Abay Bank , one of the new entrants into Ethiopia's bourgeoning banking industry, jumped into the year 2013/14 with a robust performance. This came mainly as a result of a significant increase in interest and non-interest incomes. Interest earned on loans, advances, National Bank of Ethiopia (NBE) bonds and deposits has increased by 107pc to 88.34 millionBr.Both domestic and external trade contributed to the success of the Bank. Mining and quarrying, building and construction, and transport and communications were activities that spurred the success in the export sector, according to the annual report of the Bank for the year 2012/13. Non-interest income, such as commissions, service charges, gain on foreign exchange and other income has jumped up 82 million Br - an increase of 54pc. Abay Bank was licensed by the Central Bank in July 2010 , registering 157.8 million Br in paid up capital, mobilised from 823 founding shareholders. These include major ones such as Dashen Brewery SC (7.5 million Br), Amhara Water Works Construction Enterprise (7.5 million Br), the Housing Development Agency of the Amhara Regional State (7.5 million Br), the Amhara Design & Supervision Works Enterprise (7.5 million Br), the Amhara Region Urban Development & Construction SC (7.5 million Br), the Gozamen Farmers' Cooperative (2.5 million Br), the Amhara Development Association (4.5 million Br), the Tikur Abay Transport SC (4.5 million Br) and Sebhatu & Sons Property Administration & Security Plc ( one million Birr ). The number of shareholders, which stood at 1,189 in the 2011/12 fiscal year, has swollen to 1,525, as of June 30, 2013 - when the year ended. As a young entrant, Abay ploughed through the stiff competition characterising the industry with an aggressive expansion, which also involved human capital - almost doubling the total number of its employees from 275 to 478. Abay had to endure high expenses to deliver its aggressive expansion. Thus, total expenses went up to 119.45 million Br. Interest expense increased by 83.4pc to 28.6 million Br and staff and general administration expenses shot up to 90.8 millionBr.All of the increases are higher than the industry average. "The increase in expenses at such an alarming rate, while the industry profit is declining could undermine future profitability," cautions Abdulmena Mohammed Hamza, an accounts manager for the Portobello Group Ltd - a London -based holding company. "Hence, cost control should be put in place." But the aggressive expansion of the Bank, according to its management, will continue into the 2013/14 fiscal year. "Expansion of our branch network will continue to be the centre of our business development strategy," reads the message of Tadesse (Tinkishu) Kassa, chairman of the board of directors, published along with the audited report. Nevertheless, the Bank has devised a strategy to reduce the soaring expenses. It has pinned its hopes on constructing its own premises, cognisant of the staggering rent expenses it has incurred. The Bank's profit after tax has soared to 38.04 million Br and its Earnings per share (EpS) has gone up to 14.3 Br from 12.2Br.This staggering performance has been achieved while the industry profit has gone down by 2.4pc. The total assets of the Bank have increased by 150.5pc to 1.951 billion Br. Abay has disbursed loans and advances of 843.1 million Br, which is 86.5pc higher than last year. The size of deposits have also expanded remarkably and reached 1.476 billionBr.The loan to deposits ratio of Abay has gone down to 57pc from 58.1pc. Loan to deposits ratio has declined for the second time in a row. "Such declining trends should be reversed," advises Abdulmena. Abay has invested 374.46 million Br in NBE five year bonds. This investment accounts for 19pc of the total assets and 25pc of the total deposits of the bank. Various liquidity ratios indicate that the liquidity level at Abay has declined considerably. Its liquid assets to total assets ratio has gone down to 26pc from 40.31pc and liquid assets to deposit ratio has decline to 34pc from 60pc. Such a decline is an industry-wide phenomena, due to the directive that compels private banks to invest 27pc of their loan disbursements into five year NBE bonds. Abay increased its paid up capital by 21pc to 288.51 million Br and its capital adequacy ratio stands at 37pc, indicating that it is a well capitalised bank. To comply with the directive that compels private banks to have paid up capital Birr 500 million by 2016, Abay should increase its paid up capital by 20pc per year, says Abdulmena. The three-year-old Bank plans to launch mobile and agent banking in the next year. Agent banking involves the use of a company that will provide transactional services to clients of a bank. The use of agents will also benefit bank customers who will have easier access to their money from nearby shops, instead of travelling to branches. The Bank plans to regulate the cash flow from the agents by holding a minimum of half a million Birr of their money as collateral. The Bank is currently negotiating with nearly 100 agents nationwide, and plans to start giving the service as soon as the company gets the green light from the NBE.
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