Zemen Bank, a relatively modest player in the banking industry, has recently demonstrated an ability to punch above its weight in profitability and asset management, outperforming several of its larger competitors. Its noteworthy performance comes when the industry is becoming increasingly competitive, with more prominent banks dominating the market in equity and deposit mobilisations as well as loans and advances.

Zemen Bank's reported profit grew 22.3pc, reaching 1.81 billion Br, notably exceeding the average profit of 15 private commercial banks by 400 million Br. The Bank's profitability was also substantially higher than its peers, including Berhan, Bunna, and Oromia banks, marking a significant achievement for a financial institution of its size.

Despite the impressive profitability, Zemen Bank experienced a decline in Earnings per Share (EPS), which dropped by 25 Br to 430 Br. This dip, however, did not dampen the spirits of shareholders, who remained optimistic about the Bank's future.

Dereje Zenebe, president of Zemen Bank, addressed the shareholders' meeting held at the Millennium Hall four weeks ago and attributed the decline in EPS to recapitalisation, the Bank's investments in technology and skills acquisition.

An alumnus of Adds Abeba and Lincoln universities, Dereje came to the leadership of Zemen five years ago after a quarter century in the financial sector, including stints at Wegagen and Awash banks. Under his watch, Zemen Bank has also increased its paid-up capital by 37.2pc, reaching the regulatory minimum threshold regulators of the central bank set, with a deadline in 2026.

However, the Bank's EPS of 43pc displays its robust earnings capacity, eclipsing the industry average of 38.4pc. Its Return on Equity (ROE) and Return on Assets (ROA) were 24.3pc and 4.3pc, respectively, comfortably above the 19.8pc and 2.4pc industry averages.

Zemen Bank's performance in the industry is particularly notable given its undersized stature compared to larger competitors. The Bank's total equity stood at 8.4billion Br, nearly double its modest capital, while its total liabilities amounted to 39.3 billion Br, representing half the average for the 15 private banks. Along with its conservative leverage position, this tells of a cautious yet effective approach to risk management that Dereje and his directors have taken.

While larger banks such as Awash, Abyssinia, and Dashen continue to dominate in size and market share, Zemen Bank's achievements illustrated that smaller institutions can compete effectively through operational efficiency and profitability.

Substantial income growth from financial intermediation accompanied Zemen's growth as interest on loans, advances, and central bank bonds grew by 64.6pc to four billion Birr. The surge in income is attributed to increased extension of credits and more investment in securities combined with an increase in lending rates. The income from fees and commissions, gains from foreign exchange dealings and other activities swelled to a very modest figure of three percent to 1.73 billion Br.

However, the Bank's performance is not without its drawbacks.

The London-based financial statement analyst Abdulmenan Mohammed (PhD) recommended a watchful eye on the Bank's management on the interest expenses, wage hikes, and other operating expenses.

"These need serious attention," he cautioned.

Zemen Bank's operating expenses have seen significant increases, with interest expenses rising by 46pc to 1.37 billion Br and wages up by 46.9pc to 954.29 million Br. The rising costs have prompted calls from financial analysts and shareholders for a more mindful approach to expense management.

Incorporated in 2008 with 2,800 shareholders, Zemen Bank has built a robust capital base, with capital and non-distributable reserves increasing by 37.4pc to 7.13 billion Br. With its capital adequacy ratio (CAR) of 21.3pc, the Bank's total assets expanded by 36pc to 47.78 billion Br, a figure that, while lower than industry giants like Dashen and Awash, demonstrates a strong growth trajectory.

Founding shareholder Assefa Tefera is content with the outcome.

"I'm generally satisfied with the performance," he told Fortune.

However, he wants to see "unnecessary expenses" curtailed; he would have liked to have the general assembly held at the Bank's newly inaugurated headquarters on Ras Abebe Aregay St., instead of outside venues.

Dereje attributed the surge in expenses to branch expansions, increased IT costs, and the prevailing inflationary pressures. Over the past year, Zemen Bank has expanded its network, opening 23 new branches, bringing the total to 102.

"The Bank's profitability per branch is top of the industry," he told Fortune.

Mahlet Girma manages one of these branches, located at Zemen's headquarters. Worked for the Bank for 15 years, she is pleased with the progress the Bank has made in loans, deposits, foreign currency and online banking. She observed a prevailing liquidity problem that plagued the industry last year, which could have caused problems but was avoided by "careful management."

"We managed it better than others," Mahlet told Fortune.

Zemen Bank has maintained a strong position in loans and asset provisioning. Its provision for loans and assets impairment showed an increase of 125pc, signalling a cautious approach to cushion potential risks. The Bank's liquidity position has also evolved, with its cash and bank balances growing by 10.7pc to 8.91 billion Br. Zemen’s ratio of cash and bank balances to total assets decreased to 18.6pc from 22.9pc.

"It maintained a reasonable amount of liquid resources," said Abdulmenan.

However, the ratio of these balances to total assets has declined, denoting a shift in the Bank's liquidity management strategy.

The Bank has shown remarkable growth in its loan and deposit portfolios. Total loans and advances reached 31.39 billion Br, posting a growth of 48.6pc, while total deposits increased by 38pc to 37 billion Br.  Zemen Bank's deposit mobilisation was lower than Oromia Bank's 54.3 billion Br, while slightly higher than Berhan's 33.8 billion Br and Bunna's 36.6 billion Br. Its loan-to-deposit ratio, hailed by Abdulmenan as "ideal" grew by six percentage points from 78.6pc the prior year.

Board Chairman Ermias Eshetu promised the 7,957 shareholders that a five-year strategy under implementation would help Zemen Bank maintain a competitive edge in the industry poised for opening up for overseas banks.


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