Amhara Bank Grows Fast with Slow Dividends

Apr 19 , 2025. By TIZITA SHEWAFERAW ( Fortune Staff Writer )

Key Takeaways:

• Amhara Bank’s agile growth and strategic credit approaches have positioned it prominently within two years of operation.
• A remarkable turnaround in profitability was driven by a 137.1pc increase in interest income.
• With over 310 branches mobilising deposits, the Bank’s expansion strategy showed its market influence.
• Despite high operational costs, the Bank’s robust capital and focus on diversification signalled preparedness for future challenges.
• Amhara Bank's ongoing adaptability amidst economic turbulence displayed its potential as a major player in the industry.

Amhara Bank’s performance in the financial year 2023/24 is an illustration of how newer entrants in the banking industry are racing to catch up with older competitors, both in market position and public perception.

Within two years of operation, the Bank has amassed a deposit base and total assets that place it near the front of its generation. Analysts attributed this acceleration to an aggressive yet carefully targeted credit approach, active deposit mobilisation, and a branch network that seems to operate more efficiently than its peers. While private banks across the board have been expanding their assets, few fourth-generation financial institutions have matched Amhara Bank’s pace on such a scale.

The Bank’s shift from a gross loss of 481.7 million Br in the previous year to a net profit of 524.5 million Br last year demonstrated the momentum behind its growth. That swing in profit unveiled a fundamental improvement rather than a mere accounting shift. It was partly driven by rising income, which reached 4.4 billion Br, much of that coming from a 137.1pc surge in interest income, at 3.77 billion Br. Fee and commission income also climbed by 239.8pc to 528.7 million Br.

The Board's Chairman, Gashaw Debebe, praised the turnaround as “a promising new era of growth, innovation, and excellence.”

Total assets jumped to 35.2 billion Br, a 24pc uptick that, according to market watchers, sets the Bank apart from peer rivals. Loans and advances expanded by 33pc to nearly 19.9 billion Br, a rise that puts Amhara Bank at the upper end of fourth-generation banks when measured in absolute volume. The deposit base reached 25.06 billion Br this year, a 26.4pc climb, mirroring the Bank’s ability to attract savers in a market where deposit competition is fierce.

“Impressive” is how London-based financial analyst Abdulmenan Mohammed (PhD) characterised the performance, commending the Bank’s ability to overcome what he called a “huge loss.” However, he noted the potential pitfalls of aggressive lending in a climate where prudential limits and industry-wide liquidity fluctuations remain critical concerns. Many new banks initially struggle with high operational overhead and the burden of building a nationwide presence, a challenge Amhara Bank seems to be dealing with caution and ambition.

A key element in Amhara Bank’s approach to lending appears to be a cautious position toward risk, supported by its relatively low loan impairment charges. It posted around 78.5 million Br in provisions for loan and asset impairments on a total loan portfolio of 19.92 billion Br, a figure that signalled either conservative underwriting or a preference for lending in safer sectors. At about 0.38pc of total loans, the provision level has drawn praise from analysts but also triggered warnings that venturing into more volatile parts of the economy could test the quality of its assets.

Amhara Bank’s overall performance is further boosted by a strong deposit-to-asset ratio of roughly 71pc and a loan-to-deposit ratio of about 79.4pc. This balance provides enough breathing room to keep lending while retaining a sensible liquidity cushion. Despite expanding its loan book substantially, the Bank maintained a level of liquidity that has not severely strained its resources, even though its liquid assets declined by six percentage points to 6.87 billion Br. The liquidity-to-asset ratio was 19.5pc, down from 25.7pc, which Abdulmenan considered acceptable for a young bank converting more of its resources into income-generating assets.

However, the Bank’s operating costs remain high.

Total expenses grew by 76pc to almost four billion Birr, with interest expenses alone more than tripling to 1.35 billion Br, displaying the competitive fight for deposits in a market where new entrants are often forced to pay higher rates to woo depositors. Wage and benefit costs rose by 46.8pc to 1.6 billion Br, while other overhead expenses increased by 45.7pc to 992.1 million Br. According to Aminu Nuru, a Doha-based financial analyst, these rising personnel costs should be concerning.

“This level of spending on personnel expenses is worrying compared to the income,” he said. "Salaries and related expenses are not likely to shrink in the near term for a Bank that already employs 5,191 people."

The Bank’s cost-to-income ratio could be in line with what might be expected of a two-year-old institution that relies on branch expansion for growth. It has gone well beyond the 120 to 180 branches typical of banks at a similar stage. Each branch has mobilised an average of around 80.8 million Br in deposits, mirroring an active contribution toward the Bank’s overall growth. According to analysts, the next test will be whether these branches can move beyond deposit collection to generate robust fee-based business in trade finance, export-import activities, and digital services, thereby strengthening non-interest income streams.

The managment of Amhara Bank declined to comment when repeatedly approached by this newspaper.

Nevertheless, staffing remains a recurring issue. One employee, who asked to remain anonymous because he was not authorised to speak, recalled initial optimism after joining Amhara Bank, in part due to the better salary scale it had offered. But, the enthusiasm has cooled, and talk of wage stagnation and marginal incentives has spread.

“It’s pushing people to look elsewhere,” said the employee, characterising the mood among coworkers.

Such concerns revealed the dilemma of striking a balance between expansion and employee satisfaction. The Bank’s cost structure is partly driven by a quest to establish a national presence. It has 310 branches and aspires to grow further, backed by the largest shareholder base at 141,000; no other bank seems to match.

Its Board Chairman wanted to see the glass half full.

“Through carefully coordinated strategic moves and effective resource management, we have made notable progress,” he told shareholders in his message published in the latest annual report.

Some of these shareholders remain uneasy.

For a Bank that mobilised over 25 billion Br in deposits, through more than 300 branches, and capital nearing seven billion Birr, a half-billion Birr in profit is a fact not well digested. Its return on investment remained relatively modest compared to older banks posting earnings per share (EPS) over 40pc. Amhara Bank's EPS rebounded to 8.3pc, which management hailed as a sign that its strategy is paying off.

“Shareholders should demand answers to why a bank that holds all these resources has failed to make profit like the others," said Aminu.

Those concerns resonated with shareholders eager for dividends, such as Demis Workneh.

“It’s been long overdue,” said Demis.

He recalled buying shares near the Ambassador Theatre-Filwuha area during the founding years. Later, he was told to pick up the share certificates from a branch in Saris Adey Abeba, which he found "a waste of time."

"I never got the documents,” Demis told Fortune, hoping that the Bank’s communication with shareholders improves.

Another shareholder, Nigussie Eshetu, shared these frustrations and called on the board to prioritise engagement with shareholders who want clarity on operations and returns on their investment.

Other shareholders remain optimistic. A shareholder, Atnaf Damtew, tried to buy more shares but was told they were unavailable.

“I hope they will avail it soon," told Fortune, describing her view of the bank as a long-term opportunity, "at least for founding shareholders.”

Such optimism may echo a broader sentiment that, while returns have been slower to materialise than some shareholders had hoped, the Bank’s rapid growth could bear more returns later.

“Throughout the year, Ethiopia’s banking sector has faced substantial headwinds," Yohannes Ayalew (PhD), president of the Bank, wrote to shareholders in the annual report. "Liquidity stresses have hindered resource mobilisation efforts and credit deployment capabilities.”

Amhara Bank’s corporate governance had also faced turbulence. Internal disputes led to formal complaints with the National Bank of Ethiopia (NBE) and the Federal Ethics & Anti-Corruption Commission. These disagreements alleged legal and procedural violations by former board members and nominees, triggering leadership changes. Gashaw, a former official with the Ministry of Trade, presides over a largely renewed board, though the appointment of former chairman, Melaku Fenta, was still pending regulatory approval.

“Amhara Bank faced significant internal management changes, which inevitably affected its business aspirations,” wrote Gashew in the annual report.

The founding president, Henok Kebede, resigned in December 2024 and subsequently moved to run Nib Bank. An interim president, Chanyalew Demissie, served until the appointment of the Bank’s serving chief executive, Yohannes, in September 2024. A former Vice Governor at the central bank with a doctorate from the University of Sussex, Yohanned is credited with steering the Development Bank of Ethiopia (DBE) back toward financial stability before moving into the private sector.

Yohannes and his team focused their energy on risk management, liquidity, and robust asset quality.

The Bank’s paid-up capital rose by 11.6pc to 6.52 billion Br, leaving it with a capital adequacy ratio of about 24pc, comfortably above regulatory standards. It has set its sights on fresh revenue streams such as development financing, capital markets, and Sharia-compliant finance under its Merhaba brand, which accounted for three percent of its deposits. Amhara Bank acquired a 10,579Sqm plot in Lideta District, where it plans to erect its future headquarters.

The investment portfolio, which included bonds with the Treasury and DBE, expanded, growing by 120pc to reach 3.63 billion Br.

Analysts ponder if Amhara Bank could continue to post strong numbers if the macroeconomic environment weakens or competition intensifies.

According to Yohannes, the macroeconomic landscape has been similarly strained with persistent foreign exchange shortages, elevated inflation, unemployment, rising budget deficits, and political tensions. The foreign exchange shortages remain a chronic constraint for banks attempting to finance import-related businesses. Inflation, at nearly 20pc year-on-year (YoY), presented bankers with difficulties in determining loans and deposit rates, prompting them to weigh the trade-offs between attracting depositors and containing their interest expenses.

Amhara Bank’s heavy dependence on interest income — a reported 80pc of its operating income — revealed a traditional model that has so far worked for many banks. Yet, with such a large chunk of revenue coming from lending, the Bank could be vulnerable to future rate adjustments or stricter central bank guidelines. According to industry observers, diversifying into fee-based services, digital platforms, and other product lines is an increasingly common refrain in an industry undergoing slow but steady liberalisation.

Although Amhara Bank has introduced interest-free banking services to compete with specialised Sharia-compliant finance institutions like Hijra and ZamZam, the scale of this segment remains small.

While Amhara Bank’s deposit mobilisation is impressive for its short operating history, it will need to keep up the momentum in an environment where unbanked households, inflationary headwinds, and stiff competition all play a part. It has already pulled in two million customers, a number that far exceeds some of its fourth-generation peers, including Gadaa, Tsedey, Shabelle, and Hijra banks, which have generally posted smaller profits or still glide near breakeven.

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PUBLISHED ON Apr 19,2025 [ VOL 26 , NO 1303]

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