Lion Sees Rise in Forex

Shareholders earn higher against backdrop a lukewarm national economy

Lion International Bank reported a gain of over 100 million Br from foreign exchange dealings.

This is very far compared with the record high forex revenue of 3 billion dollars by the Commercial Bank of Ethiopia two years ago.

While one of the biggest private bank in the country, Dashen Bank, reported a four percent reduction in forex dealings for two years in a row, earning 288 million Br the same period.

The analysis of the total income of private banks in 2015 reveals that 11pc of 15 billion of their income generated from foreign exchange dealings. The same period about, 14.5 million dollars was traded in the inter-bank foreign exchange market in 2014/15 which was 22.5 percent lower than that of 2013/14.

Between the year 2011 and 2014, the bank saw a decline in foreign exchange dealing by 13pc per annum, owing to stiff competition among private banks of the country. Though the latest performance of the bank reveals the trend has reversed.

“We increased our customer base so as to attain more profit from foreign exchange,” said Tassew Woldehanna, the bank’s chairperson.

The customer base of the bank widened by 45pc from the prior year and has reached over 275 thousand. The majority of the bank’s customer are importers.

This was a year when the National Bank when it introduced stricter regulation on forex management.

The new directive forces banks to provide the service only on first come first served basis only and to all applicants even when the applicant does not have account with the bank. On the customers’ side it was prohibited to queue their request in more than one bank.

“The regulation of National Bank of Ethiopia encouraged us to achieve more,” Tassew said.

The amount gained through this exceptional performance in forex exchange dealings make 15pc of the total 725 million Br income with rise of 30pc on profit 12.6pc on earning per share, respectively.

“However, the effect of the export slowdown forced us to perform less in the fourth quarter of the ended fiscal year,” said Tassew.

One of the main feature of the 2015/16 fiscal year was a decline in exports overall. Export earnings fell from 3 billion dollar to 2.86 billion dollar last year, declining by more than 7pc.

The fall in these export earnings was in turn partly a result of a decrease in international price registered during the report period, which have an adverse effect on the country’s forex earnings.

The bank’s more than 6,400 shareholders with over 478,900 shares will be rewarded with 47.8 per 100 Br.

Meanwhile, the decade old bank reported a 27pc rise in its profit last year, which helped the bank’s earning per share to overshoot by 12pc to 11.97 Br.

The decade old bank, that has gained a 6pc of market share in the last fiscal year. It makes it the seventh profitable private bank in the country.

Last year the average earning per-share in the industry was 33 per 100 Br.

The huge increase in interest income, the amount earned by the company’s investment, is another factor which contributed to the upward trend of profit at the bank. It surged by 62pc to 527 million Br

Had it not been for the bulging expense trend in the bank, the numbers in revenue would have been much more impressive. More than half of the income was spent in various expenses.

The major reason for the bulge owes to an increase of administrative cost and salary and benefits by 49pc to 335.5 million Br.

The soaring of provision for doubtful loans and other debts also contributed a lot to the hike. It has increased by 27pc to Br to 38.57 million.

“The management of the bank should seriously look into what has gone wrong with the credit management system,” said Abdulmenan Mohammed Hamza, analyst at Portobello Ltd commented.

Last year, the bank branch network reached 120, 35pc higher relative to last year. In addition, during the current fiscal year, the bank commenced the operation of 20 new branches over the past three months in Hawassa, Addis Abeba and Oromia regions.

However, the rate of expansion of expenses at Lion has outstripped the increase in income. The bank expended close to 60pc of its income for salaries and benefits. It soared by 63pc to 200 million Br last year, while the number of employees showed a 21pc rise to 1284.

Recently, Bank of Abyssinia, Berhan Bank, Cooperative Bank of Oromia and Bunna Bank had raised their employee salaries with the aim of staff retention.

“We neither pay the highest nor the lowest salary to our employees,” Tassew explained.

In general, the total assets of Lion have grown by 39pc last year to over 8 billion Br.

Looking the assets utilisation of the company, it has declined from 4.2pc to 3.7pc. This shows either the bank is expanding quickly or there is a problem with the strategic management system in the bank. But, the figure is still high compared to the preceding year’s average of 3.5pc.

On the other hand, the bank succeeded in raising its paid up capital farther from the minimum requirement of 500 million Br. It reached 642.5 million Br, 26pc high relative to the preceding fiscal year.

The bank is required to increase its paid up capital by more than three times to meet the two billion birr requirement set by the National Bank of Ethiopia in 2020.

The percentage of liquid asset to total asset dropped to 22.6pc from 26pc and liquid asset to total asset have decreased to 25.4pc from 29.5pc. This means the amount of cash which is easily convertible to meet the bank’s short term needs has been reduced.

However, the figure is still high compared with the industry’s last year average of 20pc.

The fall of level of liquidity has been a trending in the banking industry over the past two years.

Last week, the bank nominated 22 people to its new board of directors and selected 11 of them to identify nominees for the board.

Also, the shareholders elected Tassew to chair the board and Haile Kiros, Rezene Hailu and Beyene Belay as board of directors.



By Samson Berhane
Fortune Staff Writer

Published on Nov 08,2016 [ Vol 17 ,No 862]



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