Directors. Tadesse is also CEO of Tiret, a company that is affiliated with the Amhara National Democratic Movement (ANDM).
Abay’s liquidity has shown a decline in relative terms.
The proportion of liquid asset to the total asset went down to 18pc from 19pc a year ago; the Bank had less cash during the reporting period, preferring to put liquid assets to productive use. The banking industry average is at 21pc.
During the first half of the recently ended fiscal year, private banks were hit by a liquidity crisis because of the Commercial Bank of Ethiopia’s decision to issue four billion Br in letters of credit. As a result, some banks were even forced to use their reserves at the National Bank of Ethiopia (NBE).
“Our liquidity is still good even though there has been a decline,” said Yehuala Gessesse, president of the Bank.
Abay’s cash and bank balances showed an increment by 26pc to over a billion Br.
On the other hand, the Bank’s earnings per 1,000 Br shares have been on a constant increase prior to the last fiscal year.
In 2015/16, however, it slumped to 230 Br from 271 Br, due to the rise in paid up capital.
Abay increased its paid up capital by 31pc to 719.06 million Br.
“As it is a well-capitalized Bank, it should use this to generate more income,” says Abdulmenan Mohammed Hamza, analyst at London Portobello Ltd, a London-based holding company with subsidiaries in property investments and developments.
This robust performance was chiefly driven by huge increased interest and income from foreign exchange dealings.
Interest income has surged to almost half a billion Birr from 285 million Br.
Gains on foreign exchange dealings have also increased by 30pc to over 38 million Br. This represents less than three percent of the private banking industry.
“The figure is outstanding considering the downward trend of export earnings in the nation,” said Yehuala, who has led the bank for the past 16 months. “Although the decline in commodity price affected our capability to meet our targets.”
During the previous year, export proceeds witnessed a seven percent decline to 2.8 billion Br, due to the decline in commodities prices around the world.
Coffee, oilseeds and gold are major products that are affected by the global economic slowdown.
The export sector accounts for more than half of Abay’s foreign currency generated last year. Oilseed exporters are major clients of the Bank.
The Bank, however, met 90pc of its targets in terms of foreign exchange mobilization.
In spite of these achievements, service charges and commissions dropped by three percent to a little over 174 million Br. This accounts for one-fourth of the Bank’s revenue and is lower than the eight percent industrial average.
“The reduction is concerning,” said Abdulmenan. Yehuala connects the reduction with a drop in commission earned from guarantees, promises made to cover the liabilities of the debtor if they fail to fulfill their obligation.
“We earned way less than our original plan,” he said. “We were very selective during guaranteeing.”
On the other hand, expense items at Abay showed a considerable increase by 34pc, despite a 27.6pc growth in income. The Bank spent 70 cents in order to earn one birr of income last fiscal year, slightly higher than the 60 cents industry average. Abdulmenan associates the expense growth with the bank’s massive expansion in business.
The Bank is known for its aggressive expansion. Over the past five years, the Bank’s branch network quadrupled to over 110. A look into expense accounts reveals that interest expenses accounts for one-third of the Bank’s spending. In addition, the Bank also held provision for doubtful loans and advances to the tune of about 18.2 million Br, an increase of 65pc.
But considering its size and in comparison to other banks, Abdulmenan thinks the rise is not worrisome. Berhan Bank, Abay’s nearest competitor, registered a 29 million Br provision during the past fiscal year. Abay was founded a year after the establishment of Berhan seven years ago.