Abay Bank reported a sturdy performance in the recently concluded fiscal year, bumping its net profit by 30pc to 190 million Br. Seeing a positive outlook in its performance for six consecutive years, the Bank’s profits tripled over the past four years.
However, its earnings per share (EPS) remained fairly similar at 229 Br in the past two years owing to the growth in paid-up capital- which has increased by 281 million Br to one billion Birr.
“Maintaining the shareholders’ returns while increasing paid-up capital is commendable,” said Abdulmenan Mohammed, a financial analyst and accountant in the UK and Ethiopia.
The returns paid to shareholders is less compared to its peer.
Bunna, which has declared a net profit of 201.2 million Br, reported an EPS of 242 Br although the lowest in three years.
However, for the Bank’s President, Yehuala Gessese, this is a blossoming result considering the cumbersome situation faced by Abay in the preceding fiscal year.
“The political unrests and drought coupled with the foreign currency shortage were challenging,” his message in the Bank’s annual report reads. “Against this backdrop, the Bank focused on capitalising on growth opportunities while taking action to address the problems.”
The vigorous performance of the seven-year-old Bank, Abay, has been driven by a huge increase in interest, service charges, commissions and foreign exchange dealing incomes.
Interest on loans, advances and NBE bonds has increased by 31pc to 594.14 million Br. Similarly, the service charges and commissions have gone up by 43pc to a quarter of a billion Birr and gains on foreign exchange dealings have soared by 65pc to 63.74 million Br.
“Such growth in foreign exchange dealing income in a year when the competition was fierce, and the economy was hit by foreign exchange crunch is remarkable,” said Abdulmenan. “The surge in service charges and commissions is also impressive.”
The shortage of foreign currency has always been a hot issue in Ethiopia, reaching a climax in the past three budget years- where export proceeds and remittance almost remained stagnant. This has even forced many to shut their businesses down.
“Our Forex showed an improvement despite being tested by the shortage of correspondent international banks to process foreign exchange from abroad,” said Tadesse Kassa, board chairperson of Abay. “The amount would have been higher had it not been for such challenges.”
Even more, witnessing the problem, the central bank devalued the currency by 15pc against a basket of major currencies, hoping for a bulge in export earnings and slump in imports.
“The effects of the devaluation are yet to be seen,” said the president- who has served the Bank for over two years.
Furthermore, all elements of Abay’s expenses have shown a substantial growth in the previous fiscal year.
Interest expense paid to depositors and borrowers increased by 47pc to 218.8 million Br. In the previous fiscal year, the Bank generated additional savings of two billion Birr, raising its total deposits to 6.7 billion Br. The growth is attributed to the expansion of branches by 34 to 144 with a customer base of 337,120.
Likewise, the expenses to pay off depositors, salaries and benefits paid to its 1,249 employees have gone up by 49pc to 192.9 million Br and general administration expenses have picked up by 27.8pc to 187.3 million Br.
On the other hand, the loan to deposit ratio of Abay has declined by two percentage points from 64pc. It is far lower than the industry average of 70pc. This may indicate that the Bank is not earning much from its deposits, according to analysts, despite disbursing fresh loans of 1.2 billion Br.
“The management of Abay should make efforts to bump up a loan to deposits ratio to the industry level,” said Abdulmenan.
Source : AddisFortune