Zemen Bank S.C. reported a 203 million Br net profit last fiscal year which is 32pc higher than the previous fiscal year.
In the latest annual meeting held at the Intercontinental Hotel, a month ago the Bank said it completed the year with continued growth and better performance in most areas of activity.
“The Bank reached its highest level since its founding over eight years ago,” said Zemen Bank’s chairman Amare Habe.
“A remarkable performance,” said Abdulmenan Mohammed Hamza, a banking expert and analyst at London Portobello Ltd.
The Bank’s robust performance did not stop the National Bank of Ethiopia, which oversees private banks, from sacking the bank’s long-serving top executive managers, Helaway Tadesse the senior vice president and Sebhat Belayneh the vice-president for international banking, respectively, four months before the meeting.
A letter signed by then-vice governor of NBE Getahun Nana dated August 2nd, 2016 makes reference to two particular loan approval procedures close to six years ago. Both officials were accused of favouring certain groups of people.
The reason for Helaway’s suspension was money extended to Pioneer Agro Resident, co-owned by former Zemen board chairman Ermias Amelga.
In a letter to Fortune, Helaway said that the claim is simply false, explaining that each loan application is subject to a full and proper credit evaluation, involving multiple individuals and approval layers.
The allegations against Sebhat involved the alleged unfair treatment of a friend of one of the bank’s vice presidents; selling a building for an undervalued price – two million Br less than the outstanding loan.
“The approval for the particular loan request was unanimous,” Sebhat explained back in August. “I see no reason why my personal relationship has to come to the forefront.”
“We are sorry to lose our VPs,” said Tsegay Tetemeke, president of the Bank. “They were great assets to the company.”
In the same month, the Bank implemented a new structure with new vice presidential positions. It assigned four individuals as acting VPs who have served in the bank for five years.
Solomon Mamo was selected to head loan appraisal and international banking as an interim VP for operation and Frehiwot Birke became the acting VP for customer service, while Meseret Wondim and Shemelis Legesse were appointed as an acting VP for corporate service and IT, respectively.
Unlike the past six years, the impressive performance of the bank also manifested itself in higher shareholder return. Its earnings per 1,000 share increased by 47 Br to 367 Br in 2016.
Zemen’s shareholders return has been constantly declining between 2010 and 2013 and remained stagnant in 2014 and 2015. However, the latest performance is a reversal of the trend.
“It is a result of the increase in our customer base,” said Tsegay
Over the past five years, Zemen’s EPS averaged 400 Br while the industry average is 320 Br.
The bank saw an average increase of 30pc in all income items. Interest on loans, advances and NBE bonds has increased by 40pc to 367.06 million Br. Service charges and commissions have increased by 39pc to 211.29 million Br. Income from foreign exchange dealings went up by 47pc to 122.38 million Br, which is a positive performance considering the foreign currency shortage in the industry.
In addition to a severe drought the country faced, last year’s decline in global commodity prices also negatively impacted the Ethiopian economy. Last year, export proceeds went down by seven percent to 2.8 billion dollars as average global commodity price declined by 37pc.
“Such income performance is much better than all banks,” said Abdulmenan.
The growth in operating costs at Zemen is much lower than the growth in income, which helped the bank to post such a boost in profit. The total expenses of Zemen expanded by 36pc to over 410 million Br while income increased by 40pc to 703 million Br.
The Bank’s cost to make one birr income ratio declined from 60 cents to 58 cents, against the trend observed in most of the private banks.
Four months ago, the bank contracted China Wu Yi Ltd to construct it’s headquarter for 1.2 billion Br. The project is a 32-storey building that will rest on 2,304sqm of land. The foundation work has already been finalized by Anchor Foundation Plc.
Last year, deposit mobilization of the Bank grew by 44pc to 5.4 billion Br. Currently, it has more than 20,000 customers, and of these, corporate customers make nearly two-third of the deposit base. As a result, market share improved from 3.2pc to 3.7pc. Interest paid on deposits has also increased by 51pc to 206.73 million Br.
The growth in deposits, however, was unaccompanied by parallel growth in loans and advances. As a result, the loan to deposit ratio of Zemen is lower than peer banks, although it has improved from 56.4pc to 59.9pc.
Established a year after Zemen, Brehan Bank, for instance, declared its loan to deposits ratio has increased to 70pc from 61pc.
“The management of Zemen should work hard to increase loan to deposits ratio as high as 70pc,” Abdulmenan commented.
“In addition to the bank’s low appetite to lend, money goes in and out at almost the same rate,” Tsegay added.
Moreover, the bank increased its paid up capital by 30pc to 650 million Br.
All of the Bank’s shareholders own below two percent of stakes. Ethiopian Electric Power Labour Association and Addis Abeba University Labour Association Saving and Credit services are among the notable shareholders.
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