Awash Records Lowest Shareholder Return in a Decade

The massive injection of capital over recent years was cited as the reason behind the poor EPS performance

Awash International Bank (AIB) saw its lowest earnings per share (EPS)  in a decade, reaching 371 Br. The bank has been seeing a declining in its EPS for the past five years, save 2014, when it experienced a bounce back. The decline is justified by the massive injection of fresh capital to the bank.

As the only bank in the country to achieve the rare feat of surpassing its 2020 minimum paid up capital requirement, its earnings per share is now at its lowest level since 2005, where it was 302 Br. Despite this declining trend, the EPS is still at 11.4pc – higher than last year’s industry average.

Many observers see a side effect of the massive injection of fresh capital, as it shot up to 2.2 billion Br from 1.2 billion Br over the past five year. Two-decades after it’s founding with a capital of a modest 24.2 million Br in paid up capital, Ethiopia’s first private bank now stands as the leading banking institution with a large amount of paid up capital.

Recently, the bank completed and inaugurated the construction of its multi-purpose Balcha Aba Nefso building, located inside the Lideta district, at the cost of 220 million Br, as well as the Hawassa, at a cost of 105 million Br.

Dashen Bank, its closest competitor, has a 16pc market share within the private banking industry, as it reported 700 million Br less in paid up capital than Awash. Two weeks ago, it announced 487 Br in shareholders’ return – 116 Br higher than Awash.

Ethiopia’s ever growing private banking industry is in the midst of an expansion in all areas of its operations. Last year, total assets of private banks increased by 27pc to 153.76 billion Br.

“With Awash, being the number one capitalised bank, this year’s priority should have been raising the return on shares,” Abdulmenan Mohammed Hamza, analyst at London Portobello Ltd, told Fortune.

Awash’s approach has been to press for more capitalisation to complement its capacity building and not just meet its minimum requirements.

“By focusing on capitalisation, what we aim at is building our lending capacity,” Mechal Bedada, Branding, Promotion and Communications division manager of Awash, explained to Fortune. “This trend will continue until three billion birr in paid up capital is reached, which is planned for next year.”

The hike in paid-up capital is seen as necessary, as commercial banks would have been forced to curb their capabilities to offer loans as per their increased deposits until their paid-up capital has swelled. This is because it would have resulted in excess liquidity.

During the last fiscal year, Awash disbursed loans and advances valued at 15.2 billion Br – 24pc higher than the 2014/15 fiscal year. It has also spent 1.8 billion Br on interest expenses on deposits and short term borrowings.

The liquidity position of AIB has hugely improved in relative terms. Its cash and bank balances have increased by 49pc to 5.8 billion Br, and the proportion of liquid assets to total assets ratio has gone up to 20pc from 16.25pc. Complemented by a 744 million Br profit, it has registered a two percent higher profit than Dashen.

While the second most capitalised bank, Wegagen, with a paid up capital of 1.7 billion Br, reported almost half of AIB’s profit.

With the exception of its EPS, the AIB’s performance is still positive in its overall revenue and has led to it making 34pc from all resources it spent.

The gain on foreign exchange earned the bank a profit of 226.8 million Br. However, this is less than the 20pc earnings achieved by the Commercial Bank of Ethiopia in three months.

“The worldwide decline in the price of commodities, notably coffee and oil crops, created pressure on the foreign exchange earnings of the country,” said Tabor Wami, Board Chairman of Awash .

Last year, the industry generated total earnings of 1.63 billion Br on foreign exchanges alone.

In terms of liquidity, among all banks, the least liquid bank was AIB in 2015, with a ratio of 16pc. While the highest was Brehan Bank with 30pc of ratio.

Awash has 240 branches and earns 16pc of the banking industry’s income.

By Samson Berhane

Published on Nov 29,2016 [ Vol 17 ,No 865]



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