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Wegagen Bank S.C reported a record-high net profit
of 111 million Br in the 2006/2007 budget year, up
from 70.8 million Br the previous year, an
achievement that comes just as the company
celebrates its 10th anniversary in the Ethiopian
banking sector.
In the 14th annual general assembly of the
shareholders held at the Sheraton Addis on October
16, with the presence of the majority of the 600
shareholders, board members were rewarded with a
huge applause from thrilled shareholders.
Indeed, in addition to registering a record high
profit, the bank has managed to increase its capital
from 185 million Br in 2005/2006 fiscal year to
292.1 million Br this year, in part from the sale of
shares worth 50.4 million Br., which increased the
bank's shareholders from 360 to 600. Its total
assets also have significantly grown from 2.3
billion Br to 3.5 billion Br. "Considering its
revenue, its total net worth and the growth in the
rate of deposit, it is clear that this bank is in a
good position," a banking expert told Fortune.
"However, unhealthy operations are also witnessed in
the bank's report."
One of the weaknesses identified by the expert is
that the bank lent 75.8pc of its deposits against
NBE's directive, which forbids banks from disbursing
over 75pc of their total deposits in loans.
Furthermore, of the total loan disbursed by the bank
last year, 48pc (888.3 million Br) is a long-term
loan, which according to the expert, is accompanied
by risk of default.
"The standard long-term loan to total loan ratio for
commercial banks is 20-25pc," said the expert. "But
when it exceeds this figure, danger is bound to
follow."
The expert also looks suspiciously at the fact that
the external audit report has not mentioned the
bank's non-performing loans. Wegagen last year
collected 2.7 billion Br in deposits and disbursed
2.2 billion Br in loans.
Nonetheless, by commanding a 57.5pc profit margin
from the bank's gross revenue, the banks results
have been labeled as a tremendous success by experts
of the industry.
The banks financial success, however, has not been
accompanied with beaming internal stability. Until
early last month, the bank was unable to renew its
licenses because it lacked a president with
credentials that complied with the directives of the
National Bank of Ethiopia (NBE), the country's
regulatory agency for the financial sector.
Following NBE's rejection of the appointment of
Araya Gebregziabher, acting president of the Bank,
who lead the bank to its success last year, the bank
later appointed Hadgu Hailu, a veteran banker who
served at the state owned Commercial Bank of
Ethiopia (CBE) for many years, in August 2007.
The initial rejection from the NBE for license
renewal and the impeding confusion over leadership
even caused some friction with its correspondent
banks abroad, sources told Fortune.
In spite of the leadership crisis, the shareholders
meeting proceeded amiably. Chaired by Sebhat Negga,
former top brass of the Ethiopian Peoples
Revolutionary Democratic Front (EPRDF) and board
chairman of the bank, the general shareholders
assembly has unusually entertained protests from the
shareholders on how much of the profits should be
paid in dividends.
Wegagen, which was unable to meet the regulatory
agency's directive that instructed commercial banks
to upgrade their paid-up capital to 85 million,
seems to have taken a lesson from its experience.
Hence, Sebhat told the shareholders that upgrading
the Bank's capital is the only way of avoiding such
adverse occurrences in the future.
Subsequently the board proposed to allot 25pc of
this year's profit to capital augmentation. Araya
also suggested 60pc be distributed to the
shareholders with a dividend of 573 Br per share,
and to put aside the remaining 15pc of the profit in
2006/2007 fiscal year as special reserve. Araya
further recommended that the 15pc of the 2005/2006
profit that had been set aside in a special reserve
should additionally be used to upgrade the bank's
capital.
Shareholders agreed to accept all but one of Araya's
suggestions. Instead of using the money set aside in
the special reserve after the 2005/2006 fiscal year
for an additional capital increase, each individual
shareholder will decide whether to contribute their
share of those funds in return for additional stock,
or to take an extra dividend.
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