Siket Bank’s Costly Coming of Age Leaves its Under Pressure

May 3 , 2026. By BEZAWIT HULUAGER ( FORTUNE STAFF WRITER )

Siket Bank has completed its first financial year as a commercial bank entity, having transitioned from the microfinance provider Addis Credit & Saving S.C. (ACS) in June 2025. The shift led to a 78.7pc surge in expenses to 1.48 billion Br, resulting in a 19.6pc drop in gross profit. While the financial institution grew larger, with total assets hitting 19.25 billion Br, the cost of expansion has narrowed profit margins during this critical phase.

Siket Bank ended the last financial year larger, carrying the costs of becoming a commercial bank. It crossed from microfinance in June 2025, a formal shift that changed its balance sheet and income statement.

The financial institution became better capitalised, more visible and ambitious, yet it closed the year less profitable. Its books tell a story of expansion, but also of the price paid for moving from a credit outfit, Addis Credit & Saving S.C. (ACS), into a regulated commercial bank.

For an institution that had been operating as a microfinance outfit only three years earlier, the scale was striking.

Total assets reached 19.25 billion Br, rising by 21pc. Net loans and advances climbed 30.2pc to 11.76 billion Br, while deposits grew faster, expanding by 54.6pc to 7.58 billion Br.

Equity increased 19.6pc to 9.40 billion Br, and its paid-up capital reached 6.92 billion Br. The Addis Abeba City Administration remained the dominant shareholder among 26 shareholders, holding more than half of the shares.

Earnings, however, were weaker.

Gross profit fell by 19.6pc to 1.24 billion Br. Total income grew 14.7pc to 2.72 billion Br, while expenses jumped by 78.7pc to 1.48 billion Br. This has exposed the pressure of transition. Each additional Birr of income was more than absorbed by new costs, leaving management with a larger institution and narrower margins.

The Bank’s President, Damtew Alemayehu, wants to see the year judged by institutional change rather than by banking maturity.

A veteran of microfinance, he spent 10 years at Oromia Credit & Saving S.C. before moving to Addis Saving & Cooperative and later to Siket Bank.

“The 2024/25 report should not be assumed as a bank, but rather a microfinance,” Damtew, who studied business administration and management at the universities of Gondar and Jimma, earning undergraduate and postgraduate degrees, told Fortune.

According to Damtew, microfinance institutions lack the capacity and human resources to collect deposits effectively.

“After the transition,” he said, “Siket Bank can diversify into international banking, digital and other services.”

The Bank’s earlier model depended heavily on non-governmental organisations and funding from the city administration to support small and medium enterprises. The Bank also spent half a billion Birr acquiring a core banking system, a transformation cost that weighed on the year’s results.

Board Chairperson Tilahun Worku, who also heads the Mayor’s Office and Cabinet Affairs, described the period as a “historic milestone” in entering commercial banking. He linked the transition to stronger governance and digital investment, including the implementation of the Temenos T24 Core Banking System.

Digital transformation began showing scale, with more than half a billion Birr in digital transactions processed during the year. Tilahun disclosed that Siket Bank would focus on operational excellence, shareholder value and financial services for underserved groups, including women and medium, small and micro enterprises (MSMEs).

The income mix showed why management can claim progress while analysts see pressure.

Interest income remained the engine, reaching 2.21 billion Br, 81pc of total income, up from 1.77 billion Br and 74.72pc a year earlier. Interest expense grew 81.9pc to 377.88 million Br, while net interest income grew by 16.8pc to 1.83 billion Br. The core lending business expanded, but not enough to offset the surge in operating costs.

Fee and commission income increased to 233.97 million Br from 143.05 million Br, lifting its share of income to 8.60pc from 6.03pc. Investment income reached 197.79 million Br, accounting for 7.27pc of income.

Other operating income fell sharply to 84.21 million Br from 277.20 million Br, reducing its share to 3.09pc from 11.69pc. Siket Bank became increasingly dependent on lending income just as its cost base widened.

Employee benefits grew by 74.6pc to 667.60 million Br. Other operating expenses more than doubled to 372.05 million Br. Personnel costs accounted for 45.08pc of total expenses, while administrative and other operating expenses made up 25.13pc. Together, they consumed 70.21pc of expenses, 1.21 percentage points higher than the average for 11 banks of similar size.

Damtew attributed the rise in cost to branch rebranding, salary adjustments and rent for more than 100 former woreda-based outlets.

The margin compression was visible. Gross profit as a share of total income fell to 45.58pc from 65.07pc. Asset turnover slipped only slightly to 14.13pc, while the equity multiplier edged up to 2.05 times from 2.02 times.

Return on equity (ROE) fell to 13.20pc from 19.64pc, while return on average equity was 14.38pc. The decline was driven mainly by a weaker profit margin, not by lower leverage or a collapse in asset productivity. Return on assets (ROA) remained strong but weakened to 6.44pc from 9.7pc. On average assets, it was 7.06pc.

The London-based financial analyst, Mekbib T. Gebrekidan, saw positive net income and operating cash flow as strengths, but placed the Bank in a “red category” with a financial health score of 30pc. He argued that only three of the 10 major performance indicators were positive.

ROE was below the industry benchmark of 27.4pc, showing that the Bank’s capital base had not yet been used efficiently. Converted microfinance institutions that successfully became banks recently posted ROA of about 4.14pc and ROE of 35.28pc.

Mekbib also flagged efficiency, where the cost-to-income ratio deteriorated to 47.1pc from 27.1pc. Although this was still better than the wider banking industry average of about 65pc, the direction was poor.

“Unless revenue growth accelerates,” he said, “the cost path is not sustainable.”

Mekbib urged management to improve revenue per employee and branch, and expand digital fee income.

Its net interest margin of 82.9pc was about eight percentage points above industry norms, confirming strong pricing power in lending but also concentration risk. Siket Bank was capital-rich and deposit-light.

The balance sheet became more loan-driven. Net loans and advances accounted for 61.06pc of assets, up from 56.76pc. Cash and cash equivalents fell to 12.51pc from 21.18pc. Equity investments made up 5.32pc, right-of-use assets 5.34pc, property and equipment 8.95pc, and other receivables 6.12pc.

Liquidity was moving into earning assets, with funding improved but remained stretched. Deposits financed 39.38pc of assets, up from 30.83pc. Equity remained unusually high at 48.81pc of assets. Paid-up capital alone equalled 35.95pc. The loan-to-deposit ratio improved to 155pc from about 184pc because deposits grew faster than loans, but it remained high, particularly compared to Siinqee Bank’s 53.82pc and Sidama Bank’s 65.04pc.

Time deposits of 930.8 million Br accounted for around 12pc of total deposits and about a third of the year’s deposit growth. According to Damtew, deposit mobilisation was not then the main focus beyond mandatory SME loan down payments.

“At that time, half a billion Birr was deposited by a pension fund,” he told Fortune.

Damtew argued that these ratios mirrored Siket Bank’s microfinance background. He disclosed that by April 2026, the loan-to-deposit ratio had fallen to 98pc, close to the 11-bank average of 73.4pc, and that management planned to bring it down to between 80pc and 85pc.

“We’ve diversified our revenue generation this year, including international banking,” he said.

Asset quality helped protect earnings. The loan impairment charge was only 641,121 Br, down from 40.16 million Br. As a share of gross loans, the annual charge was 0.005pc, compared with 0.44pc a year earlier.

Siket Bank was more loan-intensive than its peers, with loans representing 61.06pc of assets, compared with a peer average of 41.8pc. Deposit growth of 54.63pc was strong, but slower than the peer average of 131.93pc.

Allowance for impairment was 136.53 million Br, 1.15pc of gross loans of 11.89 billion Br. The low charge cushioned profit, although rapid loan growth called for close monitoring. Non-performing loans (NPL) were 3.5pc at the end of 2024/25 and had declined by April 2026, according to management.

However, the Bank’s systemic-risk profile appeared limited. It had 19.25 billion Br in assets. Liquidity risk was moderate because loans were about 155pc of deposits, and cash fell to 2.41 billion Br from 3.37 billion Br.

Solvency was the main buffer, with equity equal to 48.8pc of assets, far exceeding the average for micro-finance-cum-bank of 17.17pc. Market risk appeared to be low to moderate, while operational risk remained elevated after core banking, international banking, and digital channels were introduced.

Productivity offered a mixed reading, with 561,211 Br profit per employee. Deposits per employee were 3.43 million Br, while per branch reached 49.56 million Br. Its customer base expanded by 14.2pc to 614,729, leaving about 4,018 customers per branch and 12,334 Br of deposits per customer.

The network is broad, but branch funding productivity remains modest.

At the branch level, the transition was more tangible.

For Tesfaye Leta, moving from the Commercial Bank of Ethiopia (CBE) to Cooperative Bank of Oromia and then to Siket Bank meant watching an institution remake itself from the inside.

As a manager of the Abiy Branch on Churchill Road in front of Haron Tower, Siket’s main hub, he sits between old-style banking and emerging finance. The Branch, one of the 153, recorded more than 1,000pc growth in deposits last year, albeit from a small base.

Tesfaye and his team of 12 are targeting exporters and foreign direct investment opportunities in a highly competitive market.

“As mobile applications replace basic USSD services, the aim is to move Siket Bank beyond credit and savings and into digital banking,” he told Fortune.

The contrast with peers was sharp. Compared with Sidama and Siinqee banks, Siket Bank had a higher return on assets but far lower leverage. Its net profit-to-assets ratio was 6.44pc, against the peer average of 3.05pc. Its assets were 2.05 times equity, compared with a peer average of 6.57 times equity.

Siinqee Bank remained in a league of its own, towering over its peers in balance sheet size, deposits, lending, capital and profitability. Sidama Bank was still operating on a smaller footing, while Gadaa had built a moderate asset base with a measured lending posture. Siket Bank stood apart for different reasons. It is better capitalised and more willing to lend, but has yet to show the same strength in extracting productive value from deposits.

According to Mekbib, Siket Bank remained financially strong in absolute terms due to capitalisation, liquidity, profitability and balance sheet growth.

“It has substantial financial strength and a very strong capacity to absorb future shocks,” he told Fortune.

But he warned that earnings per share (EPS) declined sharply, and that rising costs should be matched by stronger revenue.

However, Siket Bank’s year was not weak but experienced costly growth. The next test is whether its new identity as a commercial bank, technology platform and enlarged network can generate enough deposits, fee income and higher-yielding assets to reverse the squeeze.

PUBLISHED ON May 03,2026 [ VOL 27 , NO 1357]