Lukewarm Performance at NIB

The bank’s underperformance has been observed over the past six years

The net profit of Nib International Bank (NIB) saw a six percent rise to 357 million Br during the last fiscal year. But even though Nib increased its profits, its growth is still far lower than the industry average.

Last year, the banking industry amassed a net profit of 5.4 billion Br and registered a growth rate of 15pc.

Abyssinia Bank, a company which has proximate profits with Nib, reported a 30pc growth rate three weeks ago.

Abyssinia had been facing the same phenomenon over past few years. However Abyssinia’s last year’s growth rate was the highest since 2010.

“The decline in the growth rate is due to a surge in investments,” Kibru Fondja, President of the Nib, told Fortune.

Last year, the bank contracted Jiangsu International Economic and Technical Limited for the construction of its headquarters near the so-called financial district, at a cost of around 1.6 billion Br. In addition, the bank also opened 25 new branches, raising its network of branches to 130.

It also invested over 10 million in the Ethiopian Reinsurance Company. The bank’s equity investment has now reached over 125.7 million Br from 84.6 million Br a year ago.

However, Nib had a bad year in terms of shareholder returns. The earning per 1,000 share of the bank fell to 129 Br from 137 Br a year ago. It has been declining since 2012 even though profits showed a modest increase in the same period. Founded 17 years ago with 717 shareholders, currently Nib has more than 3,925 shareholders.

Experts connect the decline of paid up capital.

After the National Bank of Ethiopia last year urged all banks to attain two billion Birr in paid up capital by 2020, the industry’s average EPS has gone down by 27pc to 33pc, and dividend per share has decreased by 27pc to 24pc over the past five years, mainly due to imposed regulations and discretionary capitalization. As of June, 2016, the aggregate capital of all private banks reached 18 billion Br. Of these, Nib accounts for more than 10 pc, the 4th highest among all private banks.

“Even if the bank benefits from rising paid up capital, its impact on earnings as well as dividends per share should be taken into account,” said Abdulmenan Hamza, analyst at London Portobello Ltd.

Nib reported a rise in most income generating activities, with an exception of commission and service charges.

Commission and service charges shrunk by 15pc to just over 180 million Br, representing 13pc of the bank’s total income.

The reduction seems surprising to Abdulmenan, who described it as “disappointing.”

“The forex shortage is the major reason for the decline,” Kibru argued.

The bank’s income from foreign exchange dealings increased by 7 percent to more than 79 million Br.

However, even though Nib earned a higher amount on foreign exchange dealings, its performance is still lower than its peers.

The Bank’s forex earning is two and four times higher than Abyssinia and Wegagen banks respectively. Last year, the bank secured around 10pc of 1.6 billion Br of the industry’s gain in forex dealings.

“This area of business requires a serious strategy to secure a fair share of the market,” Abdulmenan observed.

The Bank’s expenses have grown at twice the rate of the income growth.

The bank paid 291 million Br to its 3,069 employees. Interest paid on deposits and loans from NBE went up by 31pc to more than 392 million Br.

During the previous fiscal year, the bank opened more than 412,900 deposit accounts, with a total deposit of 12.4 billion Br.

It also disbursed over 7.6 billion Br in loans last year, one-fifth of which went to the manufacturing sector. As a result, the loan to deposit ratio of the bank declined to 60pc from 71pc in 2014/15.

“This must have been due to huge surge in deposits unaccompanied by parallel growth in loans and advances,” explained Abdulmenan.

Prior to last fiscal year, the bank improved its loan to deposit ratio. Still, the bank’s latest performance is markedly lower compared with many banks.

“Our deposit mobilization was very high during the last quarter of the 2015/16 fiscal year, so we didn’t have a time to disburse it,” Kibru said.

The liquidity level of NIB has increased considerably.

The amount of cash and bank balances held by NIB has shot up by 66pc to 2.9 billion Br.

“Nib is a highly capitalized bank with huge liquid resources. So, it should use its resources efficiently,” Abdulmenan noted.



Published on Dec 21,2016 [ Vol 17 ,No 868]



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