Based in Ethiopia's capital of Addis Ababa, Coop Bank is growing by leaps and bounds, with profits up 29 percent in the 2018/19 financial year closing the year with USD 20.4 million under lock and key.
More than profit, the Bank also enjoyed huge growth if it's total assets which shot up by 40 percent, a sector high for Ethiopia's banking industry. Likewise, its loans and advances also went up an impressive 56 percent representing more than double its performance in the previous year.
The bank has credited the asset growth to deposit mobilisation which pushed up loans and advances. The bank had yet an impressive growth this time in deposits which increased 40 percent.
Coop Bank mustered its investment in NBE bonds which it increased to more than double (53%) of what it had in the previous financial year. Further still, this immense investment represents 20 percent of its total assets.
So how did the bank do it? For one it developed a road map for growth, a five year strategic plan that is now in its second year and already bearing these remarkable results. The focus of the plan is to increase total revenue by increased sells of all products.
Weather its new accounts, insurance, fees and commissions, lending, you name it, the bank is working to sell and cross-sell to grow its revenue base and its working. The Bank's interest on income shot up an amazing 52 percent or in other wards it more than doubled.
Its fees and commissions did the same, they even outperformed interest on income increasing a whole 54pc. Similarly, the bank's gains on foreign exchange also increased 18 percent.
Trouble in paradise: Soaring expenses, falling liquidity
However, despite its good performance, the bank is facing a liquidity issue. Consider, its loan to deposit ratio increased by six percent which sector experts warn any more increase will only undermine its liquidity.
Coop-Bank did not fair very well when it came to liquidity. The bank's liquidity level fell with the cash and bank balances dropping by an entire seven percent down to 7.2 billion Br. Also, its cash and bank balances ratio to total assets suffered a sharp decline of 17percent.
Things are no better when you look the bank's Capital Adequacy Ratio (CAR) which was 12.5 percent, considerable higher than the regulatory requirement of only eight percent.
Another spot on the otherwise spotless record is the issue of growing expenses. The bank is reported to have increase spending in operating costs by a shocking 65 percent. This growth in expenses is not sustainable and threatens the bank's overall performance. Coupled with the limited liquidity, it does not fair very well for the bank,
Consider, salaries and benefits alone increased by 37 percent in just one year. Well, the increase in expenses can be explained with the opening of over 90 branches in just one year, so not surprising that salaries and benefit payments took to the skies.
In that same time, the bank was forced to recruit a staggering number of new employees which are reported to be almost 900 in number. With these huge expenses, it is no surprise that the Coop Bank has the industry's highest expense to income ratio. Short of developing a cost rationalisation strategy, the bank will see its expenses catch up to its income.
Back on the up side of things, the bank also had good credit score when it came to managing loans. It has very low number of Non Performing Loans (NPLs) which the banks relationship management team made close follow ups and even engaged recovery teams and legal action where it was necessary.
Also, with all its new investment, the value of the bank's total assets increased considerably in the given financial year. Coop Bank's total assets increased by 40 percent.
It is only fair to close with a positive not given the bank's considerable high performance, afterall, it did record some of the industry's highest amounts in profit. The bank's performance sets precedence not only in the country's banking sector but across the entire East African region.
Even as bank's across the regional economic bloc anticipate stimulus packages from their respective central banks, the key to staying afloat in the face of the global coronvirus pandemic is to strategies and adopt to this new reality.
Continuing to work business as usual puts the industry at high risk especially if the pandemic persists over a long period of time. How banks spend and how much they are willing to lend will determine how economies fair in this period.
It is imperatives that bank's maintain a good lending policy to ensure business continue to operate un-hindered. Failure to do this will result in an industry all out panic that will throw the economy into a socio-economic crisis.