Enat's income from foreign exchange dealing slumped by 40pc

Feb 16 , 2019

Despite declines in foreign exchange transactions, Enat Bank, one of the youngest private banks, increased its profit by more than 40pc aided by a massive boost in investment income.

In the last fiscal year, Enat netted 158.8 million Br in profit, a 42pc increase from the previous year. This helped the bank's earnings per share, with a par value of 1,000 Br, to grow by 16 Br to 184 Br.

The earnings per share have grown despite a considerable increase in paid-up capital. Enat, which was established as the 16th private bank when it became operational in March 2013, increased its paid-up capital by 27pc to 971 million Br.

Enat’s financial performance for the last fiscal year is characterised as solid, according to Hanna Tilahun, board chairperson of Enat, who recently replaced the founding chairperson, Meaza Ashenafi, who moved to become the Chief Justice of the Supreme Court.

“Taking into consideration the lack of favourable economic situations in the country,” remarked Hanna, “we consider it as positive that we maintained profitability and a return on equity.”

Established with a subscribed and paid-up capital of 260 million Br and 120 million Br, respectively, Enat reported mixed results in income-generating activities. The Bank did well in financial intermediation operations and other services, while earning from foreign exchange transactions have fallen.

"Income generated from interest on loans and advances helped us to show a good performance," said Wondossen Teshome, president of Enat.

"It accounted for 72pc of the total income, he told Fortune."

Interest on loans, investments in National Bank of Ethiopia bonds and time deposits increased by 61pc to 489.61 million Br, and service charges and commissions grew by 24pc to 246.54 million Br. However, income from foreign exchange transactions dropped by 40pc to 10.14 million Br.

"Even though income from foreign exchange dealings dropped across banks the decline at Enat is concerning," Abdulmenan Mohammed, a financial statement analyst, said.

Wondossen shares the expert's opinion. "Last year, we were stuck in generating foreign exchange."

Wondossen attributes stringent requirements by the central bank in forex allocation as the primary reason for the disappointing result.

The central bank’s direction, which compels all banks to provide forex for anyone who applies for foreign currencies, has severely affected the bank, according to the president.

“Most of our clients who have been generating forex switched to other banks, due to this procedure," Wondossen told Fortune.

A massive expansion in expenses accompanied growth in income.

Enat spent 312 million Br in interest on savings, an increase of 56pc, 118 million Br in salaries and benefits, an increase of 43pc, and 99.3 million Br in other operating expense, an increase of 24pc.

In the reported period, Enat opened seven branches, pushing the branch total to 40 or a 0.8pc share of the industry at large. Commercial banks opened 500 new branches last year, pushing the total number to 4,757.

Provision for impairment of loans and other assets declined by 54pc to 5.1 million Br.

"This reduction is remarkable," commented Abdulmenan. "As Enat is a growing bank, further expansion in expenses is expected in the years to come."

The total assets of Enat increased by 33pc to 6.5 billion Br, which is higher than the industry’s growth rate.

Enat disbursed loans and advances of 3.31 billion Br, an increase of 35pc, and mobilised deposits of five billion Br, an increase of 32pc.

The loan-to-deposit ratio of Enat went up to 67pc from 65pc, similar to the industry average.

In the last fiscal year, the banking industry disbursed 115.4 billion Br in loans and advances, of which the private banks disbursed 67.2 billion Br.

Enat's investment in National Bank bonds has increased by 42pc to 1.4 billion Br, accounting for 21.3pc of total assets and 27.7pc of total deposits of the bank.

These ratios increased slightly from the preceding year.

"This investment is likely to increase in the years to come as the ratios are lower than the industry averages," said Abdulmenan.

Various liquidity measures show that the liquidity level at Enat has increased in value but declined in relative terms. Enat’s cash and bank balances increased by 20pc to 1.3 billion Br.

Cash and bank balances to total assets decreased to 20.2pc from 22pc and cash and bank balances to total deposits also declined to 26pc from 29pc. Despite the reduction, the liquidity level of Enat is reasonable.

The capital adequacy ratio (CAR) of Enat decreased to 34pc from 35pc. The CAR of Enat is still far higher than the industry average of 23pc.

"As the capital of Enat is in far excess of what is required, it should use this resource efficiently," said Abdulmenan.

The total capital of the banking industry increased by 10pc and reached 85.8 billion Br in the reported period. Enat’s total capital stood at 1.05 billion Br.

PUBLISHED ON Feb 16,2019 [ VOL 19 , NO 981]

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