Oromia International Bank profit affected by the protest
After raising paid up capital from quarter billion to almost a billion Birr, Oromia International Bank (OIB) registered a 249 million Br net profit for the recently ended fiscal year, 12pc higher than the preceding fiscal year. This was disclosed during the Bank’s seventh annual meeting in Millennium Hall in December 2016.
However, profits would have been even higher in a better economic environment, according to Abera Tola, OIB’s founding board chairperson. Nevertheless, he seemed optimistic about the performance despite the existing challenges in the banking industry, calling the bank’s performance “reasonably healthy.”
Last year, the bank, for the first time in its history, passed the billion Br income mark, the eighth bank in the country to earn that amount of revenue. During 2015, the private banking industry generated a total income of over 15 billion Br. OIB’s share was around six percent.
The capital growth had an effect on the earning per share (EPS) of the bank. The bank’s earnings per 1,000 Br share (EPS) dropped to 310 Br from 364 Br. The current year’s EPS is the same as what it was two years ago.
“Although soaring capital affects the shareholders earnings in the short run, the long-term effect would make the bank resistant to shock,” commented Abie Sano, the bank’s president.
The positive profit performance was mainly driven by soaring interest income.
Interest income, which represented around 75pc of the Bank’s total income, showed a 54pc rise to 800 million Br.
“It is a great achievement within the Bank’s business life in the industry,” commented the board chairman.
These achievements have not been matched in foreign exchange dealings. It increased by only eight percent to 88 million Br, five percent below the private banking industry’s total.
“The slowdown requires due attention from the management,” says Abdulmenan Mohammed Hamza, analyst at London Portobello.
An executive who works at OIB connects the problem with the political unrest in Oromia Regional State which began a year ago.
“Adding in the internet shutdown, the unrest adversely affected the bank’s ability to collect remittances,” said the executive. “The problem even continued into the first quarter of the current fiscal year, when the unrest reached its peak.”
More than 40pc of the Bank’s 200 branches are located in Oromia Regional State.
In addition, the unrest in Oromia also affected the bank’s capability to lend, according to the executive.
“It affected the bank’s capability to move liquid resources from most liquidated bank to least one,” he said.
The 37pc income growth has not been without cost.
Expenses grew by 51pc to more than 838 million Br. Looking into the components, salaries and benefits constituted 37pc of expense, reaching 314 million Br.
General and administrative expense, 34pc of the total expenses, increased by 54pc to 233 million Br.
“The surge is intimidating unless it is well controlled,” said Abdulmenan.
This type of increase was also seen in the Bank’s provision for doubtful loans and advances. Provision for doubtful loans and advances soared by 58pc to almost 50 million Br.
“Like most components of expense, the size of provision for doubtful loans and advances are also alarming.” Abdulmenan added. “The management of OIB should keep an eye in these areas.”
Despite the strengthening of OIB’s financial position, the proportion of loans and deposits needs some improvement, according to Abdulmenan.
Overall, the loan to deposit ratio of OIB dropped to 61pc from 62pc.
“Even though OIB’s loan to deposit ratio being very close to the industry average of 62pc, there is room to improve,” Abdulmenan suggested.
“The ratio is very healthy with the company’s huge investment on National Bank of Ethiopia bills and reserve,” argues Abie, the president.
Loans and advances increased by 14pc to 5.6 billion Br. More than 30pc of credit goes to businesses engaged in trade and services locally. While an almost equal percentage of loans were given to importers and exporters.
On the other hand, deposits bumped by 17pc to over nine billion Birr.
Kalkidan Kebede and Betelhem Seyoum are among the Bank’s 537,960 account holders.
Even though the Bank’s services are good there are delays with withdrawals, both customers said.
“The internet interruption affected our service capability,” said Tizazu Bekele, a branch manager while describing the delay.