Nib International Bank (Nib Bank) has etched a place of steady growth in its operations for the fiscal year 2022/2023 despite formidable governance challenges and liquidity constraints. The Bank has distinguished itself as a key player among the first and second-generation private commercial banks, demonstrating its entrenched presence in the industry.

Posting a net profit of 1.51 billion Br - a 12.7pc growth from the previous year - Nib Bank has successfully manoeuvred through stringent oversight from regulators and tight liquidity conditions to secure profitable outcomes.

The departure of its former Board Chairman, Woldetsenay Woldegiorgis, right after presenting the annual report to shareholders at the Inter-Luxury Hotel in December, brought a period of transition. The intervention by officials from the National Bank of Ethiopia (NBE) to oversee the election of new board members, citing corporate governance violations and repeated complaints, marked a significant moment in the Bank's governance, leading to the election of Shisema Shewaneka as the new board chairman.

Despite the topsy turvy, Nib Bank's performance has been commendable, considering its growth rate and profit margins relative to its peers, nearly doubling those of Wegagen and trails behind Hibret Bank's 2.3 billion Br profit.

However, a concerning trend for the Bank has been the steady decline in its earnings per share (EPS), which fell by seven Birr from the previous year to 139, amidst a central bank memo restricting dividend distributions in a bid to recapitalise. The increase in Nib Bank's paid-up capital by 24.5pc to six billion Birr, surpassing regulatory minimums, and a capital adequacy ratio (CAR) of 15.7pc, nearly double the regulatory requirement, reflects a strong capital base.

These measures, coupled with operational strategies aimed at enhancing branch and employee productivity, were crucial as the Bank sought to improve its competitive position in the industry.

With an EPS for 16 private banks averaging 32.7pc, Nib Bank's falls by 1.7 percentage points and significantly below Dashen Bank's outstanding 58.3pc. For industry analysts, these indicators suggest that while Nib Bank has been generating shareholder value, there is ample room for enhancing profitability to close the gap with industry leaders.

Tekeba Haileselassie, a shareholder for 15 years with one million Birr stakes, expressed dissatisfaction with the Bank's dividend policy and governance stir, reflecting broader shareholders' concerns about the Bank's direction.

"I've little faith in the new Board, too," he told Fortune.

The shareholder, who has stakes in other banks and real estate companies, wants to wait for a while to see how the new Board performs before contemplating selling his shares. His criticisms also extend to the Bank's customer service and operational decisions, including branch locations, revealing areas for potential improvement in meeting industry standards.

"They're not wise even when picking locations for branches," said Tekeba, with a tone of frustration.

Incorporated 24 years ago with a paid-up capital of 27.6 million Br raised from 717 founding shareholders, Nib Bank has grown its branch network to 441, with a modest increase in staff numbers to 7,661. The Bank has total asset base of 77 billion Br. This positions Nib Bank as a mid-tier entity, demonstrating its solid fundamentals but also indicating potential for growth and increased market competitiveness.

The Bank's operational expenses, including wages and benefits, have significantly increased, outpacing some of its peers. The London-based financial analyst, Abdulmenan Mohammed (PhD), attributed Nib Bank's profit performance to a surge in interest income, tempered by rising expenses and the impacts of capital injections on EPS.

"Soaring expenses undermined further growth in interest income," he told Fortune.

The Bank reported a 30.2pc increase in interest income from loans, treasury bills, and bonds, reaching 7.98 billion Br, although income from commissions and fees declined by 8.1pc to 640.27 million Br. The decline ought to be disappointing in light of the preceding year’s growth of 42.2pc, according to Abdulemenan.

Foreign exchange dealings posed another area of disappointment, with losses growing nearly fivefold due to the depreciation of the Birr against the Dollar.

Despite these drawbacks, Nib Bank's deposit and loan portfolios demonstrated a strength. Its interest on savings rose by 30pc to 3.25 billion Br, with other operating expenses climbing by 23.4pc to 929.43 million Br. The growth in expenses, according to Abdulmenan, has paralleled revenue increases, showing the need for efficient expense management to sustain profitability.

Nib Bank's President, Genene Ruga, believes this reflects the broader economic pressures facing banks, including double-digit inflation.

With a background in agricultural economics from Addis Abeba University and post-graduate studies in business administration from Indra Ghandi National University in India and post graduate diplomas in financial management. Genene remains upbeat about steering the bank towards greater achievements. He sees the Bank's asset expansion, with total assets growing by 25.3pc to 77 billion Br, reflecting a strategic focus on broadening its financial base and enhancing its market presence.

Nib Bank's approach to liquidity and asset management has been a focus of its executives' strategy. With total deposits growing by 19.3pc to 59.36 billion Br, Nib Bank has achieved significant growth but faced liquidity pressures, as evidenced by a high loan-to-deposits ratio of 89.74pc, showing a notable uptick from the previous year's 78.26pc.

The liquidity ratio and the Bank's reliance on 2.5 billion Br borrowing from the central bank to respond to cash shortages brought to the surface the need for refined liquidity management practices to ensure stability and responsiveness to market demands. The Bank's liquidity situation should be a cause of concern, according to Abdulmenan, who urged a thorough reassessment of its liquidity management practices to prevent future issues.

In response to the liquidity challenges, particularly noticeable in the second quarter, Genene acknowledged the seasonal (for tax and upsurge in demand for agricultural produce) demand for cash but remains optimistic about addressing these challenges.

"We'll boost deposits and lower the ratio," Genene told Fortune.

However, Tebebu Dereje, Nib Bank's Tewodros Branch manager, noted that his branch did not experience such liquidity issues, due to a robust base of corporate customers. It has even led to customers from other branches seeking services at his location for withdrawals, according to Tebebu.

"Customers from other branches came to us to withdraw cash," he told Fortune.

Nib Bank has registered a notable reduction in its provision for loan impairments, which fell to 103.98 million Br from 164.44 million, marking a significant improvement in its financial health. Its provision levels are nearly on par with Hibret Bank and substantially lower than Wegagen Bank's 593.66 million Br, indicating a competitive positioning in the market.

"The reduction should be encouraged in the industry," said Abdulamenan.

The decline in provisions comes alongside a modest drop in non-performing loans (NPL) of 1.91pc, representing a little more than half the average for the 16 private banks.

In a year marked by aggressive expansion, Nib Bank's loan and advance portfolio grew by 36.8pc to reach 53.27 billion Br. This growth outpaces Wegagen Bank's portfolio and is only slightly behind Hibret Bank's, demonstrating Nib's assertive lending strategy. Despite its aggressive lending, liquidity concerns have emerged as a critical area for the Bank, with cash and bank balances declining by 21pc to 12 billion Br. These balances were greater than Hibert's 9.23 billion Br and three billion Birr higher than Wegagen Bank.

PUBLISHED ON Feb 10,2024 [ VOL 24 , NO 1241]

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