ZamZam Bank demonstrated measured growth and cautious risk management, placing it in a strong position within the niche Sharia-compliant market it pioneered as a fully-fledged interest-free financial institution. Its balanced lending strategy, robust capital buffers, and artificial intelligence (AI) initiatives mark it as a promising prospect. Nonetheless, analysts say managing liquidity pressures, curbing rising operational costs, and adapting strategically to rapidly evolving industry benchmarks remains critical for sustaining future growth and stability.

Incorporated in 2021, ZamZam Bank recently turned a corner by posting a net profit of 110.31 million Br, reversing previous losses and outperforming competitors in the emerging Sharia-compliant banking industry. Its closest competitor, Hijra Bank, trailed by nearly 10 million Br. ZamZam Bank’s net profit margin reached 17.22pc of total income, and income from financing and investments accounted for 71.7pc of operating revenue, a sign that growing customer acceptance of its Sharia-compliant banking model.

However, ZamZam’s earnings per share (EPS) stood at 5.94pc, below the minimum savings interest rate.

According to financial analysts, Sharia-compliant banks experience lower EPS, are influenced by profit-and-loss sharing models, have limited investment avenues, and higher compliance expenses.

Nonetheless, ZamZam attracted 1.9 billion Br in additional deposits, bringing its total to 6.9 billion Br during the fiscal year 2023/24. Yet, rapid deposit growth led to its interest-free financing to savings ratio dropping substantially to 67.4pc from the previous year's 87.15pc, slightly exceeding the industry average of 60.6pc recorded at the end of June 2023, indicative of careful yet assertive lending practices.

Abdulmenan Mohammed (PhD), a financial analyst based in London, cautioned against such a sharp decline, stating that it deserves management’s attention.

ZamZam's Vice President for Corporate Services, Kinde Abebe, attributed Central Bank's regulatory credit growth cap targeting inflation control to the impact on newly formed banks.

"The ratio was lower because of the cap despite excess funds," said Kinde.

Asset quality metrics show ZamZam's cautious lending strategy. Its provisions for bad loans were only 0.87pc of total financing, notably below the industry's average non-performing loan (NPLs) ratio of 3.6pc and comfortably beneath the regulatory cap of five percent.

However, its liquidity position presented mixed results. The Bank experienced a surge in foreign currency mobilisation, acquiring 30.47 million dollars during the year. Yet, total liabilities rose by 38pc, resulting in a liabilities-to-assets ratio of around 77pc, revealing potential liquidity pressures under adverse market conditions. Despite this, a healthy ratio of liquid assets — 40pc of total assets — demonstrated adequate capacity to manage deposit fluctuations.

The Bank’s total assets rose by 36pc to 9.38 billion Br, a notable deposit mobilisation and growth in its financing portfolio.

Capital adequacy remains a strong point for ZamZam Bank, reaching 35pc, far above the eight percent minimum mandated by regulators. Abdulmenan noted ZamZam held excess liquidity, calling for efficient asset utilisation.

Kinde conceded that making productive use of assets through capital formation, technological improvements, capacity building, and strategic partnerships remains a core focus.

ZamZam Bank's paid-up capital increased by 20.6pc, reaching 2.05 billion Br, but a far cry from the National Bank of Ethiopia’s (NBE) requirement of five billion Birr, with a deadline in June 2026. However, its capital positions it more resiliently than many competitors in the banking industry, whose combined capital totals 277.8 billion Br. ZamZam’s capital-to-asset ratio of 21.86pc exceeded industry benchmarks, providing a safety buffer against potential volatility.

ZamZam’s stronger capital position could provide greater flexibility in technological investments, customer acquisition, and operational improvements. Industry-wide trends show deposit growth at 30pc, average loan expansion at 27pc, and net profit growth at 32pc, revealing ZamZam’s long-term success depends on balancing prudent expansion and risk management.

According to Kinde, additional constraints, such as the absence of an interest-free banking money market platform, were notable.

"We’re focusing on short-term investments like forex dealings while looking for additional opportunities like Musharaka services," he told Fortune.

ZamZam’s revenues grew substantially during the financial year, increasing by 92pc to 857 million Br. Income from financing and investment rose by 75.6pc to 618.14 million Br, while other operating income surged by a whopping 157.5pc to 239.73 million Br. The profit distributed to Mudarabah depositors grew by 27.9pc to 10.32 million Br, yet accounted for only 1.7pc of total financing income.