Oromia International Bank registers a modest 17pc profit growth to over 290 million Br in the past fiscal year, while the amount that goes into the pockets of shareholders declined by 32 Br to 310 Br, the lowest in four years.
The reduction in shareholders’ return is linked to the massive increase in paid-up capital unaccompanied by a parallel growth in profits.
The amount is also closer to the industry average and peer banks. Zemen Bank, established in the same year as Oromia in 2008, announced an increase in earnings per share (EPS) by 17 Br to 384 Br.
Despite raising its paid-up capital by 27pc to a little over 1.1 billion Br after selling shares to the public and existing shareholders, the Bank’s capital adequacy ratio dropped by two percentage points to 18pc in the past fiscal year.
Yet, the rate, considering the trend in the banking industry, shows that the Bank is safe and likely to meet its financial obligations using its liquid as well as fixed resources.
Nonetheless, Abdulmenan Mohammed, a financial expert with over 15 years of experience in the Uk and Ethiopia, says that the drop in shareholders’ return should be reversed in the budget years ahead, in spite of the Banks’ high capitalisation.
“The management of the Bank should come up with ways to curb the spiral of decline,” said Abdulmenan. “As it has a good chunk of liquid resources, it should use them to generate more income.”
Soaring revenues have resulted in increasing profits.
Despite being affected by the unrests in Oromia Regional State and Internet shutdown in the past fiscal year, gains on foreign exchange dealings have gone up by 28pc to 88.72 million Br, but lower than its peer Zemen- which has earned twice this amount.
“We were the top remittance earners. But, the continuous Internet shutdown has brought a huge loss to us,” said Abie Sano, president of OIB. “It has even affected our profitability as we were unable to move our cash.”
Gadissa Bultosa, board chairperson of OIB, while disclosing the year’s performance to the shareholders, echoed Abie’s view.
“The intermittent Internet access interruption at most of our branches due to security problems was a hurdle to collect remittance.,” said Gadissa.
Even under such conditions, interest on loans, advances and investments in NBE bonds has soared by 28pc to one billion Birr, while service charges and commissions have increased by 32pc to 326.74 million Br.
The increase in income is accompanied by a massive rise in expenditure.
Interest expenses paid to depositors has increased by 39pc to 329.65 million Br, whereas its employees received a salary of above 421.3 million Br in the concluded budget year. In the same period, general administration expenses of the Bank have also bumped up by 29pc to 300.65 million Br.
Experts warn such increase in expense items is worrying.
“The growth of expenses is concerning,” said Abdulmenan. “Measures should be taken promptly to control the bulge in such items.”
The soar in total assets of OIB is similar to the amount registered in the banking industry as the massive increase in various balance sheet items indicates. It has grown by a staggering 44pc to 16.2 billion Br in the past fiscal year.
Seeing the operational activities of the Bank, the loan and advances showed a 43pc uptick to eight billion Birr, whereas its deposit increased by 44pc to 13.4 billion Br.
“The rise in deposits should have been high had it not been for the unrests and the Internet shutdown,” said Abie.
The Bank exerted various efforts in deposit mobilisation including expanding its branches by 23 to 223 in the preceding budget year, raising its account holders to over 806,739, with more than 155 of its branches located in rural areas.
In spite of its attempts, the loan to deposit ratio, which has reached 61pc as of June 2017, has shown a one percent decline and is seven percentage points below the industry average. Such rate shows that a sizable amount of the deposits mobilised has not been disbursed as loans and advances.
“The Bank’s management is not generating more revenues from its liquid resources,” said Abdulmenan. “The size of loans must be raised to fetch more earnings.”
Source : AddisFortune