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Lion International Bank (LIB) reported a modest
increase in profit after tax of 43.7 million Br for
the 2010/11 fiscal year; a 10.4pc increase from last
year. However, the earning per share (EPS)
shareholders would receive decreased by 12.9pc t0
4.4 Br per value of 25 Birr shares.
This is due to the difference in the rate of
increase in profit and paid up capital, according to
Abdulmena Mohammed, accounts manager for Portobello
Group Ltd, a London-based holding company with
subsidiaries in property investments and
developments.
The paid up capital of the bank increased by 43pc to
292.7 million Br, while profits after tax by 10.4pc.
When measured on Return on Equity (ROE) and Return
on Asset (ROA), both numbers showed a decline. ROE
for the fiscal year declined to 12.4pc, which must
have been due to the big increase in paid up
capital, while ROA declined to 2.4pc, mainly due to
increase in total assets by 32.5pc, according to
Abdulmena.
“The increase in capital should at least bring a
comparable level of return with the existing
capital, otherwise the return of shareholders always
decline,” he told Fortune. “Lion is a highly liquid
bank with a strong capital base, for which the
management of the bank should design a mechanism to
better improve the returns of its shareholders.”
Lion’s capita, as measured by Capital Adequacy Ratio
(CAR), went up 53pc from 42pc the previous year,
which is almost seven times more than the minimum
8pc the central bank has set.
The president of the bank, Negussu Gebregzabhir, who
was appointed right before the fiscal year ended in
June, 2011, agrees with this.
“We understand that a lot has to be done in order to
reverse this situation,” he told Fortune. “Although
excess capital has a negative effect when it comes
to shareholders’ returns, it can also help the bank
in maximizing its profit in the future.”
Shareholders of the bank are expected to approve the
amount of money to be paid in dividends when the
bank holds its fourth annual shareholders meeting on
October 29, 2011. In the previous fiscal year, they
approved 20 million Br, receiving dividends for the
first time since the establishment of the bank in
2007.
For the bank, which registered a three million Br
profit after tax in the 2008/09 fiscal year and
managed to increase it by 970 pc to 39.6 million Br
in the subsequent year, this year’s performance of
the bank falls below the achievements of private
banks who have been around as long as LIB.
Oromia International Bank (OIB), which started
operation in October 2008, recorded 56.8 million Br
profit after tax (unaudited), 29pc increment from
the previous year, while Cooperative Bank of Oromia
(CBO), which began operation in 2005, managed to
increase its profit after tax by 95pc from 25
million to 48.8 million Br (unaudited) in 2010/11.
Despite being modest, the performance of the bank
was achieved in a challenging financial environment
for banks, according to Negussu.
“The windfall tax on banks and central bank’s
directive mandating us to buy government bonds using
27pc of all loans we give out has affected our
performance,” he told Fortune.
Despite the increment in loans and advances by 16pc
from 574.5 million to 666.5 million Br, the bank’s
loan-to-deposit ratio declined to 51.4pc from
56.5pc.
“This must have been due mainly to the investment in
government bonds amounting to 164.9 million Br,
“according to Abdulmena. “However, the modest
increment in loans and advances contributed
considerably to the increment in interest income by
34.4pc.”
LIB, which started operations with a paid up capital
of 176.6 million Br, managed to increase its net
income from interest from 36.7 million Br to 48.6
million Br.
Collecting such an amount of income from interest
under the circumstances might be the result of a
higher lending interest rate charged by the bank,
according to Abdulmena.
The bank president disagrees.
“The bank’s lending interest rate is always
determined by the interaction of supply and demand
in the market,” he told Fortune. “Therefore, our
interest rate is the same as other private banks.”
The bank enjoyed a 34.4pc increase in interest
income, which reached Birr 75.77 million Br, and
fundamentally contributing to the total revenue of
113.3 million Br. At the same time, Lion managed to
reduce the provision for bad loans and advances
significantly from 4.57 million Br to 324,000 Birr.
This has contributed an approximate 8.5pc increase
to the total revenue. |
