Berhan Bank is steering an increasingly competitive banking landscape marked by modest profitability despite a solid asset size and an equity base. Its fiscal year 2022/23 performance revealed only a slight increase in net profits and a marginal growth in earnings per share (EPS), illustrating the executives' difficulties in income generation and cost management.

The Bank's returns on equity (4.46 billion Br) and assets (33 billion Br) fall short of market leaders, revealing room for better asset utilisation and profitability. However, its asset base is nearly double that of Enat Bank's 17.21 billion Br, significantly higher than Debub Global Bank's 14.09 billion Br and Addis International Bank's 10.79 billion Br. Such a disparity in asset size indicates a potential variance in market reach and operational scale among these banks of similar tiers.

However, a different picture emerges when the lens is shifted to Return on Equity (ROE) and Return on Assets (ROA). Berhan Bank's ROE stands at 11.8pc, and its ROA at 1.6pc, figures while respectable, are eclipsed by its peers. Enat Bank posted a slightly higher ROE of 12.8pc and an ROA of 1.9pc, showing a more efficient utilisation of shareholder equity and asset management. Debub Global Bank's ROE and ROA, at 13.8pc and 2.1pc, respectively, further extend this trend.

However, the most striking contrast would be presented by Addis International Bank, which posts an ROE of 19.2pc and an ROA of 3.9pc despite its smaller asset size, significantly higher than the other banks.

With a capital exceeding three billion Birr, Berhan Bank is a player with the prospect for growth. However, its EPS of 15.6pc pales compared to industry goliaths such as Awash and Abyssinia banks. The disparity in EPS, alongside the ROE and ROA figures, places Berhan in a moderate performance tier.

Over the past fiscal year, the Bank’s tepid performance has sparked concern among shareholders, leading to animated discussions at the annual general assembly held three weeks ago at the Millenium Hall on Africa Avenue (Bole Road). Berhan Bank reported a modest growth in net profits by 6.3pc to 508.63 million Br, a sharp contrast to the 146pc growth rate from the preceding year. This growth is significantly lower than its peers, with Zemen Bank leading at 1.8 billion Br, followed by Abay Bank at 1.5 billion Br and Bunna Bank at 949 million Br.

With shareholder discontent rising and the looming capital threshold requirement of the central bank, Berhan Bank's future hinges on strategic improvements in deposit mobilisation, loan disbursement, and operational efficiency.

Incorporated in 2009 with 97 million Br paid-up capital raised from 12,000 shareholders, Berhan Bank has grown significantly. However, it still falls short of the central bank’s capital threshold requirement by 1.65 billion Br, with a deadline looming in June 2026.

Adding to the concern was the marginal growth in share earnings, which increased by only 0.26 Br to 156.12 Br. This led to significant shareholder unrest, prompting the Board Chairman, Gumachew Kussie, to apologise. His attempt to slake shareholders' worries by unveiling an architectural design for the Bank's new headquarters, planned to lie on 5,400Sqm in the financial district, seemed to have little impact, as the sluggish growth in EPS remained a critical issue.

Berhan Bank’s Acting President, Solomon Assefa, attributed the modest performance partly to the need for capital injection and regulatory risk reserves.

"Regulatory risk reserves also played a role," he told Fortune.

Financial statement analyst Abdulmenan Mohammed (PhD) pointed to the surge in financial intermediary income as a primary reason for the modest growth in net profits.

There was a notable increase in Berhan's assets portfolio, with a 36.3pc rise to 45.05 billion Br. The Bank’s investments in government bills and bonds amounted to 3.8 billion Br, representing 8.5pc of its assets. Despite this, Berhan Bank trails behind Abay and Bunna in assets.

Berhan Bank reported non-distributable reserves of 8.33 billion Br and a capital adequacy ratio (CAR) of 15.4pc, almost twice the regulatory threshold. It generated 4.39 billion Br in income from interest on loans, advances, and central bank bonds, marking a 38pc growth. However, its net fees and commissions revenues dropped by 20.3pc to 435.17 million Br, and other operating income halved to 228.17 million Br. These factors, combined with increased operational expenses, undermined the substantial growth of financial intermediation income.

Berhan Bank's interest expenses increased by 28.5pc to 1.6 billion Br, and wages and benefits rose by 32.8pc to 1.62 billion Br. Its total operating expenses for the year were 4.5 billion Br, ranking third among its peers.

According to Solomon, the Bank’s inability to earn income from fees remains a significant concern, particularly noting the lull in processing new letters of credit due to backlogs.