Fortune’s Reporter Jamal Abdu had a correspondence with Zemen's management in which the management answered questions regarding a variety of the Bank’s activities and future plans.
Fortune: What were your challenges and achievements in 2013/14?
ZEMEN BANK: Bank registered 36pc profit growth and recorded the highest profits in its five-year history. Assets up 21 percent, deposits up 22 percent, and FX inflows up 8 percent. Earnings per share of 32pc delivered to shareholders. Earnings per share reached 45 percent for past five-year period, among the highest in industry.
How does Zemen plan to manage and minimize operating expenses in the future?
The operating expense increase of last year partly reflected one-off items that will not show a sharp growth again this year (such as rent adjustment at our headquarters building that takes place once every five years). Moreover, looking solely at the cost side without relating this to income is of course misleading: the bank maintains a low cost-to-income ratio of just 35pc thanks to a lean operating model that is focused not just on branch expansion but rather on the use of alternative service delivery channels such as ATMs, Internet Banking and others.
How is the foreign exchange dealings growth in 2014/15 and what are Zemen’s plans in this regard for the future?
The Bank has managed to raise annual foreign exchange inflows to near $287 million dollars, which is a level only seen at banks much older than Zemen. For 2014/15, Zemen expects continued growth in foreign exchange inflows due to the growing exports of its existing customers, the acquisition of new export customers, and the partnerships that are establishing on a regular basis with large new foreign direct investors.
Provisions are down by 44pc, but how do you plan to further reduce it in the coming year?
Provisions reflect Bank’s cautious approach to fully provision for certain large loans that have gone into arrears. We expect provisions to be reduced even further this and next year as certain large loan cases are expected to be settled through legal recoveries.
What key steps is the Bank taking to reduce NPL?
The Bank’s NPL is only 1.6 percent, excluding two large loan cases for which a legal recovery process is fully in place. The Bank expects the legal recovery process to bear fruit in this or the coming year.
Is the loan-to-deposit ratio high?
The loan-to-deposit ratio is not particularly high considering that the Bank is holding close to one billion Br in NBE Bills. Adding loans and NBE Bills taken together, the Bank’s loan-to-deposit ratio is around 78 percent, which is a healthy ratio.
Zemen’s liquid assets are high, what is the plan to invest such assets for a better return?
Zemen’s high liquidity shows its strength in mobilizing funds and indicates that it has the resources to grow its loan book significantly for the period ahead. Given the high liquidity position at which the Bank ended the fiscal year in 2013/14, the Bank has sizeable funds for loans to deploy this fiscal year up to June 2015.
What is the plan to make proper use of the high capital base?
Zemen’s capital ratio will be reduced somewhat this year as the bank deploys some of its liquid funds towards loans. The Bank is also embarking on the construction of a new headquarters in the new Addis Abeba Financial District and it makes sense to maintain this strong capital position for that purpose.
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