In a year marked by macroeconomic turbulence, tight liquidity, and regulatory overhaul, Zemen Bank emerged as the industry’s standout performer, recording a historic leap in profitability that has reverberated across the banking industry.

For the financial year 2024/25, the third-generation Bank posted a net profit of 5.87 billion Br, representing a 145.6pc increase, the highest growth rate among all banks reported so far. The surge lifted earnings per share to 683 Br, from 376 Br a year earlier, marking Zemen Bank’s ascent into the upper echelon of private lenders.

Abdulmenan Mohammed (PhD), the London-based financial analyst, called the results “very impressive,” though he cautioned that much of the gain was “a windfall unlikely to recur soon.”

Indeed, Zemen Bank’s extraordinary gain from foreign exchange transactions skyrocketed its income to 3.87 billion Br, up from 319.1 million Br a year earlier. Board Chairwoman Enye Bemir credited Zemen’s performance to the change in the foreign exchange regime in July 2024 and other regulatory reforms.

“The transformation isn’t a challenge to overcome but a wave of opportunity we’re ready to seize,” she told Fortune.

Financial analyst Abdulmenan attributed the Bank’s strong foreign exchange position, which allowed it to benefit handsomely from, to the policy decision to float the Birr. However, he cautioned that such windfall income should not be expected to recur in the years to come.

“It’s a windfall profit that is unlikely to happen again any time soon,” he said, urging the leadership of the Bank to manage expectations should profits decline next year.

Dereje Zebene, president of the Bank, offered a different perspective on the year’s results, stating transparency in the Bank’s reporting and asserting that shareholders are well-informed about the sources of the Bank’s gains. He challenged the assertion that next year’s performance might not match this year’s record.

“As a bank, we plan to continue this profit portfolio or achieve even higher results,” he told Fortune.

Dereje also argued that the record profit resulted not only from regulatory reforms but also from effective foreign exchange management by the Bank.

“If the management had not managed forex properly, we could have faced losses,” he said.

Close to 60pc of Zemen’s foreign exchange income is sourced from exports, with the balance coming from foreign direct investment and remittances.

Despite a backdrop of tighter monetary conditions and ongoing uncertainty within the financial sector, Zemen Bank delivered a set of annual results that demonstrated strength, resilience, and prudent risk management. It not only weathered macroeconomic headwinds but also accelerated its momentum, driven by diversified revenue streams and a cautious approach to risk.

Double-digit policy rates and an industry-wide credit crunch challenged the banking industry throughout last year. Loan expansion slowed across the economy, deposit growth decelerated, and liquidity buffers narrowed as competition intensified and credit conditions remained tight.

Nevertheless, Zemen Bank posted a gross profit of 8.2 billion Br, representing a 147.5pc increase over the previous year. Total operating income reached 12.1 billion Br, demonstrating the Bank’s ability to convert market opportunities into financial returns.

The net profit margin was 48.35pc, a figure that many of its competitors would envy.

The surge in profitability was accompanied by a notable expansion of Zemen Bank’s balance sheet. Total assets climbed nearly 50pc year-on-year (YoY) to 88.6 billion Br, while deposits grew by a similar margin, reaching 64.4 billion Br. The loan book expanded at a more moderate pace of 16.5pc to 41.5 billion Br, revealing strong demand and a cautious approach to capital allocation amid regulatory changes and fierce competition.

A notable aspect of Zemen Bank’s performance was the diversity of its revenue sources.

Net interest income accounted for 39pc of total operating income, driven by higher interest rates and increased loan volumes. Non-interest income accounted for the majority of the Bank’s operating income, such as fee and commission income (27pc), while foreign exchange operations generated 32pc, a direct result of the floating exchange rate regime introduced last year.

Zemen Bank demonstrated disciplined cost management. Interest and personnel expenses together accounted for roughly two-thirds of total costs, at 36pc and 32pc, respectively. Administrative overheads and loan loss provisions remained under control.

Credit quality indicators further bolstered the Bank’s narrative of prudent risk management. The non-performing loan (NPL) ratio was 2.81pc, well below both the regulatory threshold of five percent and the Bank’s own internal ceiling of four percent. The provision charge for bad loans was 0.49pc of average loans, mirroring low credit stress within the portfolio.

Zemen Bank’s liquidity and capital positions were equally robust.

The liquidity ratio closed at 52.4pc, well above the regulatory minimum of 15pc. The loans-to-deposits ratio was approximately 64pc, revealing ample room to absorb potential shocks or accommodate further loan growth without resorting to riskier funding sources.

The Bank’s regulatory capital adequacy ratio (CAR) was 37pc, nearly five times the required minimum, and the simple capital-to-asset ratio was 20.8pc, uncovering a fortress balance sheet. The average equity multiplier of 4.81 times disclosed a balanced approach to leverage and capital, optimising returns without overstretching risk boundaries.

Zemen Bank also recorded tangible gains in productivity and efficiency.

The Bank also performed well in other income streams. Interest income from loans, advances, and Central Bank bonds grew by 31.2pc to reach 7.02 billion Br. Income from service fees and commissions climbed by 69pc to 3.31 billion Br.

Abdulmenan characterised this growth as “remarkable,” given the lending growth cap imposed by the Central Bank.

Dereje conceded, noting that the increase in interest income was achieved without a corresponding rise in interest rates.