Last year’s profit was 13 times larger than three years ago

Feb 23 , 2019

The Cooperative Bank of Oromia has recovered from its dismal performance of two years ago by posting a decent record last financial year.

The Bank registered 55pc profit growth at 523.4 million Br, boosting the earnings per share to 42 Br, a six Birr increase from the previous year, outperforming most other banks.

“This is a remarkable performance,” said Abdulmenan Mohammed, an experienced financial statement analyst, “and the management of the Bank should take credit.”

Abera Hailu, board chairperson of the Bank, also gave credit for the good performance to the management and employees of the Bank.

“I would like to thank the management and employees in successfully discharging your respective responsibilities,” wrote Abera in the annual performance report.

The management has gone through a restructuring designed on a customer-based model, switching from a product-based approach, according to President Deribie Asfaw.

"We have introduced three new segments in the organisational structure run by vice presidents to satisfy clients," said Deribie.

Several factors contributed to the improved performance of the Bank.

Income from interest, fees and commissions, and foreign exchange dealing soared by 62pc, 18pc and 172pc, totaling 1.9 billion Br, 354.1 million Br and 204.8 million Br, respectively.

Abdulmenan applauds Cooperative’s positive performance and gains in foreign exchanges.

“It is very impressive that Cooperative Bank did very well, while several banks struggled to maintain their market share,” said Abdulmenan.

Increasing the customer base has helped the Bank to increase income from foreign exchange dealings, according to Deribie.

"We have increased the exporter base of our customers," Deribie said, "which helped us to get more forex."

Even though the Bank managed to increase its income, expenses have climbed.

Interest expenses soared by 84pc to 620.4 million Br; salaries and benefits increased by 45pc to 700.4 million Br; and other operating expenses went up by 56pc to 559.5 million Br.

The increase in expenses is a bit concerning, according to the expert.

“The management should keep an eye on these expenses,” Abdulemenan toldFortune.

The management's decision to follow a growth strategy - hiring more staff and focusing on branch expansion - is the reason for the jump in expenses, according to Deribie.

In the last fiscal year, the Bank opened 42 new branches and hired 719 new employees.

Reversal of provisions for loan impairment by transferring it to income was another strong achievement of the Bank, renaming 42.1 million Br as income.

In the previous year, the Bank reversed 105.2 million Br.

"The Bank followed a prudent approach when calculating provisions for loan impairments,” commented Abdulmenan.

The Bank reported a surge in total assets, which increased to 29.9 billion Br, a 68pc increase.

Loans and advances of Cooperative Bank similarly went up by 59pc to 15.1 billion Br, while mobilising 25.8 billion Br in deposits, an increase of 81pc. This is a considerable upsurge compared to the private banking industry growth of 38pc.

“The growth of total assets, loans and deposits at Cooperative Bank is very impressive,” commented Abdulmenan.

However, the loan-to-deposit ratio of the Bank has dropped to 59pc from 67pc. Two years ago, the loan-to-deposit ratio of the Bank was 70pc.

“The decline in a loan-to-deposit ratio of the Bank is disappointing,” said Abdulmenan. “The management should rectify this.”

The decline is caused by the nature of the Bank's borrowers, according to Deribie.

"Our borrowers [farmers and cooperative unions] come in delicate seasons before harvesting season," said Deribie, "and they pay back the loans within a year of taking the loan."

Cooperative Bank increased its investment in National Bank of Ethiopia bonds by 62pc to 5.4 billion Br. This investment represents 18.1pc of total assets and 21pc of total deposits of the Bank.

Liquidity analysis shows that the liquidity level of Cooperative Bank had improved in value and relative terms.

Cash and bank balances increased by 117pc to 7.7 billion Br. Cash and bank balance to total assets went up to 25.7pc from 20pc, while cash and bank balances to total liabilities rose to 27.7pc from 21.6pc.

The liquidity level of Cooperative Bank is much higher than required, and it needs to channel its excess liquid resources to income generating activities, according to Abdulmenan.

The financial statement of the Bank shows that last year the Bank settled half a billion Birr borrowed from the central bank a few years ago.

Cooperative Bank increased its paid-up capital by 60pc to 1.6 billion Br.

The capital adequacy ratio (CAR), the ratio of a bank's capital to its risk, dropped to 14.3pc from 14.6pc.

Even though the CAR value of the Bank is higher than the regulatory requirement, which is eight percent, it is far lower than the industry average of more than 21pc.

“CBO needs to beef up its capital for precautionary reasons,” recommended Abdulmenan.

Deribie agrees with this.

Two years ago the shareholders agreed to boost the paid-up capital of the Bank to three billion Birr, according to Deribie, but the Bank faced a challenge in collecting the equity from the shareholders.

"As the shareholders are scattered," said Deribie, "we could not collect the capital with the planned schedule."

PUBLISHED ON Feb 23,2019 [ VOL 19 , NO 982]

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