In a period marked by industry expansion and ambitious regulation in the financial sector, Ahadu Bank, among the industry's latest entrants, has embarked on a course characterised by transformative potential yet apparent limitations. Despite early financial impediments, the Bank's leadership says it is positioning Ahadu, headquartered on Africa Avenue (Bole Road), to capitalise on digital adaptation and strategic partnerships to forge a path to profitability and robust service delivery.

Ahadu Bank, which launched operations in June 2022, has rapidly expanded, establishing 75 branches where 667 employees were deployed in its inaugural phase. It began with a strong capital base, boasting 503 million Br in paid-up capital, mobilised from 9,600 shareholders. A proactive approach to growth, as evidenced last year when shareholders voted to increase the paid-up capital to five billion Birr within three years, shows a robust start.

Despite its aggressive expansion, Ahadu Bank faced significant financial strain, reporting substantial losses of 193.68 million Br last year, which comprises about 30pc of its paid-up capital.

The Bank's President, Sefialem Liben, attributed these losses primarily to the hefty initial costs associated with establishing a foothold in the competitive banking industry. By comparison, its peer, Tsehay Bank, incurred a loss of 162 million Br in the same period.

Ahadu Bank has shown some promising signs despite its overall losses. It earned 29.93 million Br in interest income — a 37.9pc increase — and recorded 92.71 million Br in fees and commissions, along with 19.55 million Br in gains from foreign exchange dealings. However, these revenues were offset by interest expenses of 21.54 million Br and other operational costs.

Abdulmenan Mohammed (PhD), a London-based financial analyst, noted the trend among new banks facing substantial early losses due to the high-cost entry to the industry.

"The period to reach a level of decent returns becomes much longer," he said, cautioning a rough road ahead for newcomers. "This must have been frustrating."

According to Abdulmenan, executives will have to make up the accumulated losses in due time for Ahadu Bank to begin distributing dividends to its shareholders.

Despite these financial snags, Ahadu has laid a strong foundation in asset accumulation and customer deposit mobilisation. The Bank's assets have grown to 3.1 billion Br, and it has mobilised deposits totalling 2.03 billion Br. These efforts have yielded a loan-to-deposit ratio of 45.6pc, which, while half the size of the industry's average, represents a solid start for a new finance institution.

The Bank's strategy to overcome its early limitations involves a shift towards digital banking. Sefialem stated the role of technology in Ahadu's future, noting ongoing projects that he hopes enhance vital operational modules such as efficiency and security. He banked on partnerships with fintech companies and integrations with platforms such as Telebirr, EthSwitch, the Ethiopian Commodity Exchange (ECX), and Documents Authentication & Registration Services.

"These initiatives are central to Ahadu's strategy to differentiate itself in a crowded market and attract a tech-savvy customer base," the President told Fortune.

The banking industry has seen a robust expansion in total loans and advances, which grew by 24.3pc to reach 1.8 trillion Br by June 2023. A noteworthy aspect of this growth is the credit distribution across various economic sectors, demonstrating strategic diversification. Sectors such as manufacturing, domestic trade and services, and consumer banking primarily fuel this surge. Manufacturing received the highest proportion of loans, amounting to 23.2pc of the total, followed by domestic trade and services at 20.7pc, and exports at 15.7pc.