Zemen’s Earnings Per Share Stay Down

A 20pc increase in profits has not helped Zemen Bank S.C. push up its earnings per share (EPS) that are currently at the 320 Br mark for the second year in a row.

“We are happy with the performance,” insisted Board Chairperson, Amare Habe, despite an EPS that is lower than where it was in 2010 before it began a three-year decline.

That is because of an increase in capital at a higher speed than increase in profits, Zemen Bank President Tsegay Tetemke, told Fortune. The Bank reached the 500 million Br in paid up capital six months before the December 2015 deadline, despite being only six years old.

Loans increased by 65pc to 2.16 billion Br. Such an increase in loans, however, was not accompanied by an increase in provision for doubtful loans. In addition, impairments, which stood at 55 million Br last year, are now recorded at zero.

“Except for three major loans, whose cases are pending in court and could, up until now, not be resolved,” the President said, “we have resolved all the rest and have not incurred any new losses.”

One of those court cases is Holland Car, which had defaulted on a 34 million Br loan before declaring bankruptcy in 2013.

Loans and bond purchases have increased Zemen’s interest earnings assets by 1.3 billion Br, a boost of 56pc. This in turn has improved the proportion of Net Interest Income in total income to over a third, which the Bank is working to increase even further. The Bank is working to improve this role, Tsegaye said, and that is what caused the surge in loans.

The loan to deposit ratio of Zemen has improved to 56.4pc from 43pc.

“The management of the Bank should be applauded for making such improvement,” said Abdulmenan Mohammed Hamza, accounts manager for the Portobello Group Ltd., a London-based holding company. “However, there is still a room for increasing this ratio to 60pc.”

Gains on ForEx, though decreased from last year, still represent 23pc of the total income.

“Our focus is on corporate customers,” Tsegay said, “and they generate ForEx.”

The growth in operating costs at Zemen is outpacing the growth in income. Interest Expense has also grown, but this is due to an increase in loans, the President said,

“Unless Zemen puts cost reduction measures in place,” said Abdulmenan. “The profit from its operation will, surely, decline.”

The recent liquidity crisis, caused when the Commercial Bank of Ethiopia (CBE) suddenly availed foreign exchange through LCs on condition of a 100pc deposit for the required amount, did not affected Zemen much, said Tsegaye. This is because its top 10 depositors were not in that sector. Over four billion Birr were withdrawn from much smaller private banks to make deposits at the state giant in a short period of time to get the hard currency.

“We noticed an increased outflow, but we were not significantly impacted,” Tsegaye said.


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