Berhan International Bank S.C. has managed to increase its profit after tax consistently since 2011, although it is accumulating excess liquidity.

Coming into service in 2009, the Bank had incurred losses in its first two years. Yet the profit increase it registered 2013/14, 71pc, was its largest to date, and this dived to 17pc in the latest reporting year, when it earned 104.5 million Br net.

Last fiscal year Berhan reported a 32pc increase of its paid-up capital to 573.12 million Br, causing its earnings per share (EPS) to drop to 207 Br from 239 Br. Shareholders dividend reached 21pc.

“On the one hand we had the directive from the National Bank, that required we amass a paid up capital of 500 million by the end of 2016,” explained the Bank’s President Abraham Alaro, “and on the other hand, we had shareholders that expected dividends.”

Nevertheless, in its sixth year of operation, the Bank has complied with the National Bank’s directive that ordered private banks to raise their paid-up capital. Now, NBE suggests that all banks aim to increase this capital four-fold in four year’s time. Berhan has, therefore, started the sale of new shares for both existing and new shareholders.

“We had to compromise,” Abraham said and they chose to fulfil their requirements.

Earnings per share have suffered not only from the increase in capital, but also an increase in expense driven by the same increase in salaries and benefits.

The Bank’s total expense has gone up by 32.2pc to 234 million Br. From this salaries and expenses soared by 67pc to 74.7 million Br. The number of employees has grown by 70.4pc to 1,181.

“This was caused by an aggressive expansion of branches,” said Solomon Alemseged, chairperson of the Board of Directors and Co-owner of Aser Real Estate.

The Bank has managed to open 27 new outlets within the fiscal year, pushing the total number to 72, as of June 30 2015.

For Berhan as a relative newcomer to the industry, further increase in employees and general expenses is expected, but the management of the Bank should keep an eye on these expenses and prevent them from spiraling out of control, commented Abdulmenan Mohammed   Hamza, an analyst who works for the Portobello Ltd., a London Based assets management firm.

The growth in profits is attributed to the increase in interest income and service commissions. Its interest income, service charges and commissions have gone up by 30.1pc to 326.3 million Br. Total income has reached 372.7 million Br.

However, a massive expansion in gains from foreign exchange dealings that were reported during the last reports reversed in 2015. In 2013/14 Berhan reported  40pc increase to 45 million Br. But as of June 2015 this figure dropped by 17pc to 37.3 million Br.

This in general attributed to the national decline in income from exports and remittances and specifically, stiff competition in attracting more exporter clients, according to Solomon.

“Such decrease is disappointing so the management of the Bank needs to work hard to maintain its position in this competitive area of business,” said Abdulmenan.

Since its establishment, Berhan has expanded its total assets by 48pc to 4.17 billion Br. It also managed to increase its loans and advances by 61pc to 1.87 billion Br helping it to increase its interest income by 25.3pc to 210.3 million Br. It has also mobilized deposits of  3.1 billion Br, an increase of 52pc. Its loans-to-deposits ratio has increased to 61.11pc from 57.93pc.

The loans to deposits ratio of Berhan is at an ideal level, according to Abdulmenan.

Liquidity analysis by Abdulmenan reveals that its liquid assets of have increased in absolute terms but dropped in relative terms.

Its cash and bank balances have gone up by 27pc to 1.243 billion Br. Liquid assets to total assets ratio has decreased to 29.8pc from 35pc and liquid assets to total liabilities have gone down 35.28pc from 42.18pc. Still, the level of liquidity at Berhan is considerably higher than the industry average. The industry’s average liquid assets to total assets ratio is 19pc and liquid assets to total liabilities ratio is 26pc.

Berhan should employ its liquid resources for more income generating activities, commented Abdulmenan.

As of this fiscal year the Bank is processing the procurement of new Automated Teller Machines and Point of Sales (POSs) devices. It is also a member of Premier Switch Solutions, established by private banks to regulate their electronic transactions. Berhan Bank has added 314 new shareholders and sold 137,592 shares to both new and existing shareholders.

Source : AddisFortune