9 December 2012

Ethiopia: Oromia International Bank Modestly Rising

Oromia International Bank (OIB) modestly improved its financial performance by registering 49.4 million Br profit after tax in 2011/12 fiscal year, a 23.7pc increase over its performance of the previous ear.

The bank announced this at its Third General Assembly meeting held at Aba Geda Hall in Adama on November 3, 2012.

A significant part of the profit comes from interest income which stood at 122.4 million Br at the end of the last fiscal year while non-interest income rose to 106.9 millionBr.

However, the bank's performance in relation to foreign exchange dealings, excluding the effects of last year devaluation gains has dropped by 10.3pc to 14.9 millionBr.

One unpleasant news in the last fiscal year was that coffee, the major export commodity of the country, did not perform as expected as the result of low international price, Abie Sano, president of the bank told Fortune. As the bank has many coffee exporter clients, this price trend had contributed to the drop in income from foreign exchange dealings according to him.

The average international price of coffee in 2011/12 fiscal year dropped to two dollars a kilogram from six dollars, a year earlier. As the result, export revenue from coffee contracted by three per cent when compared with the previous year.

In order to protect the bank against such risks, the bank is planning to increase its deposits mobilization efforts and diversify its loan portfolio, according to Abie.

OIB managed to disburse 1.1 billion Br for the major sectors of the economy while it collected 2.1 billion Br deposits. Out of the total loan disbursement, the majority, which is 30pc goes to domestic trade and services while export and import sectors received 16pc and 10pc, respectively.

Through the process of disbursing loans, OIB invested 456.6 million Br for the purchase of NBE bills. This amount represents 21.6pc of the total deposits and 45.4pc of the total loans.

Although the amount of loan disbursed by the bank, which showed 53.7pc increment, brought benefit to the bank, it also contributed to the rise of the bank's interest expense by 70pc to 55.4 million Br in 2011/12. The total expense of the bank also rose by 70pc and reached 164.2 million Br, compared to a total income increase of 50pc.

This, according to Abdulmena M. Hamza, an accounts manager at theLondonbased Portobello Group, shows that OIB has not been utilizing its resources efficiently.

However, the president argues otherwise.

The bank has opened nine additional branches during 2011/12, said Abie. This brings the total branch network of OIB to 48, which took a lot of money to establish and run, he added.

OIB, established in September 2008 with 6,200 shareholders raised an additional capital of 139.3 million Br, reaching 374.5 million Br in paid up capital, which is an increase of 59.2pc when compared with the previous year.

The increment helped the bank be on the right track to achieve the National Bank ofEthiopia's (NBE) requirement that compels private banks to increase their paid-up capital to 500 million Br by the end of 2016.

But, this might erode the shareholders return if it is not managed properly, according to Abdulmenna.

As the result of huge increment in paid-up capital, OIB's Earrings per Share (EPS) fell from 147.9 Br from 205Br.

The management and shareholders of the bank are aware of the possible consequences of raising capital, Abie told Fortune. But we preferred to lose some benefit in the short term and increase the bank's capital in order to make it a strong bank in the future, he added.

To do this, the shareholders decided to raise OIB's paid-up capital to 700 million Br by the end of 2016, 40pc higher that NBE's requirement.

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