13 May 2017

Ethiopia: CBE's Deposits Swell Despite Industry Downturn

The deposits of the Bank have reached a little over 347 billion Br

The Commercial Bank of Ethiopia (CBE) has disclosed a 58.6 billion Br surge in deposits to 347 billion Br, twice the amount collected by all private banks, according to its nine-month performance report.

A similar surge in deposits has been observed with private banks over the past nine months despite there having been some slowdown during the last quarter.

"The hike in deposits must have been due to monetization of the economy driven by massive branch expansion and creating access to banking to the unbanked population," said Abdulmenan Mohammed, an account manager at London Portobello Ltd.

The growth in deposit at CBE is almost twice of the same period last year. This comes in a time where private banks are hit by slow deposit growth due to a surprising move of CBE and the seasonal nature of deposits.

In the third quarter of the current fiscal year, the Bank has injected two billion dollars in foreign currency to those who wanted to open letters of credit, resulting from a sluggish growth in deposits.

Unlike previous experiences, applicants for foreign exchange are required to pay 100pc cash in advance to issue letters of credit.

Private banks may have lost deposits of about four billion Br to CBE after the injection of the foreign exchange, according to analysts.

Debub Global Bank, the last bank to join the banking industry, was among those who have seen the highest decline in deposit among private banks, dropping by two percent to 1.04 billion Br. The unanticipated move of CBE, among other reasons, is a primary one for the decline.

In the first three-quarters of the current fiscal year, all banks except Lion, Zemen, and Abay saw a five percent increase in their aggregate mobilised deposits, to a little over 160 billion Br.

Also, the overall growth rate in deposits of private banks over the past three-quarters was lower than the rate reported during the first half of this fiscal year. This is largely due to the seasonal nature of deposit growth, and the aggressive move of CBE.

Conversely, the deposit mobilised by the state giant in the third quarter exceeded the amount collected in the two consecutive quarters.

"The growth is mainly due to aggressive marketing and awareness creation campaign," said Belihu Takele, acting communications director of the Bank.

The increment in deposit at CBE is also attributable to the expansion of branches. In the past nine months, it opened 49 new branches, raising the number of branches to 1,186. This has helped the bank to raise its account holders to 15 million.

Nonetheless, the growth in branches is lower than what has been observed in the past five years. Over the past half a decade, CBE has opened an average of 150 branches yearly. This year, the Bank changed its primary strategy of aggressive branch expansion to developing the existing ones.

"This is a good move as branch expansion is a very expensive strategy," said Abdulmenan.

The bulge in deposit is accompanied by a surge in loans and advances, disbursing 64.3 billion Br in nine months. The amount is two times lower than of private banks.

Also, the bank has earned a foreign exchange of 3.3 billion dollars, which is around 100 million Br less compared to the same period last year. About 85pc of the forex is collected from remittances while the rest is mobilised from exports.

The Bank has reported a decline in forex earnings in a time where exports of goods have exhibited a decrease for the third year in a row, reaching two billion dollars in nine months.

The decline in forex earnings has not stopped CBE from boosting its profit. In the past three-quarters, it has made a gross profit of 11.2 billion Br, which is 30pc higher than the same period the previous year.

"The growth in gross profit must have been as a result of increased interest income driven by the expansion of loans and advances," Abdulmenan commented.

Founded 50 years ago, currently, CBE has almost half a trillion Br of assets.

Ethiopia

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