The bank's aggressive expansion efforts have been the catalyst behind its rapidly improving performance
The Cooperative Bank of Oromia (CBO) has shown a considerable expansion in its assets, registering 6.54 Billion Br - an increase of 82pc during the year that ended on June 30, 2013.
All asset items have gone up. Cash and bank balances have gone up by 180pc, to 3.02 billion Br. This increase is due to the aggressive expansion in branch networks. In the year under review alone, the Bank pushed the number of its branches up by 25. Among new outlaying branches opened outside of the Oromia Regional State are Metema - a border town in North Gonder Zone of the Amhara Regional State, near to Sudan, 897 kms from Addis Abeba - and Hawassa, the capital of the Southern Regional State, 273kms from Addis Abeba.
The Bank's aggressive expansion also involved human capital, pushing the total number of its employees up to 1,427 - an increment of 24.5pc compared to last year.
The aggressive expansion also forced the Bank to incur considerable costs. The annual audited report for the year 2012/13 indicates that there was a huge increase in expenses. The total expenses incurred by the CBO went up by 66.6pc to 273.6 million Br. Detailed studies indicate that, except interest expenses, all other costs went up considerably. Employees' salaries and benefits increased by 107.4pc to 87.82 million Br; general administration expenses increased by 46.5pc to 85.2 Br million and interest expenses increased by 15.8pc to 68.6 million Br.
The CBO's profit after tax showed a remarkable increase, reaching 189.6 million Br. The profit after tax figure has been constantly on the up over the past few years. Both interest and non-interest incomes have gone up. Interest earned on loans and other investments was up by 39.3pc to 239.7 million Br, while non-interest income items showed a staggering growth of 128pc to 300.9 million Br.
"The Bank relied on resource optimisation to get more profit," Wondimageghehu Negera, president of the Bank, told Fortune. "We have also cautiously worked on some adaptive strategies and increasing our competitive edge."
The growth in non-interest income is due to the expansion in local services, as well as an increase in foreign exchange dealings, he said.
Established in 2004 with an authorised capital of 300 million Br, the CBO started operations in March 2005 with a paid-up share capital of 112 million Br.
"I see a robust performance," Zewde Zeleke (PhD), one of the founding shareholders of the Bank, told Fortune. "I look forward to an even more spectacular performance in market outreach and technology initiatives."
Cash and bank balances represent 46.27pc of the total assets of the bank, which indicates that the CBO is in a highly liquid position.
"This does not mean that it is not with its downsides," cautions Abdulmena Mohammed Hamza, an accounts manager for the Portobello Group Ltd - a London-based holding company with subsidiaries in property investment and development. "Such levels of liquidity is unusual in the current economic condition."
Last year's figures indicate that the industry cash and bank balances to total assets ratio was 31.5pc and the CBO ratio was 29.6pc.
Provision for doubtful loans and other receivables increased by 717.6pc to 31.9 million Br.
"This shows that a sizeable amount of loans went sour," says Abdulmena. "The management of the bank needs to thoroughly investigate the cause of such a huge leap and design appropriate mechanisms to reduce it to an acceptable level."
The reason for the increment in this account, according to Wondimagegnehu, is because most loan repayments are not regular. This forces the figure to go up a little bit.
"It will soon be reduced," he told Fortune.
The CBO managed to increase its paid-up capital by 152.1 million Br, to 442.34 million Br.
At this pace, the CBO will comfortably reach the capital of 500 million Br set by the NBE, before the deadline of 2016.
When the Central Bank issued a directive to raise the minimum paid-up capital required to establish a new bank from 75 million Br to 500 million Br, in September 2010, the CBO was one of the nine private commercial banks, whose capital was below half a billion Birr.
The CBO officials are also confident that they can meet the NBE's requirement of accumulating 500 million Br of capital by 2016.
The current level of capital and reserves of the bank enabled it to have a Capital Adequacy Ratio (CAR) of 29pc. This is far higher than the legal minimum of eight percent.