Zemen Bank, a relatively young player in the banking industry, has once again punched above its weight.

A second-tier financial institution, it posted a net income of 2.5 billion Br for the 2023/24 fiscal year, ranking seventh among 28 private commercial banks. Its performance surpassed the industry's average net income of 1.9 billion Br. The Bank’s achievement is particularly notable given the intense concentration of profitability within a few top banks, which uncovers structural asymmetries in the banking industry.

The state-owned Commercial Bank of Ethiopia (CBE) leads, constituting 36pc of the industry's 58.36 billion Br net income posted by all banks except the Development Bank of Ethiopia (DBE).

Despite operating in the shadows of such financial behemoths, Zemen Bank’s executives have demonstrated strategic acumen. The Bank’s profit surged by 32pc over the previous year, netting 2.39 billion Br, outperforming generational peers like Berhan Bank, which recorded half that profit.

"Policies and directives by the central bank have had significant impacts on the banking business," said Enye Bemir, Zemen's board chairwoman. "But the minimum capital requirement helps to strengthen financial stability."

Zemen's paid-up capital increased by 49.1pc to 7.45 billion Br, bringing its capital adequacy ratio to 25.9pc. However, earnings per share (EPS) declined by 12.5pc to 376 Br – further sliding down from 430 Br a year ago - due to recapitalisation. Despite this, Zemen's share earnings (37.6pc) remain higher than the industry average of 31.6pc. Two years ago, the Bank had posted a 45.5pc EPS.

Though reflective of Zemen’s emphasis on capitalisation, according to the financial expert, the downward EPS trend with a 79 Br decline in two years may demand a review of its capital policy to align with shareholder expectations for returns.

Dereje disagreed. With plans to raise capital, he strongly believes that risk management should be at the core of bankers’ strategy for sustainability, responding to policy changes, and becoming competitive with foreign banks.

"Building strong capital is a priority," said Dereje.

Shareholders have resolved to raise capital to 15 billion Br, more than double the threshold the regulatory bank set for July 2026. Incorporated in 2008 with 2,800 shareholders, Zemen Bank began as a one-branch operation. Over the years, it has expanded to 128 branches and 1,800 staff.

The National Bank of Ethiopia's (NBE) regulatory measures to curb inflation — down to 19.9pc in June 2024 from 30.4pc the previous year — introduced operational difficulties like foreign exchange shortages and tightening monetary policy. Zemen Bank appears to have overcome these constraints by capitalising on lowering forex surrender, which provided opportunities to increase income from related services.

"Timely and proper use of available resources was key to achieving the results," said Zemen's President, Dereje Zebene. "Managing our credit portfolio and forex allocations were part of the strategy."

The London-based financial statement analyst Abdulmenan Mohammed (PhD) finds the expansion in interest income particularly striking, given the Central Bank's lending cap. He attributed Zemen Bank's likely adjustment of lending rates and focus on moderate credit expansion to offset regulatory restrictions.

Revenue growth at Zemen showed a robust 35.3pc rise during the year. Interest on loans, advances, and central bank bonds increased by 33.9pc to 5.35 billion Br, while fees and commission income rose by 49.5pc to 1.98 billion Br. Foreign exchange gains contributed an additional 319.1 million Br, marking an 18.3pc increase. These gains outpaced some first-generation banks, such as Dashen Bank. It registered forex gains of 129.34 million Br during the same period.

Zemen's cost structure also saw increases. Interest expenses rose by 25.3pc to 1.71 billion Br, and wage and operational expenses swelled by nearly half, reaching 1.42 billion Br and 1.02 billion Br, respectively. However, Zemen Bank is among the industry outliers for spending less on wages and administrative expenses than its interest expenses. So did the provision for loans and other assets impairment increase markedly by 87.7pc, reaching 266.03 million Br.

"Although the figure in absolute terms is reasonable, management should keep an eye on the growth rate of this expense," cautioned Abdulmenan.

Zemen’s President concurred, stating that the provision is meant to keep the Bank away from risk.

"It doesn't mean that all impaired loans were not paid," he said.