Addis Fortune (Addis Ababa)
Hailu Teklehaimanot
18 December 2011
Shareholders of the Bank of Abyssinia (BoA) are to receive more than half of what they originally invested, for the first time in the bank’s 15-year history, following its profit after tax of 178.4 million Br in the 2010/11 fiscal year.
An earnings per share (EPS) of 56.7pc was announced at the 15th general assembly of the bank held on December 3, 2011, at the Hilton Hotel. This is 26.8pc more than the earnings of the previous fiscal year.
This was achieved despite the many challenges that the bank faced in the fiscal year that ended in June 2011, which it overcame by taking advantage of the positive aspects of the macroeconomic environment, Dagnachew Mehari, board chairman, told shareholders at the assembly.
The announcement of the earnings is good news to shareholders, who, three years ago, decided to retain the profit after tax and legal reserves of 12.4 million Br for the 2008/09 fiscal year. One such shareholder was Wubeshet Workalemahu, general manager of Anbessa Advertsising and founding shareholder of the bank.
“I am very happy with the performance of the bank,” he told Fortune. “I will be adding more shares soon.”
He will not have to wait long to get that chance, as his 1,317 fellow shareholders have decided to more than double the paid-up capital of the bank, which was established with 25 million Br, to 630 million Br within the next two and a half years.
Its paid-up capital of 315 million Br has remained the same since 2009/10.
Maintaining the same paid-up capital as the previous year helped the bank to keep its capital adequacy ratio (CAR) constant at 12.5pc for the last two years, which is one of the lowest in the industry. On the other hand, return on equity (ROE) increased to 37pc from 29pc, as a result of modest increase in capital and reserves by 9.2pc.
The improvement in EPS and ROE, coupled with a reasonable CAR, is a sign of good capital management, according to Abdulmena Mohammed, accounts manager for the Portobello Group Ltd, a London-based holding company with subsidiaries in property investments and developments.
“However, the shareholders’ returns might be at risk in the future, as the bank tries fulfilling the new minimum paid-up requirement set by the central bank, unless it implements appropriate strategies,” he told Fortune.
National Bank of Ethiopia (NBE) raised the minimum paid-up capital required of banks from 75 million Br to half a billion Birr in September 2011. Established banks who do not fulfil this requirement must meet it by June 2016.
The BoA is the last bank out of the six that were established more than a decade ago that has not met it. Addisu Haba, president of the bank, agrees that the move to increase this amount has consequences for shareholders in the short-term.
“However, it is a move that we consider strategic and will benefit the bank and its shareholders in the long-term,” Addisu told Fortune.
Sound capital management is not the only achievement that Abyssinia has made. It has also managed to keep its liquidity position steady, measured by the ratio of liquid assets to net current liabilities, which stood at 61pc. However, the relative decline in its liquid asset holdings is very rapid, as confirmed by various liquidity measures, according to Abdulmena.
Its liquid assets to total assets ratio declined to 39.8pc from 47.2pc, while its liquid assets to deposits ratio went down from 57.6pc to 47.7pc, during the fiscal year under review. If the decline continues at this rate, it could cause a liquidity crunch, according to Abdulmena
The bank is aware of this and is taking measures to alleviate the problem, according to the president.
“Increasing the mobilisation of deposits is one of the major actions to be followed by the bank in order to stabilise this,” Addisu, 54, who was appointed as the bank’s seventh president in September 2009, told Fortune.
Although the bank, which opened seven branches in 2010/11 on top of its 48, mobilised 6.1 billion Br from 288,259 customers, its loan disbursement was marginal. Mobilisation increased by 18.3pc, while loan disbursement increased by only 5.2pc to 3.3 billion Br, when compared to the previous fiscal year. This contributed to a decline in the loan to deposit ratio from 56.8pc in the previous fiscal year to 52.8pc.
This was the result of a combination of the credit cap in place and the mandate to use 27pc of loans disbursed for the purchase of government bonds that replaced it, according to the president.
The credit cap, which was in place for two years until April 2011, was a problem, not only for Abyssinia, but also for all those in the industry, as it limited the loans they could advance, despite sitting on lots of money. However, its replacement is bringing the reverse effect, leaving banks without enough liquidity, as they have to buy bonds every time they give out a loan.
Abyssinia purchased 816.6 million Br-worth of government bonds during the 2010/11 fiscal year.
To disburse 162.6 million Br using its 55 branches, Abyssinia kept 18.9 million Br as a provision for doubtful loans, 5.1pc of interest income, which is much lower than the 2007/08 figure of 142.7 million Br, when the bank was in turmoil.
Interest bearing activities grew by 42pc, which largely contributed to a record total income, amounting to 618.1 million Br in 2010/11. The growth in income was matched by a comparable increase in expenses. The bank incurred total expenses of 359 million Br, 32pc over the figures in the previous year.
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