Addis Fortune (Addis Ababa)
Hailu Teklehimanot
18 December 2011
The new entrant joins an exclusive club of early performers in the banking industry
Having become one of the first among those established in the past few years not to report a loss in its opening year, Buna International Bank (BIB) registered a 19.4 million Br profit after tax in its first full year of operation, in the 2010/11 fiscal year. During the nine months it has been operational it has earned 48,000 Br in profit.
It also earned a staggering income from noninterest-bearing activities, amounting to 39.4 million Br, 157.2pc higher than the previous year. Interest income also increased threefold, reaching 34.1 million Br.
“The bank mainly concentrated on international banking operations as well as on giving loans to customers with medium-term demand to achieve these remarkable results,” Eshetu Fantaye, president of the bank told Fortune.
In order to earn such an amount from interest-bearing activities, BIB disbursed 326.1 million Br, which is 40pc higher then the previous year, while paying 13.1 million Br in interest on deposits. The interest payments on 491.9 million Br-worth of deposits mobilised by the bank increased by 417.2pc compared to fiscal year 2009/10. Out of the total deposits, 76pc is composed of savings and time deposits.
Although such a phenomenon is common for new entrants in to the industry, the bank must work hard to increase the proportion of demand deposits, as they have a relatively lower interest rate compared to savings and time deposits, according to Abdulmena Mohammed, accounts manager for the Portobello Group Ltd, a London-based holding company with subsidiaries in property investments and developments.
The bank is well aware of the problem and it is preparing to solve the problem, according to Eshetu, 53 who was appointed as the second president of Buna on May 2011.
“Deployment of the centralised, online, real-time, electronic (CORE) banking system; establishment of a partnership with the Ethiopia Commodity Exchange (ECX); and opening more branches are on the bank’s to-do list for the current fiscal year,” he told Fortune.
Currently 10 banks have an agreement with the ECX. The partnership agreements allow them to hold ample money in their demand deposit account, as ECX member traders will use it to transfer and receive money from partner banks with the ECX.
The deposits held in time and savings accounts of Buna Bank, which cannot be withdrawn for a certain period of time, helped the bank to use its liquid resources better, by any measurement.
The liquid assets to total assets ratio dropped to 48.4pc from 52.2pc, while the liquid assets to deposits ratio decreased to 77pc from 104.7pc. Even if the loan to deposit ratio declined from 79.5pc to 73.7pc, the current level is very good when compared with all private banks, according to Abdulmena.
“Buna needs to maintain this impressive performance, as the ideal loan to deposit ratio is around 70pc,” Abdulmena, who has also worked as an external auditor in Ethiopia for eight years, told Fortune.
Although a sufficient amount of capital is needed to protect depositors from potential loss and to invest in technologies essential for the banking business, the bank’s capital adequacy ratio (CAR), which stood at 60.3pc, is still much higher than the minimum of eight per cent required by the central bank.
Buna must work hard to expand the size of loans and advances to reduce the CAR to a reasonable level, according to Abdulmena.
The focus of the bank will be on increasing its deposits in the coming years, Eshetu told Fortune.
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