Author: Web Master

In a year marked by macroeconomic turbulence, tight liquidity, and regulatory overhaul, Zemen Bank emerged as the industry’s standout performer, recording a historic leap in profitability that has reverberated across the banking industry.

For the financial year 2024/25, the third-generation Bank posted a net profit of 5.87 billion Br, representing a 145.6pc increase, the highest growth rate among all banks reported so far. The surge lifted earnings per share to 683 Br, from 376 Br a year earlier, marking Zemen Bank’s ascent into the upper echelon of private lenders.

Abdulmenan Mohammed (PhD), the London-based financial analyst, called the results “very impressive,” though he cautioned that much of the gain was “a windfall unlikely to recur soon.”

Indeed, Zemen Bank’s extraordinary gain from foreign exchange transactions skyrocketed its income to 3.87 billion Br, up from 319.1 million Br a year earlier. Board Chairwoman Enye Bemir credited Zemen’s performance to the change in the foreign exchange regime in July 2024 and other regulatory reforms.

“The transformation isn’t a challenge to overcome but a wave of opportunity we’re ready to seize,” she told Fortune.

Financial analyst Abdulmenan attributed the Bank’s strong foreign exchange position, which allowed it to benefit handsomely from, to the policy decision to float the Birr. However, he cautioned that such windfall income should not be expected to recur in the years to come.

“It’s a windfall profit that is unlikely to happen again any time soon,” he said, urging the leadership of the Bank to manage expectations should profits decline next year.

Dereje Zebene, president of the Bank, offered a different perspective on the year’s results, stating transparency in the Bank’s reporting and asserting that shareholders are well-informed about the sources of the Bank’s gains. He challenged the assertion that next year’s performance might not match this year’s record.

“As a bank, we plan to continue this profit portfolio or achieve even higher results,” he told Fortune.

Dereje also argued that the record profit resulted not only from regulatory reforms but also from effective foreign exchange management by the Bank.

“If the management had not managed forex properly, we could have faced losses,” he said.

Close to 60pc of Zemen’s foreign exchange income is sourced from exports, with the balance coming from foreign direct investment and remittances.

Despite a backdrop of tighter monetary conditions and ongoing uncertainty within the financial sector, Zemen Bank delivered a set of annual results that demonstrated strength, resilience, and prudent risk management. It not only weathered macroeconomic headwinds but also accelerated its momentum, driven by diversified revenue streams and a cautious approach to risk.

Double-digit policy rates and an industry-wide credit crunch challenged the banking industry throughout last year. Loan expansion slowed across the economy, deposit growth decelerated, and liquidity buffers narrowed as competition intensified and credit conditions remained tight.

Nevertheless, Zemen Bank posted a gross profit of 8.2 billion Br, representing a 147.5pc increase over the previous year. Total operating income reached 12.1 billion Br, demonstrating the Bank’s ability to convert market opportunities into financial returns.

The net profit margin was 48.35pc, a figure that many of its competitors would envy.

The surge in profitability was accompanied by a notable expansion of Zemen Bank’s balance sheet. Total assets climbed nearly 50pc year-on-year (YoY) to 88.6 billion Br, while deposits grew by a similar margin, reaching 64.4 billion Br. The loan book expanded at a more moderate pace of 16.5pc to 41.5 billion Br, revealing strong demand and a cautious approach to capital allocation amid regulatory changes and fierce competition.

A notable aspect of Zemen Bank’s performance was the diversity of its revenue sources.

Net interest income accounted for 39pc of total operating income, driven by higher interest rates and increased loan volumes. Non-interest income accounted for the majority of the Bank’s operating income, such as fee and commission income (27pc), while foreign exchange operations generated 32pc, a direct result of the floating exchange rate regime introduced last year.

Zemen Bank demonstrated disciplined cost management. Interest and personnel expenses together accounted for roughly two-thirds of total costs, at 36pc and 32pc, respectively. Administrative overheads and loan loss provisions remained under control.

Credit quality indicators further bolstered the Bank’s narrative of prudent risk management. The non-performing loan (NPL) ratio was 2.81pc, well below both the regulatory threshold of five percent and the Bank’s own internal ceiling of four percent. The provision charge for bad loans was 0.49pc of average loans, mirroring low credit stress within the portfolio.

Zemen Bank’s liquidity and capital positions were equally robust.

The liquidity ratio closed at 52.4pc, well above the regulatory minimum of 15pc. The loans-to-deposits ratio was approximately 64pc, revealing ample room to absorb potential shocks or accommodate further loan growth without resorting to riskier funding sources.

The Bank’s regulatory capital adequacy ratio (CAR) was 37pc, nearly five times the required minimum, and the simple capital-to-asset ratio was 20.8pc, uncovering a fortress balance sheet. The average equity multiplier of 4.81 times disclosed a balanced approach to leverage and capital, optimising returns without overstretching risk boundaries.

Zemen Bank also recorded tangible gains in productivity and efficiency.

The Bank also performed well in other income streams. Interest income from loans, advances, and Central Bank bonds grew by 31.2pc to reach 7.02 billion Br. Income from service fees and commissions climbed by 69pc to 3.31 billion Br.

Abdulmenan characterised this growth as “remarkable,” given the lending growth cap imposed by the Central Bank.

Dereje conceded, noting that the increase in interest income was achieved without a corresponding rise in interest rates.

“Our interest rate is among the lowest in the industry,” he said. “We earned more by disbursing more loans, not by increasing rates.”

The profit per employee reached 3.06 million Br, and the average deposit per branch was a substantial 488 million Br. Financial analysts say, this shows a business model that prioritises high-value customer relationships over rapid network expansion. With 132 branches serving nearly 300,000 accounts, the Bank’s footprint remains relatively selective, but its reach is becoming more effective.

Helen Seged manages one of these branches, the Bole Rwanda branch, located on Rwanda Street. Her branch received recognition for top performance, owing to a strong retail base and credit performance.

She characterised the year as “better than expected.” She also noted challenges, including tough competition and limited liquidity.

With rising income came higher expenses. Interest expenses increased by 31.6pc to 2.25 billion Br, personnel expenses grew by 39.4pc to 1.98 billion Br, and other operating costs rose by 44.8pc to 1.48 billion Br.

Abdulmenan cautioned that while income growth often comes with higher expenses, management should continue to closely monitor costs. Dereje attributed expense growth to inflation and a higher cost of living, which required salary adjustments to retain staff. Technology and core banking system expenses also rose, with many of these costs denominated in foreign currency.

“Our staff are our biggest asset, and technology, though costly, creates opportunities for more income,” Dereje told Fortune.

Loan quality at Zemen Bank improved during the reporting year. Provisions for loans and other assets totalled 222.2 million Br, a drop of 16.5pc from the previous year. While this reduction is positive, Abdulmenan noted that provisions are still high compared to earlier periods and urged continued vigilance.

Dereje attributed the higher provision this year to a revised Central Bank directive that requires banks to hold provisions for off-balance sheet items as well. He noted that the credit cap imposed by the Central Bank also affected borrowers’ repayment capacity, but the Bank’s loan portfolio remained manageable.

Loans and advances reached 41.53 billion Br, up 16.6pc, and deposits grew by 48.3pc to 64.67 billion Br. However, the loan-to-deposit ratio dropped to 64.2pc from 74.8pc, which Abdulmenan described as a point of concern for management.

Liquidity rose sharply, with cash and equivalents increasing to 33.89 billion Br, making up 38.25pc of total assets. Abdulmenan warned that this could indicate inefficient use of liquidity.

Dereje disagreed.

“We don’t hold idle cash,” he told Fortune. “We use it wisely. The balance looks high because we invest in short-term T-bills and later reinvest when they mature.”

Central Bank regulations limit banks’ investments to 10pc of their net worth, restricting opportunities to invest in other ventures.

“We plan to invest only in permitted and relevant areas,” he said.

Abdulmenan, however, urged the Bank to reduce excess liquidity by investing more in income-generating assets.

The Bank also set aside 235 million Br in provisions for an ongoing dispute with the Ministry of Revenues over dividend tax. The dispute is part of an industry-wide issue in which banks argue that reinvested dividends should not be taxed. The Ministry disagreed.

“We made the provision in case the court rules in favour of the Ministry,” Dereje told Fortune.

Zemen Bank, first incorporated in 2008 with a paid-up capital of 87.2 million Br, has seen its capital jamped to 9.39 billion Br. According to the President, strong profits and confidence among shareholders had encouraged reinvestment of dividends.

Enye feels proud of the Bank’s accomplishments.

“Doubling our net profit, expanding assets, and strengthening our digital banking leadership reflect the shared vision of the Board and Management,” she told Fortune, describing the year as successful despite challenges from liberalisation and increased competition.

“These challenges pushed us to invest in technology and customer-focused solutions,” she said. “Our achievements should inspire us to go further, especially with the entry of foreign banks.”

Some of the over 6,700 shareholders, such as Abyneh Negewo and Samuel Gebreha, voiced satisfaction with the Bank’s results. They were pleased with the dividends and the progress of the Bank.

However, Samuel foresees that maintaining such profits would require extra effort.

“Almost all banks benefited from the float this year,” he said. “Next year might not be the same. Zemen should diversify its income sources.”

Dereje echoed the sentiment.

“We must keep working hard to sustain this success,” he told Fortune.

From analysts to shareholders, those closely watching the industry caution that the one-time windfall from the forex regime change is unlikely to recur, and the competitive market is set to intensify with the anticipated entry of foreign banks.