ethiopia’s banking sector · of their par value) were they traded on a competitive stock...

Ethiopia’s Banking Sector

RESEARCH & ANALYTICS

& ANALYTICS

Disclaimer: This report represents solely the views, analysis, and judgement of the Cepheus research team and does not necessarily reflect the views or opinions of the Fund’s Managing Partners, Advisors, or Investors.

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We take a deep-dive into Ethiopia’s banking sector and cover—across the following 70 pages—its macroeconomic contribution, recent performance, service offerings, regulatory environment, income sources, market structure, profitability rankings, bank-by-bank valuations, cross-country standing, and future outlook.

§ Macroeconomic Context: Ethiopia’s banking sector consists of 17 commercial

banks that—as of 2018—collected Birr 730bn in deposits (from around 33mn savers); provided Birr 733bn (33% GDP) of total credit; handled close to $10bn in annual foreign exchange trading; employed 90,000 workers; delivered attractive returns to roughly 115,000 shareholders; and contributed Birr 13bn in yearly taxes to the government (equivalent to roughly one-fifth of annual income tax receipts in recent years).

§ Recent performance: The banking sector has enjoyed high growth, high profits,

and high returns—almost without interruption—for over a decade. Growth over the past ten years has been a very high annual rate of 28 percent for deposits, 31 percent for loans, and 22 percent for profits. Contrary to popular perceptions of ‘excessive’ returns at Ethiopian banks, their average return on equity is actually not much different from banking returns seen in most emerging markets; the sector’s profits are 1 percent of GDP, unchanged from its share a decade ago.

§ Service offerings: Providing simple deposit accounts, loans, guarantees, and

Letters of Credit for importers have been the traditional service offerings of Ethiopian banks. Digital banking services have become more common in recent years, including ATMs, POS, online banking, and mobile banking. Other recent innovations include interest-free banking, consumer/diaspora loans (for mortgages, vehicles, personal use), and online payments services (e.g. for settling Ethiopian Airlines ticket charges). Looking ahead, we think new offerings will include credit card, capital market, and corporate advisory services.

§ Regulatory environment: The sector faces tight regulations in relation to

deposits (minimum interest rates), lending (mandatory purchase of NBE Bills equal to 27% of gross lending), and foreign exchange (a strict waiting list system to allocate fx funds based on NBE Directives of priority items). Regulations also govern bank activity in areas such as electronic banking, agent banking, external borrowing, and banks’ equity investments. Reforms underway or upcoming are addressing areas such as diaspora shareholding, collateral rules, leasing, and others; we summarize and tabulate both past and prospective regulations.

§ Income sources: Interest income is the dominant source of revenue at most

banks, but fees from fx trading and commissions are actually more important for about a quarter of private banks.

Ethiopia’s Banking Sector




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§ Market structure: The big giant in Ethiopian banking—CBE—enjoys a dominant 62 percent market share in terms of assets and deposits (not much changed from a decade ago). However, CBE’s market share fell to just below 50 percent of sector profits for the first time last year. Among private banks, Awash currently holds a commanding lead in first place, while Dashen, Abyssinia, CBO, and United, make up the rest of the top five by assets. We tabulate market share shifts for different metrics (deposits, loans, capital, profits), and find that the private banking sector has become more competitive and less concentrated over time.

§ Profitability rankings: We compile—from published annual reports—ten years

of earnings-per-share (EPS) data and rank banks by returns delivered to shareholders. Awash stands out as the clear leader in recent years; Dashen is on top when seen over a decade-long perspective; and Abyssinia, Zemen, and United make up the rest of the top 5 banks from a (long-term) shareholder perspective. Shareholder returns vary widely, from 15-20 percent per year at the newer banks to a high of 40-50 percent per year at the highest-yielding banks. For the sector as a whole, we calculate that Birr 100,000 invested ten years ago would on average yield Birr 1.1mn today; in dollar terms, one sees a 5.5x return over the past decade rather than the 11.1x return realized in Birr terms.

§ Bank-by-bank Valuations: Given the prospect of capital markets, we conduct an

illustrative valuation exercise based on three share-pricing methods: using price-to-earnings ratios, price-to-book ratios, and a target real rate of return. Setting all bank shares to a par value of Birr 1,000, we estimate that the prices for Ethiopian bank shares would range between Birr 1,300 to Birr 4,500 (1.3x to 4.5x of their par value) were they traded on a competitive stock exchange. The implied valuations at these prices suggests an aggregate market capitalization of Birr 71bn (around $2.6bn or 3 percent of GDP) assuming a full listing by all banks. Per the norm in most African stock markets, we think banks will make up the largest single sector (excluding state enterprises) in any prospective Ethiopian stock market.

§ Cross-country standing: Seen in relation to banks in comparable countries in

Africa and Asia, we find that Ethiopia’s private banks are: (1) much smaller in size; (2) very limited in their services; (3) heavily focused on lending instead of other income sources; (4) less burdened by bad loans; (5) carrying lower overhead costs; and (6) slightly more profitable—in ROE terms—than their peers.

§ Outlook: Based on our macroeconomic projections for key drivers of banking

growth (deposits and fx), we forecast the banking sector’s financial performance for the next three years. By our calculations, Ethiopian banks will—by 2022—roughly double their current deposit levels (to Birr 1.7 trillion or 40 percent of GDP); provide a nearly equivalent sum in total credit; handle close to $18bn in annual fx trading; generate a profit pool of Birr 49bn ($1.5bn); and deliver average shareholder returns—in Birr terms—of at least 25 percent per year.

Finally, we provide a data appendix, offering sector-wide statistics as well as five years of bank-by-bank performance metrics for all of Ethiopia’s private banks.



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SECTION 1: Recent Performance: A Macroeconomic Perspective Key points

§ Ethiopia’s banks have, from a macroeconomic perspective, played a pivotal role over the past decade in broadening financial access, raising national savings, and funding major public and private projects.

§ As important, banks have recently become major sources of employment, dividends, and taxes. § Despite these contributions, progress remains limited in several important respects—especially when

seen in the context of comparable countries and from the perspective of the local private sector needs. Context: Banking in Ethiopia is a sector with many contrasting forms and features: the sector is dominated by a government-owned entity (with a near two-thirds market share) and yet is also one of the most genuinely ‘capitalist’ segments of the economy (showing intense competition for customers, high executive compensation, activist shareholders closely tracking dividend pay-outs, and eager foreign suitors waiting for merger and acquisition opportunities); it is perhaps one of the economy’s most heavily regulated sub-sectors (thanks to close central bank oversight) but then also exhibits many laissez-faire elements (banks are free to charge what they want for loans or fx fees); it contains a big regional giant (with a $20bn-plus asset base) but is also full of tiny players; it is very traditional in its operations (with many old-fashioned, paper-pushing branches) and yet also shows flashes of ‘digital disruption’ in certain areas (mobile banking). With recent reforms raising the prospect of fundamental changes, Ethiopia’s banking sector generates much interest from investors and raises as many questions—which this research note attempts to address by covering its past, present, and future prospects. Recent record Broadening financial access: Ethiopia’s commercial banking sector currently consists of 17 banks (16 private, 1 public), a notable change from the single state-owned bank that functioned in 1990 and just 7 banks that were operating as recently as the year 2000.1 Relying on large-scale branch expansions, the rising number of banks have collectively broadened their geographic reach over the past decade, thus improving key access to finance indicators. Public and private banks increased their branch network from 571 ten years ago and 2,208 five years ago to 4,757 branches as of June 2018—substantially improving the population-to-branch ratio over the years, from a situation where each branch served 126,000 people back in 2008 to the current status where each branch is on average serving just 20,000 people (Table 1.1). In parallel, depositor numbers have jumped from 4 million in 2010 to 10 million five years ago to over 33 million today—equivalent to perhaps half of the adult population as of 2018 (Table 1.2). Accessibility is particularly improved outside the capital city, with 65 percent of branches now outside Addis Ababa versus 38 percent a decade ago. Looking at the financial accessibility provided by specific banks, as of June 2018, CBE alone retained 18.8 million customers through a service network that covers virtually all corners of the country (1,375 branches, 1,708 ATMs, and 11,796 POS machines) and multiple user channels (4.4 million card users and 1.7 million mobile banking customers). The expanding reach of banks is also seen among the private banks, with the largest private banks each now surpassing a network of over 380 branches, 2 million customers, above 300 ATMs, nearly 1,000 POS devices, and above 700,000 card users. Boosting national savings: With the rise in its geographic reach and by achieving higher penetration levels among the population, the banking sector contributed to a big jump in national savings, whether measured in deposit levels or in national savings as measured in the GDP statistics. Deposits are up 12x period from June

1 This research note covers Ethiopia’s commercial banking sector and thus does not include the Development Bank of Ethiopia or the country’s micro-finance institutions (MFIs).



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2008 to June 2018, rising from Birr 63 to 730bn, or 25 to 33 percent of GDP (Table 1.3). Domestic savings as measured in the national accounts statistics reached 24 percent of GDP in FY 2017-18 up from below 10 percent of GDP a decade ago (Table 1.4). At the same time, cash in circulation has fallen over the past decade, from 7 to 4 percent of GDP and 17 to 9 percent of banking assets (Table 1.5), which we attribute to the greater absorption of such cash funds into the banking system (rather than being held ‘under mattresses’ and in other informal ways). Credit to the economy: Commercial banks have increased their total credit to the public and private sector by about 12-fold over the past decade, from Birr 67bn to Birr 740bn (Table 1.6). The latter figures use a broad coverage of credit that includes financing provided by banks in the form of loans, bonds, or bills. Contributing to FX Earnings: Although not strictly fx-generating entities on their own, banks have contributed to raising the economy’s foreign exchange earnings by providing financing to exporters and by facilitating remittance, FDI, and other fx inflows. A big component of banks’ fx mobilization has been their participation in international money transfer networks that—collectively—provide close to $6bn in annual foreign exchange earnings to Ethiopia (through intermediaries such as Western Union, Money Gram, Dahabshill, Kaah, Transfast, worldremit, Xpress Money, and several others). Banks have also helped boost export inflows by providing exporters with pre-shipment loans, working capital funds, or long-term project loans in sectors such as coffee, oilseeds, live cattle, chat and others. Reflecting such financing support, and the collection of fx funds associated with it, commercial banks collectively intermediated about $10bn in fx inflows last year (2017-18), based on our estimate of $5bn to $6bn in fx inflows at CBE and near $4bn at private banks. Banks’ holdings of fx reserves, which captures their stock of fx balances at a given time (rather than the annual flows noted earlier), has risen over the years and reached close to $1bn as of December 2018, up from $338mn ten years ago (Table 1.7). Employment: Banks have become major employers in the formal economy, with a current employee count of close to 90,000 employees at all commercial banks. This is a nearly three-fold increase from ten years ago and a doubling from five years ago (Table 1.8). Annual net new job creations have averaged about 10,000 persons in the past five years. Banks are likely among the largest formal sector employers in the economy after government employment; available statistics for manufacturing employment, for example, show the highest manufacturing sub-sector (food and beverages) employs around 65,000 persons. Taxes: In parallel with their rapid growth, banks have become among the country’s largest taxpayers, collectively contributing Birr 13.3bn to taxes in the most recent fiscal year, equivalent to 14 percent of income tax revenues and 6 percent of all domestic revenue (Table 1.9).2 Their relative contribution to tax revenue was even higher if seen over the past five years, with an average of 20 percent of income tax revenue collected from banks during this period. All private banks are currently within the tax authority’s ‘Large Taxpayers Unit’ given the Birr 50mn revenue threshold applicable for such a designation. GDP and Growth: Banks’ contribution to GDP has doubled from 1.5 percent to 3.1 percent over the past decade (Table 1.10). Comparing its size in GDP to other sub-sectors, banking now has a GDP contribution that exceeds sub-sectors such as education (2.5% GDP contribution), hotels and restaurant (2.6%) and is not that far from those of real estate/renting (4.3%), public administration (4.5%) and large-scale manufacturing (4.5%).

2 We treat the full amount of CBE’s pre-tax profits as ‘taxes’ since, as a government-owned entity, all amounts it transfers to the government as taxes or ‘dividends’ or ‘surplus funds’ are equivalent to payment of taxes.



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Limitations Despite the many notable contributions summarized above, the performance of Ethiopia’s banks remains limited and lagging in several important respects: In particular, the banking expansion seen in Ethiopia is: (1) much more modest when seen relative to GDP and in comparison to peer countries; (2) has done more to improve proximity to the population rather than bring about active usage by the population; (3) has provided much stronger support for the public rather than private sector; and (4) has not yet provided the specific forms and features of financing to match local private sector needs.

• Nominal vs real growth: Despite strong nominal growth rates for many banking aggregates (deposits, loans, profits, assets), most of these have not grown as much as might have been expected relative to the size of the economy. Relative to GDP, for example, the increase in deposits (up from 23 to 33 percent of GDP) and in loans (up from 19 to 35 percent of GDP) is not as impressive as the nominal figures might suggest. Moreover, even after these increases, the relevant ratios show below-average ‘financial deepening’ when seen in the context of comparable countries: the broad money-to-GDP ratio (roughly similar to deposit-to-GDP but somewhat broader), for example, is 33 percent versus an African average of 37 percent and is below that of countries such as Kenya (37%) and South Africa (72%). With respect to the mobilization of foreign exchange as measured by reserves, while figures show a nominal increase from $0.3bn ten years ago to around $1bn at end-2018, it is worth nothing that this figure has remained flat relative to the size of the economy at 1.1% of GDP.

• Access versus usage: Despite their geographic expansion, Ethiopian banks have been more successful in improving their proximity to the population rather than usage by the population. Proximity to a bank is now no longer a major constraint to saving, as revealed by the Global Findex surveys, which showed that, in response to the question, “Why don’t you use a financial institution to save?” distance was no longer a major factor for most Ethiopians (only 13 percent found distance to be an obstacle).3 But even with improved physical accessibility, banks have not widely and significantly supplemented this—beyond offering basic deposit services—by providing users with other financial products such as loans, payment services (i.e., bill and merchant payments), digital facilities, or other offerings (Table 1.11).

• Distribution of Credit: On the credit side, the bulk of the funding provided by banks, or roughly two-

thirds percent, has gone to the public sector in recent years (Table 1.12).4 The share of credit going to the private sector was as high as 36 percent of total credit back in 2011-12 but has fallen even further to 32 percent as of June 2018. In some respects, the observed distribution of credit is only to be expected, given policymakers’ adopted economic model of using state banks and directed credit schemes to steer economic activity towards certain areas and not to others. Still, the scale of such directed credit schemes to the public sector has been to such an extent that Ethiopia’s credit to private sector-to GDP ratio now stands at just 11 percent of GDP—half of the 22 percent of GDP average seen among 20 largest African economies and in need of much improvement if a more private sector driven economy is to take hold in the coming years.

3 The main answers given by respondents when asked “Why don’t you use a financial institution to save?” were: “Insufficient funds” (56%); “Too far away” (13%); “Insufficient documents” (7%); “Cost of the service” (3%); and 2% each for “Don’t trust financial institutions” or “Religious Reasons”. See Global Findex database at the World Bank website. 4 Besides the compilation in Table 1.12, see also IMF’s Dec 2018 Article IV report, Monetary Survey, page 23, which shows outstanding credit to the private sector at Birr 238bn, or 32 percent, out of total domestic credit of Birr 733bn.



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• Forms of credit: Beyond the comparatively limited credit made available to the private sector, the specific forms and features of lending offered have not matched the needs and demands of most private sector businesses. In particular, bank loans tailored to SMEs, or carrying long-term maturities, or without stringent collateral requirements have all tended to be very limited, thus substantially holding back the potential user base among Ethiopia’s large pool of small and medium-sized enterprises.

Table 1.1 Commercial Bank Branches

Source: NBE

208 220 380 547 695 832 965 1,137 1,230 1,280 363 409

487606

8461159

1538

2017

26583162

571 629 867

1,153

1,541

1,991

2,503

3,154

3,888

4,442

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

No. of Branches

No. Branches CBE No. Branches Private No. Branches Total

Table 1.2: Depositor Numbers (Mns)

Source: NBE

4.0 4.5 5.6 7.1 10.2

13.0 16.5

20.3

26.7

33.5

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total Depositors at Commercial Banks (Mns)

Table 1.3: Total Bank Deposits (Birr bns-bar columns) and % of GDP (Line)

Source: NBE

78 99 141

187 237

293 367

438

569

730

0%

5%

10%

15%

20%

25%

30%

35%

-

100

200

300

400

500

600

700

800

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total Bank Deposits (Birr bns) and % of GDP

Total Deposits % of GDP

Table 1.4: Domestic Savings

Source: NBE

33 35

89

144 152

218

285

351

410

535

0%

5%

10%

15%

20%

25%

30%

-

100

200

300

400

500

600

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Gross Domestic Savings (Birr Bns-bar columns) and line (%GDP)

Gross Domestic Savings GDP

Table 1.5: Cash in Circulaiton

Source: NBE

6%6% 6%

5% 5% 5% 5% 4% 4% 4%

14%

15%14%

12%12% 13%

12%

11%

9% 9%

2%

4%

6%

8%

10%

12%

14%

16%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Currency in Circulation (Percent of Financial Assets and of GDP)

Cash in circulation (% GDP) Cash in circulation (%CB's Assets)

Table 1.6 Total Credit by Banks

Source: NBE

51

278

376

457

594

733

0%

5%

10%

15%

20%

25%

30%

35%

-

100

200

300

400

500

600

700

800

2007-08 2013-14 2014-15 2015-16 2016-17 2017-18

Total Credit by Banks (Birr bns) and % of GDP

Total Credit, Birr bns Total Credit, % GDP



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Table 1.7: FX Reserves of Commercial Banks

Source: NBE

338

552

1,042

881

1,046 1,000

584

767

912 921

1,118

2009 2010 2011 2012 2013 2014 2015 2016 2017 Jun-18 Dec-18

BANKS

Table 1.8: Employment Levels in the banking sector

Source: Banks' Annual Report. *No. of Emp (priv banks) for FY2009 was based on 3MA backward estimation

23 27 32 3744

558

19

23

28

34

35

31

46

55

66

77

90

0

10

20

30

40

50

60

70

80

90

2009 2014 2015 2016 2017 2018

No. Employees (Thousands)

No. employees (Priv) No. employees (CBE) Total employees

Table 1.9: Tax contribution of Commercial Banks

Source: Banks Annual Reports. * CBE figures are based profit before tax, as it is government owned

0.3 1.2 1.3 1.4 1.8 2.42.7

9.7

12.7 13.714.2

10.9

3.0

10.8

14.015.1

16.0

13.3

-1.0

1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0

17.0

2009 2014 2015 2016 2017 2018

Taxes paid (Birr bns)

Private banks taxes paid, Bi rr bn CBE taxes paid, Birr bn* Total taxes, Birr bn

Table 1.10: Banks' Contribution to GDP*

Source: Based on "Financial intermediation" line-item within the National Income Accounts

1.4%

3.0%

3.4%

2.5%2.8%

3.1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2009 2014 2015 2016 2017 2018

Banks' Contribution to GDP



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Table 1.11: Financial Access Indicators for Ethiopia

Ethiopia Kenya Uganda EgyptSouth Africa Nigeria

Account (% age 15+) 35% 82% 59% 33% 69% 40%

No account because "financial institution too far away" 13% 16% 30% 5% 12% 11%

No account because of insufficient funds (% age 15+) 56% 39% 59% 59% 24% 40%

Used the internet to pay bills or to buy something online in the past year (% age 15+) 1% 26% 9% 3% 14% 6%

Saved to start, operate, or expand a farm or business (% age 15+) 29% 37% 30% 4% 13% 30%

Saved at a financial institution (% age 15+) 26% 27% 13% 6% 22% 21%

Saved any money in the past year (% age 15+) 62% 70% 69% 31% 59% 62%

Borrowed to start, operate, or expand a farm or business (% age 15+) 4% 8% 13% 4% 6% 3%

Sent or received domestic remittances in the past year (% age 15+) 24% 67% 58% 20% 51% 51%

Paid utility bills: using a mobile phone (% age 15+) 0% 37% 10% 1% 7% 1%

Used a mobile phone or the internet to access an account (% age 15+) 0.4% 72% 47% 2% 21% 8%

Mobile money account (% age 15+) 0.3% 73% 51% 2% 19% 6%

Source: World Bank Findex Data for the year 2017.

Table 1.12: Credit Composition Across Sectors

Source: NBE

66% 65% 64% 64% 67% 67% 69% 68% 68% 68%

34% 35% 36% 36% 33% 33% 31% 32% 32% 32%

0%10%20%30%40%50%60%70%80%90%

100%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Credit Composition

Credit to Government & Public Enterprises Credit to Private sector



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SECTION 2: Recent Performance: A Shareholder Perspective Key points

§ Viewed from a shareholder perspective, banks have been sources of steady profits and dividends, while also offering a well-regulated investment opportunity within the domestic economy.

§ Underlying banks’ high growth and high profits has been an ability to successfully mobilize two key resources (deposits and foreign exchange) and to deploy essentially all of these resources with relative ease due to a macroeconomic environment of high demand for credit and foreign exchange.

§ Key operating metrics have also worked in the banks’ favour, most notably with respect to net interest margins, fx fees, and cost-to-income ratios.

A favorable backdrop for banking growth: The growth of Ethiopian banks has been propelled in recent years by a fast-growing macroeconomy that delivered nominal GDP growth rates of 20-25 percent per year (given average real GDP growth of 10 percent and 10-15 rates of annual inflation). In such an environment, banks have found it relatively easy to grow their balance sheet (deposits and assets) broadly in line with growth in nominal GDP, even without considering any extra market share gains amongst themselves. Maximum ‘capacity utilization’: Moreover, for a given stock of deposit and fx resources mobilized, banks have been able to effectively deploy virtually all of these mobilized resources thanks to an environment of high demand for credit and foreign exchange. For example, banks have in recent years managed to essentially lend out all deposits collected: more precisely the loan-to-deposit ratio at banks reached as high as 109 percent, after accounting for the 5 percent mandatory reserve requirement and the bond/bill holdings of CBE and private banks (Table 2.1). (The loan-to-deposit ratio can exceed 100 percent since banks can also lend out some portion of their capital base). On the foreign exchange side, all mobilized foreign exchange funds are able to be sold immediately given excess demand for foreign exchange and, precisely for this reason, inter-bank foreign exchange trading is virtually non-existent among banks as sales to end-customers can be immediately effected. The ability to quickly intermediate mobilized resources has thus been one key basis for banks’ strong growth. In short, while much of the manufacturing sector is, for example, seen to be suffering from low capacity utilization, banks have essentially operated for many years at or near their maximum ‘capacity utilization’ levels. Favorable operational metrics: Looking more closely at the sources of banks’ high growth and high profits, this has also reflected key operational ratios that have worked in banks’ favour for many years. The three most relevant operational metrics in this context have been banks’ net interest margins, fx-related fees, and cost-to-income ratios.

• Net interest margins: With average lending rates at 11.9 percent and average deposit rates at 4.5 percent, banks enjoy a spread of around 7.4 percent on average (Table 2.2a, 2.2b, 2.2c). The high lending rate reflects average loan rates of 14-18 percent for most (non-export) loans and rates of 8.5-10 percent for export or priority customers. On the deposit side, despite a minimum 7 percent interest rate that must be paid on savings deposits, the effective deposit rate paid by banks on their total deposits is actually 4.5 percent given their ability to attract non-interest paying accounts (checking deposits), which in 2017-18 comprised on average 27 percent of total deposits across private banks. For each Birr 1 billion in deposits mobilized, banks thus stand to earn close to Birr 75 million in net interest income (though this is reduced by a 5 percent reserve requirement on deposits and the mandatory purchase of NBE Bills for 27 percent of gross loan disbursements) (Table 2.2d).



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• Fx intermediation fees: Fees for opening Letters of Credits (L/Cs), which averaged 1 to 2 percent at most private banks about ten years ago, and 3 to 4 percent five years ago, are now between 6 and 7.5 percent at most private banks. Such fees are exceptionally high in a cross-country context, with the banks’ high pricing power arising due to tight fx conditions and excess demand for foreign exchange. Thus, on the fx side of banks business, for each USD 100 million in foreign exchange inflows collected from customers, banks stand to earn nearly Birr 200 million in non-interest revenue (though this is again reduced somewhat by regulatory requirements that call for a surrender of 30 percent of fx inflows to the central bank).

• Cost-to-income ratios: Low employee costs (especially when put in a global/regional context), the use

of typically simple branch facilities, limited IT expenses for most of the past ten years, and low NPLs/provisions have collectively allowed banks to maintain low cost-to-income ratios of just 41 percent in recent years, compared to the 60-65 percent ratio seen in most other African and emerging market economies (Table 2.3).

Taking into account the key operational metrics of banks more formally (via a Dupont Analysis), one observes that the biggest source of profitability has been provided by high net interest margins and low overhead costs. For the sector as a whole, the decomposition of their shareholder returns—or earnings per share—is as follows (Table 2.4):

• Income: Net interest income was—for 2018—equals to 4.9 percent of assets while non-interest revenue was just 3.7 percent of assets, giving a combined sum of 8.6 percent of assets from all income sources.

• Costs: Operational costs were low at around of 4.7 percent of assets on average for all private banks. • Provisions: Loan provisioning expenses were only 0.2 percent of assets, reflecting strict collateral

requirements and the ability of most banks to liquidate collateral holdings in case of NPLs. • Taxes: Tax payments were near 1 percent of assets (reflecting profit tax rates of 30 percent but lower

effective tax rates due to the impact of several non-taxed items such as holdings of NBE Bills) • Return on assets: Taking into account all of the above, profits after taxes amounted to 2.8 percent of

average assets. • Return on equity: As leverage (assets to total capital) was around 7.4x, this implied returns on average

equity of 20.2 percent (i.e. 2.8 times 7.4). • Earnings per share: Finally, given that total capital was 1.5x shareholders’ paid-up capital contributions,

the banks’ average ROE of 20.2 percent translates into a return on paid-up capital, or earnings per share, of 31 percent (i.e., 20.2 times 1.5). The earnings per share figure best captures the return to the funds actually invested by all shareholders.



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Table 2.1: Modified Loan to Deposit Ratio of Commercial Banks

Source: Banks' Annual Reports

86%

82%80%

83%

96%95%

100%

107%109% 109%

105%

75%

80%

85%

90%

95%

100%

105%

110%

115%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*Includes bonds/bills for numerator as well as 5% reserve requirement

Modified Loan-to-Deposit Ratio of Commercial Banks * Table 2.2a: Effective Lending Rate trends


15.3

10.2 10.5 10.4

11.9

10.0

11.0

12.0

13.0

14.0

15.0

16.0

2014 2015 2016 2017 2018

Effective Lending Rate (incl Bills)

Table 2.2b: Effective Deposit Rate trends


3.23.4

5.5

3.9

4.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

2014 2015 2016 2017 2018

Effective Deposit Rate Table 2.2c: Spread trends


12.0

6.8

5.0

6.57.4

3.04.05.06.07.08.09.010.011.012.013.0

2014 2015 2016 2017 2018

Spread

Table 2.2d: NIM trends


9.6

6.3

4.6

6.2

6.9

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2014 2015 2016 2017 2018

Net Interest Margin

Table 2.3: Cost to Income Ratio


41.0

41.7 41.7

44.9

40.9

40.0

40.5

41.0

41.5

42.0

42.5

43.0

43.5

44.0

44.5

45.0

2014 2015 2016 2017 2018

Cost/Income (Percent)



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Table 2.4: Dupont Analysis for Private Banking Sector

Dupont Decomposition 2013 2014 2015 2016 2017 2018Interest income to Assets 5.8% 6.2% 6.7% 7.3% 7.1% 8.4%Interest cost to Assets -2.3% -2.3% -2.5% -4.9% -2.9% -3.5%Net interest income to Assets 3.5% 3.9% 4.1% 3.2% 4.3% 4.9%Other income to Assets 4.8% 4.9% 4.7% 4.4% 4.3% 3.7%Total income to Assets 8.3% 8.8% 8.8% 7.5% 8.6% 8.6%

Operational costs to Assets -3.5% -4.3% -4.5% -4.5% -4.9% -4.7%Operational profit to Assets 4.2% 4.5% 4.3% 4.4% 3.7% 3.8%Provisions to Assets -0.5% -0.3% -0.2% -0.4% -0.3% -0.2%

Profits-Before-Tax to Assets 3.8% 4.2% 4.1% 4.0% 3.4% 3.6%Taxes to Assets -1.1% -0.9% -1.0% -0.9% -0.8% -0.9%Profits-After-Tax to Assets (ROA) 3.2% 3.3% 3.1% 1.7% 2.6% 2.8%Leverage ratio (Assets to total equity) 6.8 6.4 6.5 6.8 7.2 7.4Profits to Equity (ROE) 21.6% 20.5% 19.7% 20.3% 17.8% 20.2%

Total Equity to Paid-up Equity 1.7 1.5 1.6 1.5 1.6 1.5 Earnings Per Share, % terms 36.0% 31.2% 30.8% 29.5% 28.4% 30.6%

Source: Cepheus Research compilation based on Banks' Annual Reports



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SECTION 3: Service offerings: Key points

§ The traditional menu of product offerings at Ethiopian banks has included simple deposit accounts, conventional loan facilities, guarantees, and Letters of Credit for importers.

§ Thanks to some degree of service innovation over the past few years, banks have broadened the range of deposit and loan offerings, while also adding several electronic and digital banking services.

§ Looking ahead, we think new offerings could soon include—subject to regulatory reform—credit card, capital market, and corporate advisory services, alongside deeper entry into SME and consumer lending.

Traditional offerings: The traditional suite of offerings at Ethiopian banks has largely centered around three relatively simple and conventional banking products:

• Deposits: The standard package of deposit products has included checking accounts, savings accounts and time deposit (or Certificate of Deposit) accounts. Savings accounts must pay the minimum interest rates set by NBE, which was just 1 percent in 2006-07, rose to 5 percent during 2007-08 to 2016-17 and now stands at 7 percent since October 2018. Time deposit rates were in the range of 8-10 percent for most of the last decade but have now moved into the range of 10-12 percent within the last year at most banks. With few exceptions, checking accounts do not pay interest, though competition for deposits has led to some banks offer modest interest payments of 1-2 percent on checking account balances as well.

• Loans: Loan offered by Ethiopian banks have typically comprised one of the following: term loans (those with fixed repayment periods), merchandise loans (involving loans given against a stock of pledged merchandise offered as collateral by the borrower); pre-shipment loans (for exporters who require advances to process agricultural exports, e.g. coffee, sesame), and overdrafts (essentially a line of credit that companies can draw on up to a pre-agreed limit and for which they pay interest only on outstanding amounts). By sector, the focus of most bank lending, especially at private banks, has been on two categories—importers and domestic trade and services—that typically made up as much as half or more of most banks’ loan books many years ago, though greater allocations are now going to exporters and manufacturers, with the latter two now making up 27 percent of commercial bank loans. Contrary to popular perceptions, banks are free to offer loans without any collateral (there are actually no central bank restrictions prohibiting this), though by tradition, sheer inertia, and general risk aversion, most banks require collateral for most loan products.

• Guarantees: A third common product offering—and notable income sources—has been the practice of

offering bank guarantees, for fees of between 1 to 4 percent, to companies that need such bank-based financial guarantees for various business purposes such as participation in tenders, for assurances to their clients, for customs related transactions, and other similar cases. Guarantees are typically offered against collateral, and since they do not require underlying funds on the part of the bank (other than issuing a letter to the guaranteed party), they can be profitable business lines for those most banks.

More recent offerings: Recent innovations at banks have broadened their range of service offerings on both the deposit and credit side. Some of these new products are largely a re-packaging and/or re-branding of existing offerings, but there are also some new products that are beginning to provide some genuine added value and benefits to consumers (Table 3.1):



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• Deposits: In an effort to target specific consumer sub-groups and market niches, tailored deposit products have expanded significantly over the years. Among some of the special feature accounts seen in the market are those targeting specific groups such as women, youth, students, high-value depositors, diaspora, retirees or NGOs. Special interest rates or account privileges are typically offered on these ‘tailored’ deposits. For example, there are deposit accounts with special cash-back privileges (Dashen’s 1.5% cash bank for using its gold card), with airline miles accumulation benefits (United Bank’s Sheba Miles card), and with special cash pick-up/delivery services (Zemen Bank’s Z-Club accounts). In terms of account opening features, one recent innovation (by Addis International Bank) has included deposit accounts that do not require identification, but are based solely on biometric data such as the customer’s fingerprint and digital photo.

• Interest-free deposit offerings: Interest-free deposit services have been established in at least seven banks by our count and mimic Islamic banking services (though they are not referred to by that name). Banks offering such deposits include CBE, Awash, Dashen, Wegagen, OIB, Abay, United and CBO with their products carrying designations such as Wadiah, Mudarabah, Salam, Sharia, or Amana accounts.

• Loans: Innovations on the lending side have been more limited, but have included a few items in recent

years. ‘Islamic’ or interest-free lending products are one new innovation. Consumer loans, although still less than 5-10 percent of total loans, are also beginning to be offered at a growing number of banks—including for mortgages, vehicle loans, and other personal loans. Diaspora-focused consumer and investment loans are also becoming more common, used by banks to mobilize foreign exchange, and currently offered by United, Awash, CBO, BOA and others. Despite these small innovations, the bulk of the loan products of at most banks consist of conventional loan products: term loans, pre-shipment loans, and merchandise loans.

• Electronic banking: However belatedly, Ethiopian banks have joined the electronic banking revolution

seen globally in the past five years, with virtually all now offering some combination of digital banking services that includes ATMs, POS, internet banking, and mobile banking. As highlighted earlier, CBE alone has electronic banking offerings that include 1,708 ATMs, 11,796 POS machines, 4.4 million card-holders and 1.7 million mobile banking customers; some of the large private banks each offer as much as 300 ATMs, nearly 1,000 POS devices, and above 700,000 card users. Per NBE data, for the sector as a whole, as of end-2018 there were 4,220 ATMs; 7,203 POS devices; over 9 million debit card users; 5.7 million mobile banking users; close to 200,000 internet banking users. Some of the innovations seen in this area include: the interconnectivity established among all bank ATMs, via a common switch service named ET-Switch, that allows accountholders at one bank to withdraw funds at another bank’s ATMs; the ability to transfer funds, via online banking, to an account holder at another bank; the ability to withdraw cash at an ATM via one’s phone number and secret pin rather than use of a physical card; and the ability to send/receive money via mobile wallet offerings such as CBE’s ‘CBE Birr’ and Dashen Bank’s ‘Amole’ products.

Upcoming prospects: The scale of innovation in Ethiopian banking is likely accelerate in the coming years as banks seek to build market share within an intensely competitive domestic market, as they prepare for likely foreign competition, and as they begin to execute new strategy plans developed in the past few years with the support of global banking advisors and consultancies. We see the innovations occurring both in the consumer banking space as well as on the corporate/SME side of banks’ business lines. Among the areas likely to show the most innovation and activity are the following:



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• More SME lending: The limited allocation of funds given to SMEs has in recent years been recognized as the ‘missing middle’ part of the banking market unaddressed by conventional bank loans. However, with growing competition among banks, the rising number of SME firms, and an internal restructuring of many banks (following new strategy plans) to better tailor their services to SMEs, the allocations for SME financing should rise over the coming years. Specialized guarantee schemes and on-lending programs by foreign donors and financial institutions will also provide further impetus in this area, beyond what banks alone might have pursued without such an external push.

• More consumer lending: Current allocations to consumer loans are only 6 percent of total loans at

Ethiopian banks, while the comparable figure is closer to 20 percent at Kenyan banks and even higher shares at South African banks. We think banks could easily double their consumer lending allocations in the coming years, and some banks are already aggressively moving in that direction (Awash, Dashen and United, for example). Demand for such products will be boosted by rising urbanization and an increasing number of salaried urban employees for whom it is easy to set up direct salary deductions and thus limit probabilities of default. Affordability of such loans is a key issue that might hold back expansion in consumer lending, but if banks are able to offer consumer loans with lending rates in the low teens there should be sufficient demand that can be captured from a rising number of potential users. Offerings now seen in the market are already suggesting this trend, though for the moment this is limited mainly to ‘diaspora’ products which (given fx repayment expectations) offer rates of 8-12 percent at banks such as CBE, United, Awash and Dashen banks.

• Personal credit cards: Though a popular product in many emerging/developed country, and a profitable one for banks, credit cards are not presently offered anywhere in Ethiopia. Companies are provided with what may be seen as de facto credit cards, in the form of overdraft loans, that work very much like a credit card—involving a limit given to the borrower in advance, which the borrower can then use partially or fully while paying interest only on the outstanding balance amount. However, with a credit information bureau now in place at NBE for many years and an increasingly expanding pool of eligible borrowers (especially salaried workers), the prospect of personal credit card products tied to individual salary levels and credit history seems very much in prospect.

• Digital banking: Though the basic infrastructure to offer digital banking is now in place at most banks

(ATMs, POS, internet/mobile banking), the actual usage of digital channels to conduct a substantial share of banking and payment activities still remains limited. Account openings, loan applications, letter of credit applications and the like still tend to rely heavily of traditional paper-based application forms and registration requirements. A shift in many of these paper-centered activities towards ‘paper-less’ and digital/online channels is to be expected over the coming years—which should provide much ease for customers and the banks themselves. In other areas, digital connectivity could be maximized by allowing POS devices of banks to be inter-operable (currently ATMs are inter-operable but not POS devices), by enabling bank-to-bank money transfers via internet banking, and (perhaps most meaningful) by enabling bank-to-bank money transfers via banks’ mobile banking apps so that a user can send funds from his/her bank account directly to the account of a recipient at another bank.

• Payment services: Payment services, especially consumer-to-business payments, remain rudimentary

in many areas and the scope for improvement is large as cash dominates most transactions. Currently, businesses seeking to collect payments from individuals via online banking or mobile banking must happen to share the same bank as that of their customers—or must alternatively open accounts at



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multiple banks to capture as wide a range of payers as possible. Ethiopian Airlines, for example, allows for the making of ticket payments on its app by offering six bank options (CBE,Dashen, United, Awash, Wegagen, and Abyssinia) (Table 3.2). Ethio Telecom is reportedly soon to start allowing its customers to make direct payments to its accounts, which will require that it set up accounts at all commercial banks. To allow faster progress in this area, enabling bank-to-bank money transfers via mobile banking apps would allow consumers to pay merchants irrespective of the latter’s bank. Broader regulatory reforms could also bring major improvements in this area: for example, merchants cannot currently issue VAT receipts electronically (a physical print-out must be generated and given to the customer), but once this reform is in place, merchants can receive payments via mobile payments and then provide customers valid electronic receipts.

• Capital market and investment banking services: The advent of capital market services will mean that banks will have the opportunity to assist companies issuing bonds (debt capital markets) and those issuing shares (equity capital markets). The work in this area would involve: preparing companies for their bond and/or equity issues (e.g., helping them become ‘investor-ready’, putting together their pitch books); helping find ready investors (often from among savers who are already the banks’ clients); absorbing some share of the debt/equity issues involved (should some portion of it not be absorbed by the market); and executing the transactions involved in terms of payments, record-keeping, and other regulatory/depository requirements. Banks typically may earn fees of 1-3 percent of the bond/equity sale for such services and, if our estimates of possible debt and equity capital markets is roughly correct, then the income opportunity involved for banks may be in the range of Birr 2.7-8.1bn over the course of the first three years.5

5 See Cepheus Capital’s 2019 Macroeconomic Handbook, Chapter 8, Table 8.1 which estimated that an Ethiopian capital market may grow to a size of Birr 211 to Birr 332 bn in the first three years, or a mid-point of Birr 271bn.



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Banks Deposit products Loan products E-banking Other Awash Smart Children account Merchandise loans Mobile banking Diaspora banking

Student Solutions account Overdrafts Internet banking Interest free banking (Wadiah,Mudarabah, Salam(Bay’As -Salam), Istisna,

Salary Drawing Solution account Import LC Agency banking Financial advisory services for corporates Investment Solution accountProvident Fund Solution account Non resident accounts Foreign currency accounts

Dashen Special Youth scheme Agricultural loan, manufacturing loan, Amole (omni-channel payment platform)

Gold Card (Cash back of 1.5% of the transaction)

Hybrid account Import/export loan, trade & service loans Internet banking Interest-free banking (Sharia)Student account Building and construction loansInterest plus accountSalary account

United Diaspora deposit account Short-term loan Broadband Local Money Ethiopian Airlines and United Bank have Saving Account Overdraft Hibir mobile banking Hebir-ETFixed time account Letter of credit Internet banking Interest free banking serviceForeign currency deposit Merchandise loan

Pre-shipmentAdvance on export billsLetter of GuaranteeDiaspora loan account

BOA Deposit account Various loan offerings Internet banking Demand (non-interest bearing account)Special saving account Mobile banking

Lion Deposit account Syndicate Loan Anbesa-Hellocash Booking bus and Cinema tickets Certificate of deposits account Loan Buyout Children trust or minor account Partial Financing

Agricultural term loanConstruction machinery loan

Wegagen Diaspora saving Personal loan account Retail internet banking Oracle Flex CubeAgar, Goh, Admas,& Nigat saving Diaspora Mortgage- Non resident loan Corporate internet banking Interest free banking(wadia, kerd)

Zemen Doorstep banking services Term loan Multichannel banking Pre-paid cardsPersonal banking Merchandise loan Internet banking Gift cardsPrestige banking Equity lines & loans Payroll cardsZ-club banking

OIB Diaspora account Various loan offeringsInternet banking

Interest free banking(Wadia,Amana Current,Labbaik Wadia,Mudarabah

CBO Diaspora banking Diaspora consumer loans Internet banking WadiahSinqe Women’s Saving Cooperative financing Mobile and SMS banking Labbaik ECX Related Accounts Ijaraha Financing, Salam, Istisna, Kafala Mudharabah

Enat Childerens Account Business loans Enat financial advisory servicesSaving account for golden age Consumer loans Hybrid savings Women special loan women saving accountCollateral saving

Buna Fixed time account Various loan offerings Mobile banking Pre-paid cardForeign currency deposit Debit cardGold Checking Account Money market account Investment deposit account Negotiable order of withdrawal account Salary drawing

Berhan Retention foreign currency account Durable consumer loans Mobile banking Provident fund management (better interest Diaspora foreign currency account Non durable consumer loansNon residents transferable accounts Motor vehicle consumer loans Non residents non transferable Corporate loans

Abay Childeren, youth and women saving Term loan Mobile banking Interest free banking Overdraft and revolving loan Internet bankingDiaspora investmet loan

Addis Children account Term loan Mobile banking Special saving accountStudent/education account Revolving credit Consumer goods purchased account

Debub Children, Golden age accounts Various loan offeringsYouth saving account

Table 3.1: Service Offerings

Source: Information from bank's websites or annual reports based on Cepheus research compilation; note that offerings are not exhaustive if full services not listed on websites/reports.



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Table 3.2: Screenshot of a Sample of Payment Systems Ethiopian Airlines Payment Page

CBE's "CBE Birr"Lion Bank & Hello Cash

Dashen Bank's "Amole"



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SECTION 4: Regulatory Environment Key points

§ As is the global norm, banking is heavily regulated by the central bank (NBE) across key business lines and especially with respect to deposit-taking, lending, and foreign exchange activities.

§ Regulations also govern areas such as leasing, investments, electronic banking, and agent banking. § A more flexible regulatory framework is likely to emerge over a medium-term horizon, with recent

and upcoming reforms pointing to a loosening of past rules in areas such as foreign (diaspora) ownership, collateral requirements, fx transactions, capital goods leasing and foreign borrowing.

Regulatory framework: Banking in Ethiopia is governed by an overarching banking law, the Banking Business Proclamation (Federal Negarit Gazeta Proclamation 592/2008) that has been in place since August 2008 and that confers to NBE the full range of powers of a banking regulator. This Banking Business Proclamation addresses mandatory requirements with respect to: (1) the licensing of new banks; (2) share registry and shareholders; (3) Director and senior management qualifications; (4) banks’ financial obligations and limitations; (5) financial record-keeping and audits; (6) disclosure and inspection; and (7) other miscellaneous areas. The Proclamation also designates that detailed Directives shall be regularly put out and revised as deemed appropriate by the central bank (NBE) in all of the above areas. Main banking Directives: In line with the Banking Business Proclamation, the NBE has over the years issued dozens of Banking Directives and Circulars that specify rules and regulations across all key areas of banking operations (Table 4.1). Among the notable requirements having a bearing on banking operations are the following:

• Minimum capital: Birr 500mn is the formal paid-up capital requirement, though banks’ have been advised to reach Birr 2,000mn ($70mn) by 2020.

• Capital adequacy: 8 percent capital adequacy requirement, on a risk-weighted basis • Liquidity requirement: 20 percent liquidity requirement • Minimum interest rate: Minimum savings rate interest payment of 7 percent (since October 2017) • Reserve requirement: 5 percent reserve requirements on all deposits • Single borrower limit: Credit limits that cap single borrower exposure to 25 percent of capital • NBE Bill purchase requirement: Private banks face a requirement to purchase NBE Bills equivalent to 27

percent of gross loans disbursed (with the Bills having a 5-year maturity and 5 percent interest rate). • Equity investment limitations: While banks may make equity investments into businesses, such

investments cannot exceed 10 percent of a bank’s net worth and no more than 20 percent of investee’s capital; a bank’s aggregate equity investments also cannot exceed 50 percent of its net worth.

• Net FX open position limits: 15 percent net fx open position requirement (banks cannot—at the end of each business day—hold net long or net short fx positions at their correspondent banks of more than 15 percent of their capital).

• Foreign exchange allocation rules: Foreign exchange allocations based on wait-list system and a ranking of priority sectors as specific by the NBE. Among the priority sectors are, in order, the following sectors/products: (1) fuel and medicines; (2) inputs for agriculture and for manufacturing; and (3) motor oils, agricultural inputs/machineries, pharmaceutical products, spare parts for manufacturers, baby foods, spare parts for construction machineries, educational materials, profit/dividend transfers, local sales of foreign airlines, and share sales of existing FDI companies.



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Regulatory outlook: A reform and loosening of regulatory requirements in several areas is anticipated in the coming years. Per publicly announced statements, the NBE has indicated that it is reviewing many elements of past regulations with a view to making modifications, improvements, and revisions across different areas. A Financial Sector Road Map that is under preparation (with World Bank assistance) is likely to address many of these regulatory reforms. Some of the key anticipated areas of reform are itemized in Table 4.2. Regulations concerning foreign bank entry: Among the most anticipated areas of regulatory reform is, of course, the issue of foreign bank entry into the Ethiopian market. Some key considerations and prospects in this area are summarized below:

• Timing: In recent years, the consensus view heard from policy-makers has been that the entry of foreign banks is only a matter of time (i.e., just determining ‘when and not if’) but indications of timing have not been spelled out even in recent rounds of reform announcements. Recent liberalization initiatives and the re-activation of Ethiopia’s efforts to join the WTO suggest that the opening of the financial sector is likely to come sooner rather than later. Current financial sector reviews are likely to be addressing the timing of such an opening, but there are no indications that any dates are yet set. Our best guess is that this might happen sometime during or soon after 2021.

• Preconditions: However, for foreign entry to occur, an important current regulation will need to be revoked or modified. At present, private banks cannot have any single shareholder holding more than 5 percent of a bank’s share, a regulation which would thus require modification if a foreign bank with a (single) institutional shareholder is to be allowed to fully set-up or acquire a local bank.

• Potential entrants: With respect to potential entrants, some of those who have expressly indicated interest or are likely to consider entry include banks from Kenya (Equity Bank, KCB, Cooperative Bank of Kenya), Pan-African banks (Ecobank), South African banks (Standard Bank), and also potentially Egyptian, Moroccan, and Middle Eastern banks. Several of these institutions have already set up representative offices in Addis Ababa, and are likely to be the first-movers following any regulatory opening.

• Form of entry: We think that buyouts of one or more private banks would be the most likely form of entry, rather than the establishment of new operations, implying that existing private banks (those considered most attractive to foreign buyers) are likely to be targets for mergers and acquisitions.

• Impacts and expectations: As highlighted in our Macroeconomic Handbook, we do not think the entry of foreign banks is, by itself, as critical a reform measure as it is often made out to be. Foreign banks would bring in foreign exchange funds as part of their capital injections to start operations (or buy-out existing shares) but these amounts are generally limited to the minimum capital requirements (Birr 2bn or $70mn) and some possible additional premiums paid to existing shareholders. Such amounts are not in any way significant sums from a macroeconomic perspective. In addition, after starting operations, foreign banks will subsequently start funding their activities (lending or providing foreign exchange) from their local operations, which will thus see them competing actively alongside 17 other commercial banks to acquire customer deposits and attract fx-generating clients. Foreign banks may potentially offer better services, better facilities, and perhaps more efficient management systems, but their presence or absence on its own will not bring improvements in credit or foreign exchange availability (whose improvements, it must be noted, ultimately depend on underlying conditions for private sector growth, regulatory reform, as well as sector-specific initiatives that boost long-term fx supplies).



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Table 4.1: Banking Regulations

Area Number Applicable area and regulation's main content/requirementBanking Business SBB/43/2008 Banking establishment: NBE approval and licensing is required to conduct any banking business transactions in Ethiopia

SBB/50/2011 Minimum capital: Paid up capital requirement of Birr 500 million (to be Birr 2bn as of June 2020)

SBB/50/2011 Capital ratios: All licensed banks shall at a minimum maintain capital to risk weighted assets ratio of 8% at all times

SBB/55/2013 Reserve requirement: All banks should maintain their reserve account of 5% all the Birr and foreign currency held in the form of deposit

SBB/12/1996 Permissible activities: Banks are prohibited from engaging directly in non-banking businesses such as agriculture, industry, and commerce.

SBB/65/2017 Investment by banks: No bank shall commit more than 20% of its net worth in real estate acquisition and development other than for own business

premises with out prior approval of the National Bank of Ethiopia; The aggregate sum of all investments at any one time (excluding investment in

government securities) may not exceed 50% of the bank’s net worth, with out prior approval by the National Bank of Ethiopia; No bank shall engage

in insurance business but may hold up to 20% in an insurance company and up to a total of 10% of the banks equity capital in such business.

Governance SBB/62/2015 Bank Corporate Governance: Specifies rules for (1) Bank Board size, selection, composition; (2) Shareholder Meeting requirements; (3) CEO

requirements; (4) Board sub-committee requirements, especially for Audit, Risk, and Human Resources Sub-Committees; (5) Manuals that need to

be in place for 18 mandatory areas: credit, human resource management, investment, domestic and foreign banking operation, liquidity

management, internal audit/control, MIS, planning and budgeting, finance, risk management, fixed assets, corporate governance, detection and

prevention of criminal activities, outsourcing, disclosure, communication, procurement, fraud monitoring.

Foreign exchange FXD/57/2018 FX Allocation and Management: Specifies internal management systems to be in place for fx allocations at banks. Also specifies the priority sectors

to receive fx allocation at banks: (1) fuel and medicines; (2) inputs for agriculture (seeds, fertilizers, pesticides, chemicals) and for manufacturing

(raw materials, chemicals); (3) motor oils, agricultuarl and industrial parts; spare parts; baby food; educational materials; profit and dividend

transfers; airline sales; FDI share sales and capital exits

FXD/54/2017 FX Surrender Requirements: Requires banks to surrender 30% of their fx inflows to the NBE on a monthly basis

FXD/47/2017 Obtaining foreign loans and supplier's credits: Specifies eligiblity, which is restricted to exporters and fx-generating entities only; prior NBE approval

is required; interest rate restrictions apply (LIBOR plus 2% for loans with maturities below three years; LIBOR plus 3% for loans between three to five

years; LIBOR plus 3% for loans above five years)

FXD/56/2017 FX Cash Notes and International Credit Cards: Specifies entities allowed to accept fx cash notes hotels: duty-free shops, immigration, aviation

authority, airline ticket offices and travel agents, tour operators, airport shops, licensed guest houses, private airways, specialized hospitals/clinics

servicing foreigners). Also specifies rules for the handling of foreign debit/credit cards by local banks and local merchants.

FXD/58/2018 Remittance requirements: Specifies rules governing the handling of (inward) remittance inflows (required contracts and licenses) and restricts

acceptance of remittances to only Ethiopian banks and the Ethiopian Postal Service

FXD/25/2004 FX-related rules: Payments for exports and imports can be made by letter of credit, cash against documents, advance payment, etc

Exporters are allowed to open a retention account to hold a specified amount of their export earnings for a defined period and use their forex

holdings for their export business promotion. A credit guarantee scheme is also made available to exporters to back the export sector

FXD/07/1998 FX Transfers: The exchange regulations permit transfers for various services, including money drawn from Non-Transferable Accounts, Non-

Resident Foreign Currency, Non-Resident Transferable Birr (NRT), Non-Resident Non-Transferable (NRNT). Exchange transactions also allow salary

remittance by foreign employees, insurance payment, re-transfer of unutilized foreign currency holdings, etc.

FXD/25/2004 FX Account Privileges: Non-resident Ethiopians and non-resident foreign nationals of Ethiopian origin are permitted to open a foreign currency

account at any authorized commercial bank in four major international currencies with a limited amount that shall be deposited in current account.

The deposits shall earn interest based on the arrangements made with commercial banks.

Retention account: exports are allowed to retain 30% of the foreign exchange earning for indefinite period of time and the remaining 70% will be

converted to local currency within 28days

FXD/49/2017 Permissible fx amounts upon entry: Any resident entering Ethiopia from abroad shall declare its possession if it holds more than 1000 USD. The

minimum USD rises to 3,000 if such person is non-resident. Any resident carrying foreign currency shall convert the currency in an authorized bank.

Non-residents can possess the foreign exchange until the validity date of their visa.

Credit SBB/3/95 Single Borrower loan limit: the aggregate loan or extension of credit by a bank to any one borrower, shall at no time exceed 25% of the total capital

of the bank

SBB/69/2018 Loans vs Capital: Bank should report to NBE loans that exceed 5% of their capital

E-Banking FIS/01/2012 Electronic banking: Mobile banking services include deposits and withdrawals through electronic means as well as facilitating payment and money

transfer. Sets rules on maximum transfer amounts and other operational requirements.



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Table 4.2 Areas of Recent and Likely Reforms

NBE Establishment Per press report, NBE's establishment proclamation is expected to be amended to provide NBE with additional mandates in the establishment of a secondary market for government securities and/or stock market, and to modernize the authority and responsibilities of the central bank.

Financial Institutions proclamations Reforms are also likely to amend different banking insurance, and microfinance institutions proclamations to encourage deeper financial and private sector development

Remittance Directive Reforms expected to facilitate increased remittance inflows into the country

Capital Goods Financing Revised capital goods lease financing proclamation has loosened regulatory requirements, including: by easing restrictions, by allowing foreign companies to use their foreign currency to finance the import of capital goods; enabling borrowing of funds from a foreign source to import the goods for thier firm; setting single lease limit to a maximum of 2.5 percent of hte total capita lof the leasing company.

FX Transactions NBE has slightly improved it's regulation on fx transaction to be undertaken inside industrial parks (i.e a firm selling to another firm within the industrial park can now collect its sales in dollars) and in other parks as well.

FX Retention Accoounts NBE mofified the fx rules for retention account holders by allowing them to sell their fx funds by negotiation-at up to or equal to the selling rate; this gives exporters an extra 2 percent higher rate if they sell fx at the selling rate. Also exporters can keep 30 percent of thier fx inflows indefinetly (previously 10 percent), while surrendering the remaining 70 percent if not used in 28 days.

Financial Opening NBE prepared and Council of Ministers has approved a Directive that allows Ethiopian diaspora to be able to invest in the finacial sector.

Others · Loosening of collateral requirements.· Flexibility in allowing foreign borrowing by banks.



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SECTION 5: Income sources Key points

§ Interest income is the dominant source of revenue at most banks, and among those particularly reliant on this income source were CBE, Abyssinia, NIB, Awash, and United.

§ By contrast, about a quarter of private banks (Zemen, DGB, Enat, Addis) relied more heavily on non-interest sources of revenue, reflecting fees earned from fx trading, guarantees, and other charges.

§ On an aggregate basis, net interest income made up less than half total income as recently as five years ago. But due to its faster growth in recent years, net interest income now makes up almost two-thirds of private banks’ revenue pool, or Birr 15.5bn out of Birr 25 bn.

Revenue sources: Split by two broad categories, the revenue sources of Ethiopian banks are comprised of: (1) interest income received from loans/bonds; and (2) non-interest income derived from items such as opening import Letter of Credits, guarantee services, fx trading plus revaluation gains, and fees for services such as cheque books, ATM cards, and money transfers. As of FY 2017-18, net interest income provided Birr 15.5bn of revenue (62 percent) while non-interest income amount to Birr 9.3bn (38 percent) (Table 5.1). Seen over time, private banks’ revenue base has in recent years shifted towards interest income rather than other non-interest sources; only 46 percent of revenue was derived from net interest income five years ago, but this is now 62 percent (Table 5.2). Interest income: Interest income (expressed on a net basis, i.e. interest income less interest expense) has risen nearly five-fold from Birr 3.2bn five years ago to Birr 15.5bn last year. The rapid growth in (net) interest income reflects banks’ rising loan balances, which are up from Birr 44bn to 178 bn over the past five years. The growth in the volume of loans has offset the moderate decline in effective lending spreads on loans, which are down from about 12 percent to 7.4 percent at private banks. The fall in spreads reflects the decline in effective lending rates which, in turn, reflects the rising share of NBE bills in total interest-earning assets (NBE Bills now make up 20 percent of total assets at private banks and are earning an interest rate of only 5 percent). Non-interest income: Non-interest income has reached Birr 9.3bn last year, but shown much slower growth than net interest income in recent years. This slower growth likely reflects the slower growth in banks’ fx business compared to the lending side of banks’ operations. Calculated relative to assets, non-interest income shows a yield of 3.2 percent last year, i.e. indicating the return received from all non-interest sources relative to the banks’ balance sheet. Looking closer at the sources of the Birr 9.3bn in non-interest income, we find that two-thirds reflect fees and commissions (~20% from Letters of Guarantee and at least 10% from Letter of Credit charges), and that the remaining one-third is other operating income (of which fx revaluation gains make up at least 14%). Bank-by-bank views: Observing bank-by-bank revenue sources, interest income makes up the majority of the revenue at 12 out of the 16 private banks. Among those heavily reliant on this income source (for at least two-thirds of revenue) were Abyssinia (75%), NIB (74%) , Awash (69%), and United (67%) (Table 5.3). On the other end of the spectrum, four banks earn more revenue from non-interest sources, including Zemen (61%), DGB (61%), Enat (60%), Addis International (57%) (Table 5.4).



25

Table 5.1: Banks' Income Trends Overtime


4.3 5.7 6.3

10.0

15.5

4.7 5.7 6.4

8.4

9.3 8.9

11.4 12.7

18.4

24.8

2.0

7.0

12.0

17.0

22.0

2014 2015 2016 2017 2018

Banks' Income Trends Overtime (Birr bns)

NII NIR Total Revenue

Table 5.2: Composition of Revenue: Interest Income and Non-Interest Income


48%

50% 50%

54%

63%

52%

50% 50%

46%

37%36%

41%

46%

51%

56%

61%

2014 2015 2016 2017 2018

Composition of Revenue: Interest Income and Non Interest Income

Net Interest Income NIR



26

Table 5.3: Interest Income Share in Revenue


39

40

4350

54

5860

6264

65

6667

6974

75

30 35 40 45 50 55 60 65 70 75 80

Debub

Enat

AddisOIB

AbayWegagen

Dashen

BerhanBunna

CBOLion

United

AwashNIB

Abyssinia

Interest Income Share in Revenue (%)

Table 5.4: Non-Interest Income Share in Revenue


25

26

31

33

34

35

36

38

40

42

46

50

57

60

61

61

20 25 30 35 40 45 50 55 60 65

Abyssinia

NIB

Awash

United

Lion

CBO

Bunna

Berhan

Dashen

Wegagen

Abay

OIB

Addis

Enat

Debub

Zemen

Non-Interest Income Share in Revenue(%)

Non Interest Revenue



27

SECTION 6: Market dynamics Key points

§ CBE is the market leader across virtually all key metrics—with a market share of 62 percent for assets and for deposits, 66 percent for loans, 50 percent for capital, and just under 50 percent for profits.

§ Among private banks, the market share leader—whether by size or profits—has shifted just once over the past decade (from Dashen to Awash), while some newer banks (CBO, OIB) have moved themselves into the ranks of the six older banks with respect to assets or profits.

§ The private banking sector has become more competitive and less concentrated over time, with market shares held by the top 3 and top 5 private banks now much lower than five years ago.

CBE market share: The CBE’s dominant market position is seen across all key financial metrics, with its share as high as 66 percent for loans, 62 percent for deposits, 50 percent capital, and just under percent for profits (Table 6.1). Looking at trends over time, we find that CBE has—over the past five years—expanded its market share in capital and fx, but at the same time experienced a reduction in market share in profit, deposits and loans. Looking specifically at profit market shares across the industry, we find that private banks have (collectively) surpassed CBE for the first time ever last year, registering Birr 10.5bn in aggregate profits versus CBE’s Birr 10.3bn. Market shares among private banks: Private banks’ market shares have tended to be stable across most categories, but with notable shifts by certain banks within certain metrics, as shown below. Two broad groups are notable among the private banks, namely the “older six banks” (each around 20 years or older) and the “newer 10 banks” (each around 12 years or younger). The “older six banks” are comprised of Awash, Dashen, Abyssinia, NIB, United and Wegagen, while the “newer ten banks” are CBO, Lion, OIB, Zemen, Berhan, Bunna, Abay, Addis, Enat and DGB (with the latter two being the most recent entrants at less than 5 years old). (See Tables 6.2 to 6.5 and Charts 6.2 to 6.5)

• Deposits: A notable feature of the market share dynamics for deposits has been the leading bank’s (Awash) ability to consistently hold on to its near 16 percent market share over the past five years, despite intense competition and declining market shares at other older banks. At the same time, the biggest gainers in deposit market share have been made by newer banks such as CBO (3.3 percentage points increase over the past five years), OIB (1.7 percentage points), and Berhan (1.7 percentage points).

• Loans: Market shares in the lending have broadly mirrored those in deposit market shares, with Awash again retaining a near 17 percent share, declines seen in market share of several other older banks (Dashen, NIB, United, and Wegagen) and gains of at least 1 to 2 percentages point recorded by newer banks such as Berhan, Buna, CBO and Lion.

• Capital: Market share changes among banks’ capital shows a decline in the older banks market share

from 63 to 58 percent, with this being reflected in market share gains of 1 to 2 percentage points for Abyssinia, Berhan, OIB, Bunna, Abay and Enat.

• Profits: Among the two main groups, profit market shares have shifted substantially—by ten percentage

points—from the older six banks towards the newer ten banks. The most impressive jumps in profit market share among private banks are seen at OIB (from 4.4% to 9.0% profit market share over five years), Abay (from 1.6% to 4.0%), Lion (from 2.7% to 4.6%) and Bunna (from 2.3% to 4.1%).



28

• Foreign Exchange: We compiled fx inflows data for banks based on amounts stated in their annual

reports (if disclosed) and information received from bank surveys (Table 6.6). On this basis, we find and/or estimate that the banks with the largest fx inflows are Awash and Dashen banks ($500-600mn in fx inflows each in 2017-18); followed by Abyssinia, Zemen, Wegagen and OIB ($300-$400mn each in annual fx inflows); CBO and United ($200-$300mn each); NIB, Abay, Bunna, LIB, and Berhan ($100-$200mn each); and Addis International, Enat, and DGB (below $100mn each). We thus estimate fx market shares of 14-15 percent each for Dashen and Awash banks, and fx market shares of between 8-10 percent each for Abyssinia, Zemen, Wegagen and OIB.

Looking at lending categories, we also review sector specific market shares based on loans provided to particular economic sectors. We find the following market share leaders for particular loan categories (Table 6.7): Agriculture (Dashen Bank, 20% market share of private banks’ agriculture loans); Industry (Dashen Bank: 16.9%); Exports (Awash: 16.8%); Imports (Awash: 19.3%); Domestic Trade (Awash: 19.3%); Consumer loans (Dashen: 16.1%). However, as banks do not all report their lending categories in a similar manner, these figures should only be taken as approximate market shares. For further information on banks’ sector lending patterns, data on each bank’s loan book composition is also provided in Table 6.7a. Concentration and Competition: With respect to industry concentration trends over time, we track four key indicators (deposits, loans, capital, profits) and find that there is now considerably less concentration than was the case five years ago. Split by the ‘older six banks’ and the ‘newer ten bank’ the market share of the older six is down by 17 percentage points for deposits, 9 percentage points for loans, 9 percentage points for capital, and 11 percentage points for profits. Taking a measure of concentration that looks at market shares held by the Top 5 banks, we find that there is less industry concentration over time: the top five private banks held 82/80/74/82 percent of deposits/loans/capital/profits about a decade ago but now hold just 53/56/53/41 percent market shares respectively (Table 6.8). A similar review of just the top three banks also shows declining concentration ratios in their asset, deposit, and profit market shares—from around 45-48 percent towards 38-40 percent—and thus is indicative of more competitive pressures within the private banking system in recent years.



29

Table 6.1: CBE Market Share (%)

Source: CBE Annual Reports (up to 2015-16) and CBEwebsite for last two fiscal years.

71.9%

70.5% 70.9%

68.7%

65.7%

62.0%63.0%64.0%65.0%66.0%67.0%68.0%69.0%70.0%71.0%72.0%73.0%

2014 2015 2016 2017 2018

Loans

67.6% 67.3%

61.2%

64.4%

61.9%

56.0%

58.0%

60.0%

62.0%

64.0%

66.0%

68.0%

70.0%

2014 2015 2016 2017 2018

Deposits

37.5% 38.2% 38.1%

56.2%

49.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2014 2015 2016 2017 2018

Capital

67.2% 70.0% 70.3%65.1%

49.6%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2014 2015 2016 2017 2018

Profit



30

Awash 16.3% Awash 15.7% Awash 15.6% Awash 15.2% Awash 15.6%Dashen 19.2% Dashen 16.8% Dashen 15.5% Dashen 13.8% Dashen 12.9%Abyssinia 9.9% Abyssinia 9.4% Abyssinia 9.3% Abyssinia 10.3% Abyssinia 9.3%Wegagen 9.1% Wegagen 8.7% Wegagen 8.1% Wegagen 7.7% Wegagen 7.4%NIB 8.6% NIB 8.3% NIB 8.5% NIB 8.1% NIB 7.8%United 9.7% United 9.5% United 8.9% United 8.8% United 8.3%CBO 5.9% CBO 6.2% CBO 5.8% CBO 7.1% CBO 9.3%Lion 2.9% Lion 3.8% Lion 4.3% Lion 4.3% Lion 4.2%Zemen 3.3% Zemen 3.2% Zemen 3.7% Zemen 3.6% Zemen 3.7%OIB 5.4% OIB 6.8% OIB 6.4% OIB 6.6% OIB 7.2%Bunna 2.3% Bunna 3.0% Bunna 3.7% Bunna 3.7% Bunna 3.6%Berhan 2.2% Berhan 2.6% Berhan 3.6% Berhan 3.8% Berhan 3.9%Abay 2.7% Abay 3.1% Abay 3.3% Abay 3.4% Abay 3.4%Addis 0.9% Addis 0.9% Addis 1.1% Addis 1.1% Addis 1.1%Enat 1.0% Enat 1.3% Enat 1.6% Enat 1.8% Enat 1.8%Debub 0.5% Debub 0.7% Debub 0.6% Debub 0.7% Debub 0.8%

'Older six' 72.8% 68.3% 65.9% 63.8% 61.2%'Newer ten' 27.2% 31.7% 34.1% 36.2% 38.8%








FY 2015-16 FY 2016-17 FY 2017-18

FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18

TABLE 6.2: Deposit Market Share, Five-Year Trend (%)

Table 6.3: Lending Market Share, Five-Year Trend (%)

Table 6.4: Capital Market Share, Five-Year Trend (%)

Table 6.5: Profit Market Share, Five-Year Trend (%)

FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18

FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18

FY 2013-14 FY 2014-15



31

AWASH DASHEN

ABYSSINIA WEGAGEN

NIB UNITED

CBO LION

ZEMEN OIB

BUNNA BEREHAN

ABAY ADDIS

ENAT DEBUB


Chart 6.2: Ethiopian Private Banks: Deposit Market Shares (%)

16.3 15.7 15.6 15.2 15.6

14.0

16.0

18.0

20.0

2014 2015 2016 2017 2018

19.2

16.8 15.5

13.8 12.9

12.0

14.0

16.0

18.0

20.0

2014 2015 2016 2017 2018

9.9

9.4 9.3

10.3

9.3 9.0

9.5

10.0

10.5

11.0

2014 2015 2016 2017 2018

9.1 8.7

8.1 7.7

7.4 7.0

8.0

9.0

10.0

2014 2015 2016 2017 2018

8.6 8.3

8.5 8.1

7.8

7.0

7.5

8.0

8.5

9.0

2014 2015 2016 2017 2018

9.7 9.5

8.9 8.8

8.3 8.0

8.5

9.0

9.5

10.0

2014 2015 2016 2017 2018

5.9 6.2 5.8

7.1

9.3

5.0 6.0 7.0 8.0 9.0

10.0

2014 2015 2016 2017 2018

2.9

3.8 4.3 4.3 4.2

2.0

3.0

4.0

5.0

2014 2015 2016 2017 2018

3.3 3.2

3.7 3.6 3.7

3.0 3.2 3.4 3.6 3.8 4.0

2014 2015 2016 2017 2018

5.4

6.8 6.4

6.6 7.2

5.0

6.0

7.0

8.0

2014 2015 2016 2017 2018

2.3

3.0

3.7 3.7 3.6

2.0

2.5

3.0

3.5

4.0

2014 2015 2016 2017 2018

2.2

2.6

3.6 3.8 3.9

2.0

2.5

3.0

3.5

4.0

2014 2015 2016 2017 2018

2.7 3.1

3.3 3.4 3.4

2.0

2.5

3.0

3.5

4.0

2014 2015 2016 2017 2018

0.9 0.9 1.1 1.1 1.1

-

0.5

1.0

1.5

2.0

2014 2015 2016 2017 2018

1.0 1.3

1.6 1.8 1.8

-

0.5

1.0

1.5

2.0

2014 2015 2016 2017 2018

0.5 0.7

0.6 0.7 0.8

-

0.2

0.4

0.6

0.8

1.0

2014 2015 2016 2017 2018



32

AWASH DASHEN

ABYSSINIA WEGAGEN

NIB UNITED

CBO LION

ZEMEN OIB

BUNNA BEREHAN

ABAY ADDIS

ENAT DEBUB


Chart 6.3: Ethiopian Private Banks: Loan Market Shares (%)

17.0 16.4 16.6 16.8

17.4

15.0

16.0

17.0

18.0

2014 2015 2016 2017 2018

17.9

15.2

13.7 13.4 12.9 12.0 13.0 14.0 15.0 16.0 17.0 18.0

2014 2015 2016 2017 2018

9.6

7.9 8.8

10.5 9.9

7.0

8.0

9.0

10.0

11.0

2014 2015 2016 2017 2018

8.6 8.1 8.2

7.7

8.3

7.0

7.5

8.0

8.5

9.0

2014 2015 2016 2017 2018

10.3

9.2 8.2 8.1

7.5 7.0 8.0 9.0

10.0 11.0 12.0

2014 2015 2016 2017 2018

9.5 9.1 9.2

8.9

8.3 8.0

8.5

9.0

9.5

10.0

2014 2015 2016 2017 2018

6.9

8.8

6.4

7.3

8.2

6.0 6.5 7.0 7.5 8.0 8.5 9.0

2014 2015 2016 2017 2018

2.9

3.8

4.7 4.1 4.1

2.0

3.0

4.0

5.0

2014 2015 2016 2017 2018

2.5 2.9

3.6

3.0 2.8

2.0

2.5

3.0

3.5

4.0

2014 2015 2016 2017 2018

4.8

6.7

5.7 5.3 5.6

4.0

5.0

6.0

7.0

2014 2015 2016 2017 2018

2.5

3.2

4.0 4.0 3.8

2.0

2.5

3.0

3.5

4.0

2014 2015 2016 2017 2018

2.2 2.5

4.1 4.0 4.0

2.0 2.5 3.0 3.5 4.0 4.5 5.0

2014 2015 2016 2017 2018

2.8 3.1

3.4 3.2 3.3

2.0

2.5

3.0

3.5

4.0

2014 2015 2016 2017 2018

1.0 1.0 1.1 1.2 1.1

-

0.5

1.0

1.5

2.0

2014 2015 2016 2017 2018

1.0

1.5 1.8 1.8 1.9

-

0.5

1.0

1.5

2.0

2014 2015 2016 2017 2018

0.5 0.4

0.6 0.6

0.9

-

0.2

0.4

0.6

0.8

1.0

2014 2015 2016 2017 2018

17.0 16.4 16.6 16.8

17.4

15.0

16.0

17.0

18.0

2014 2015 2016 2017 2018

17.9

15.2

13.7 13.4 12.9 12.0 13.0 14.0 15.0 16.0 17.0 18.0

2014 2015 2016 2017 2018

9.6

7.9 8.8

10.5 9.9

7.0

8.0

9.0

10.0

11.0

2014 2015 2016 2017 2018

8.6 8.1 8.2

7.7

8.3

7.0

7.5

8.0

8.5

9.0

2014 2015 2016 2017 2018

10.3

9.2 8.2 8.1

7.5 7.0 8.0 9.0

10.0 11.0 12.0

2014 2015 2016 2017 2018

9.5 9.1 9.2

8.9

8.3 8.0

8.5

9.0

9.5

10.0

2014 2015 2016 2017 2018

6.9

8.8

6.4

7.3

8.2

6.0 6.5 7.0 7.5 8.0 8.5 9.0

2014 2015 2016 2017 2018

2.9

3.8

4.7 4.1 4.1

2.0

3.0

4.0

5.0

2014 2015 2016 2017 2018

2.5 2.9

3.6

3.0 2.8

2.0

2.5

3.0

3.5

4.0

2014 2015 2016 2017 2018

4.8

6.7

5.7 5.3 5.6

4.0

5.0

6.0

7.0

2014 2015 2016 2017 2018

2.5

3.2

4.0 4.0 3.8

2.0

2.5

3.0

3.5

4.0

2014 2015 2016 2017 2018

2.2 2.5

4.1 4.0 4.0

2.0 2.5 3.0 3.5 4.0 4.5 5.0

2014 2015 2016 2017 2018

2.8 3.1

3.4 3.2 3.3

2.0

2.5

3.0

3.5

4.0

2014 2015 2016 2017 2018

1.0 1.0 1.1 1.2 1.1

-

0.5

1.0

1.5

2.0

2014 2015 2016 2017 2018

1.0

1.5 1.8 1.8 1.9

-

0.5

1.0

1.5

2.0

2014 2015 2016 2017 2018

0.5 0.4

0.6 0.6

0.9

-

0.2

0.4

0.6

0.8

1.0

2014 2015 2016 2017 2018



33

AWASH DASHEN

ABYSSINIA WEGAGEN

NIB UNITED

CBO LION

ZEMEN OIB

BUNNA BEREHAN

ABAY ADDIS

ENAT DEBUB


Chart 6.4: Ethiopian Private Banks: Capital Market Shares (%)

14.6 14.8 15.1

14.5 14.8

13.0

14.0

15.0

16.0

2014 2015 2016 2017 2018

14.6

13.6 13.2

12.1

13.3

11.0

12.0

13.0

14.0

15.0

2014 2015 2016 2017 2018

8.6 8.4 8.1

8.8

9.6

7.0

8.0

9.0

10.0

2014 2015 2016 2017 2018

12.0 11.2 10.7

10.1

8.7 8.0 9.0

10.0 11.0 12.0 13.0

2014 2015 2016 2017 2018

11.0 10.1

9.6 8.9

7.7 7.0 8.0 9.0

10.0 11.0 12.0

2014 2015 2016 2017 2018

8.8

7.8 7.9 7.6

6.7

6.0 6.5 7.0 7.5 8.0 8.5 9.0

2014 2015 2016 2017 2018

6.1

6.9

4.7 4.6

5.4

4.0 4.5 5.0 5.5 6.0 6.5 7.0

2014 2015 2016 2017 2018

3.5 3.8

4.1 4.4

4.1

3.0

3.5

4.0

4.5

5.0

2014 2015 2016 2017 2018

3.7 3.6

3.8 4.0

3.9

3.0 3.2 3.4 3.6 3.8 4.0

2014 2015 2016 2017 2018

4.2 4.6

5.0 5.0

5.9

3.0

4.0

5.0

6.0

2014 2015 2016 2017 2018

2.9 3.2

3.7 4.1

4.5

2.0 2.5 3.0 3.5 4.0 4.5 5.0

2014 2015 2016 2017 2018

3.1 3.4 4.1

5.7 5.0

2.0

3.0

4.0

5.0

6.0

2014 2015 2016 2017 2018

2.5

3.3 3.7

4.0 4.1

2.0

3.0

4.0

5.0

2014 2015 2016 2017 2018

1.8 2.1

2.4 2.3 2.0

1.0

1.5

2.0

2.5

3.0

2014 2015 2016 2017 2018

1.6

2.1

2.5 2.7 2.7

1.0

1.5

2.0

2.5

3.0

2014 2015 2016 2017 2018

1.0 1.0 1.2 1.3

1.6

-

0.5

1.0

1.5

2.0

2014 2015 2016 2017 2018



34

AWASH DASHEN

ABYSSINIA WEGAGEN

NIB UNITED

CBO LION

ZEMEN OIB

BUNNA BEREHAN

ABAY ADDIS

ENAT DEBUB


Chart 6.5: Ethiopian Private Banks: Profit Market Shares (%)

17.6 15.8

17.0 17.8 18.7

10.0 12.0 14.0 16.0 18.0 20.0

2014 2015 2016 2017 2018

20.3

17.7 16.4

12.9 10.9

9.0 11.0 13.0 15.0 17.0 19.0 21.0

2014 2015 2016 2017 2018

7.4 6.9

8.4 9.3

7.3

6.0

7.0

8.0

9.0

10.0

2014 2015 2016 2017 2018

8.8 8.3 8.2 9.3

10.0

6.0

8.0

10.0

12.0

2014 2015 2016 2017 2018

8.8 8.1 7.9

9.0

6.3 5.0

7.0

9.0

11.0

2014 2015 2016 2017 2018

7.7 6.6

7.4 6.4 6.7

4.0 5.0 6.0 7.0 8.0 9.0

10.0

2014 2015 2016 2017 2018

10.1 10.3

0.6

3.1

6.4

- 2.0 4.0 6.0 8.0

10.0

2014 2015 2016 2017 2018

2.7

5.1 6.0

4.6 4.6

1.0

3.0

5.0

7.0

2014 2015 2016 2017 2018

3.5 3.7

4.6 4.7

3.3

2.0

3.0

4.0

5.0

2014 2015 2016 2017 2018

4.3 5.4 4.9 5.0

8.9

2.0

4.0

6.0

8.0

10.0

2014 2015 2016 2017 2018

2.3

3.3

4.3

3.5 4.1

1.0

2.0

3.0

4.0

5.0

2014 2015 2016 2017 2018

2.6 2.6

6.0 6.2

3.9

1.0 2.0 3.0 4.0 5.0 6.0 7.0

2014 2015 2016 2017 2018

1.6

3.1 3.3 3.3

4.0

1.0

2.0

3.0

4.0

2014 2015 2016 2017 2018

1.3 1.4 1.9

2.5

1.4

-

1.0

2.0

3.0

2014 2015 2016 2017 2018

0.7 1.2

1.8 1.7 2.1

- 0.5 1.0 1.5 2.0 2.5 3.0

2014 2015 2016 2017 2018

0.4 0.4

1.2 0.9

1.4

-

0.5

1.0

1.5

2.0

2014 2015 2016 2017 2018



35

Table 6.6: Fx Inflows Across Banks: In USD mns per year

A. $500mn to $600mn per year: Awash, DashenB. $300mn to $400mn per year: Abyssinia, Zemen, Wegagen, OIBC. $200mn to $300mn per year: CBO, UnitedD. $100mn to $200mn per year: NIB, Abay, Bunna, Lion, BerhanF. Below $100mn per year: Addis, Debub, Enat

Commercial Bank of Ethiopia: Total Estimated FX Inflows, FY 2017-18: USD 5.0to 6.0 bnPrivate Banks: Total Estimated FX Inflows, FY 2017-18: USD 3.8 to 4.0 bn

Source: Annual Reports (if disclosed), banks' press releases, and bank survey data, CBE 75th Anniversary brochure

Table 6.7: LOANS BY SECTOR (Market Shares, in percent)

Agriculture Import Export Trading & Services

Industry Construction Hotels & Tourism

Transport Personal loans

Financial Institutions

Merchandise loans

Interest free financing

Awash 8.2% 19.3% 16.8% 19.3% 13.2% 21.6% 0.0% 17.8% 15.1% 0.0% 22.2% 0.3%Dashen 20.0% 8.5% 6.3% 13.1% 16.9% 17.5% 0.0% 23.6% 16.1% 0.0% 0.0% 58.5%

Abyssinia 10.9% 8.6% 12.1% 13.5% 7.8% 8.6% 0.0% 8.9% 2.7% 0.0% 0.0% 0.0%Wogagen 9.1% 9.7% 12.3% 4.2% 7.6% 4.9% 13.4% 17.7% 6.2% 0.0% 0.0% 0.0%

NIB 6.2% 10.9% 4.9% 5.6% 12.8% 7.2% 31.6% 1.9% 6.0% 0.0% 0.0% 0.0%United 0.0% 11.9% 8.5% 5.7% 9.0% 6.8% 15.1% 7.9% 12.0% 0.0% 11.9% 36.4%

CBO 16.0% 3.3% 10.2% 12.6% 11.2% 1.6% 0.0% 0.0% 9.3% 0.0% 63.9% 0.0%Lion 1.7% 8.7% 4.9% 3.0% 1.4% 6.1% 2.8% 3.3% 2.5% 0.0% 0.0% 0.0%

Zemen 5.9% 4.6% 1.8% 1.3% 5.3% 1.2% 8.6% 1.5% 5.8% 85.6% 0.0% 0.0%OIB 13.9% 3.4% 6.4% 6.7% 4.2% 3.9% 16.1% 2.5% 6.1% 14.4% 0.0% 0.0%

Bunna 0.5% 2.8% 4.0% 2.5% 2.5% 6.5% 1.8% 8.5% 4.3% 0.0% 0.0% 0.0%Berhan 1.3% 2.7% 3.1% 4.2% 2.3% 5.9% 6.1% 4.4% 7.7% 0.0% 0.0% 0.0%

Abay 5.1% 1.2% 3.8% 4.6% 1.9% 4.3% 4.5% 0.0% 3.4% 0.0% 2.0% 4.8%Addis 0.0% 0.6% 2.2% 1.2% 0.8% 0.7% 0.0% 0.2% 0.9% 0.0% 0.0% 0.0%Enat 1.0% 3.5% 1.5% 1.4% 2.2% 2.6% 0.0% 1.7% 0.8% 0.0% 0.0% 0.0%

Debub 0.0% 0.4% 1.2% 1.2% 0.8% 0.6% 0.0% 0.0% 1.1% 0.0% 0.0% 0.0%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Source: Banks' Annual Reports. Loan breakdowns not fully consistent across banks so some classifications may not be fully comparable across banks.Shaded boxes show Bank with the highest market share in that particular sub-sector

Table 6.7a: Breakdown of Each Bank's Loan Book by Sector

Agriculture Import Export Trading & Services

Industry Construction Hotels & Tourism

Transport Personal loans

Financial Institutions

Merchandise loans

Interest free financing

TOTAL LOANS

Awash 0.4% 10.7% 22.7% 26.5% 10.7% 17.8% 0.0% 6.1% 4.8% 0.0% 0.4% 0.0% 100.0%Dashen 1.3% 6.3% 11.5% 24.2% 18.2% 19.4% 0.0% 10.8% 6.8% 0.0% 0.0% 1.4% 100.0%

Abyssinia 0.9% 8.4% 28.5% 32.2% 10.9% 12.3% 0.0% 5.3% 1.5% 0.0% 0.0% 0.0% 100.0%Wogagen 0.9% 11.2% 34.5% 11.9% 12.7% 8.4% 3.8% 12.6% 4.1% 0.0% 0.0% 0.0% 100.0%

NIB 0.7% 13.9% 15.0% 17.7% 23.6% 13.6% 9.8% 1.5% 4.3% 0.0% 0.0% 0.0% 100.0%United 0.0% 13.7% 23.8% 16.3% 15.1% 11.6% 4.2% 5.6% 7.9% 0.0% 0.5% 1.3% 100.0%

CBO 1.6% 3.8% 28.5% 36.0% 18.8% 2.7% 0.0% 0.0% 6.1% 0.0% 2.5% 0.0% 100.0%Lion 0.3% 20.2% 27.6% 17.1% 4.6% 20.6% 1.5% 4.7% 3.3% 0.0% 0.0% 0.0% 100.0%

Zemen 1.7% 15.2% 14.5% 11.1% 25.6% 5.9% 7.0% 3.1% 11.0% 4.9% 0.0% 0.0% 100.0%OIB 2.0% 5.9% 26.7% 28.9% 10.5% 10.1% 6.8% 2.6% 6.0% 0.4% 0.0% 0.0% 100.0%

Bunna 0.1% 7.0% 24.3% 15.3% 9.0% 24.1% 1.1% 13.0% 6.1% 0.0% 0.0% 0.0% 100.0%Berhan 0.3% 6.5% 18.4% 25.1% 8.1% 21.0% 3.6% 6.5% 10.7% 0.0% 0.0% 0.0% 100.0%

Abay 1.2% 3.5% 26.5% 32.8% 8.2% 18.5% 3.2% 0.0% 5.6% 0.0% 0.2% 0.4% 100.0%Addis 0.0% 4.7% 45.6% 25.0% 10.0% 9.1% 0.0% 1.1% 4.5% 0.0% 0.0% 0.0% 100.0%Enat 0.4% 18.4% 18.7% 18.0% 16.8% 19.8% 0.0% 5.5% 2.2% 0.0% 0.0% 0.0% 100.0%

Debub 0.0% 4.5% 32.1% 32.8% 13.5% 10.4% 0.0% 0.2% 6.6% 0.0% 0.0% 0.0% 100.0%Average 1% 10% 25% 23% 14% 14% 3% 5% 6% 0% 0% 0%

Source: Banks' Annual Reports. Shaded sector represents the largest category within each bank's loan book.



36

Table 6.8: Concentration indicators over the past decade: Market Share of Top 5 Banks

Source: Cepheus calculation based on banks; Annual Reports

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

2009 2014 2015 2016 2017 2018

Concentration Indicators

Loans Deposits Capital Profits



37

SECTION 7: Profitability rankings Key points

§ Banking sector profits were Birr 20.8bn last year, or $816mn, and equal to around 1 percent of GDP. Relative to the size of the economy, bank profits are roughly unchanged from their level a decade ago.

§ Measured by earnings per share, private banks showed an average EPS of 31 percent last year, down from a peak of near 40 percent seen in 2009-10.

§ For the sector as a whole, we calculate that Birr 100,000 invested ten years ago at an average private bank would have yielded 11-times that amount, or close to Birr 1.1 million today.

Total profits across all commercial banks: Profits at all commercial banks reached Birr 20.8bn in FY 2017-18, which is somewhat below their peak level of Birr 22.2bn registered in 2016-17, but still a five-fold increase from the Birr 4.1bn aggregate profit seen a decade ago. Expressed in USD terms, last year’s profits of $816mn were nearly double the $397mn level of ten years ago, with the much lower growth in USD terms reflecting the decline in the value of the currency (which was 10.42 Birr/USD in 2008-09 but averaged 26.23 Birr/USD in 2017-18). Viewed relative to GDP, an indicator of the financial sector’s aggregate earnings relative to the size of the economy, we find that profits were equivalent to 1 percent of GDP last year, roughly unchanged from ten years ago, and actually below the peak ratio of 1.4 percent of GDP registered in 2013-14 (Table 7.1). EPS for the sector and sub-groupings: EPS trends over the past decade show a decline from a peak of 38.5 percent in 2009-10 to 31 percent last year (Table 7.2).6 The years of peak EPS performance were generally in the 2010-2013 period; during those four years, there were only around 12 banks, GDP growth was 10.1 percent on average, export growth was 22 percent on average, and deposit and credit growth both showed annual growth of 32 percent on average. Seen by the two broad private bank groupings (‘older six’ and ‘newer ten’), we find that the EPS of the ‘older six’ banks has fallen sharply over time (from 46.4 percent to 36.7 percent in the last decade), while that of the ‘new ten banks’ has risen on (from 22.7 percent to 27.9 percent) over a similar period. On average, however, the older six banks still have a higher EPS than the newer six banks, but while newer banks had half the EPS returns of older banks ten years ago, they have now collectively reached 76 percent of the older banks’ EPS returns. The variance between the highest and lowest EPS returns in any given year still remains quite large, but has declined to around 41 percentage points last year versus a difference of 49 percentage points ten years ago. Bank-by-bank EPS performance: Looking at bank-by-bank performance, Awash stands out as the clear leader in recent years; Dashen is on top when seen over a decade-long perspective; and United, Abyssinia, and Zemen make up the rest of the top 5 banks from a long-term shareholder perspective. Seen over a nearer term perspective, or the latest three-year EPS average, the rankings would be as follows: Awash (44.1%), Dashen (43.6%), OIB (37.1%), Lion (36.4%), and Zemen (34.0%). EPS determinants—Banks’ Dupont Analysis: A Dupont Analysis by individual bank reveals that the top performing banks, based on EPS outturns last year, tended to have much better net interest income ratios (relative to assets) and much higher leverage multiples compared to their peers (Table 7.3). In other words, those banks maintaining a relatively small capital base relative to their balance sheet (i.e. high leverage) have been able to magnify returns to shareholders even while sharing relatively similar operating income and return on asset (ROA) ratios relative to their peers.

6 Earnings per share (EPS) levels and trends, as well as illustrative valuations, are only calculated for private banks and not for CBE.



38

EPS determinants—bivariate regressions: To further explore differences in EPS performance across banks, we ran some bivariate regressions to test what characteristics of banks best correlate with EPS performance. In this context, we considered the impact of bank size (using assets, employment, branches), income sources, efficiency metrics, and capital (leverage) ratios. We find that bigger banks (by assets, branches, capital) and banks with higher leverage tend to have higher EPS, while those banks with lower deposit costs (and particularly a low share of time deposits) are also seen to show higher EPS performance (Table 7.4). The composition of a bank’s revenue base (net interest income vs non-interest income) does not appear to matter for EPS performance. Some commonly used efficiency measures utilized in the industry (Table 7.5) were also considered in our bivariate regressions, but these did not help explain much of the variability seen in banks’ EPS performance. Cumulative returns to a Birr 100,000 investment: Finally, to show the impact of varying EPS performance, we estimate the total returns from a Birr 100,000 investment in Ethiopian banks over the past decade. Based on the average bank’s performance, we find that an investment of Birr 100,000 back in 2010 would have since grown to 11.1x the initial amount and thus yielded a sum of Birr 1.1 million, assuming a full and continuous reinvestment of dividends (Table 7.6).7 As price levels rose around 2.8x over this period, in real Birr terms the multiple on invested funds is around 8.3x. For the top 5 banks with the best EPS record, we find that a Birr 100,000 investment ten years ago would have yielded closer to a 14.7x return in nominal terms or a 11.9x return in real terms, assuming again a full re-investment of dividends in each successive year. Expressed in USD terms, we find that shareholders would realize a 5.5x return over the same time frame, reflecting the more significant impact of the Birr depreciation during this period.

7 Besides assuming a full reinvestment of all dividends, this exercise also assumes that the shareholder is able to purchase (at par value) the full amount of re-investable dividends. However, in some cases, the amount of new shares allocated to a shareholder may be smaller than the amount of dividends received, thus limiting the ability to accumulate new shares as assumed in this exercise.

Table 7.1: Ethiopia's Banking Profit pool: A Ten-Year View (Profits before tax, Birr bns)

2008-09 2013-14 2014-15 2015-16 2016-17 2017-18

Commercial Bank of Ethiopia 2,716 9,686 12,703 13,700 14,600 10,320

Private Banks 1,425 4,718 5,433 5,808 7,605 10,483 Awash 214 829 861 986 1,350 1,964

Dashen 351 958 964 951 979 1,143

Abyssinia 159 351 374 487 704 766

Wegagen 261 414 453 478 708 1,050

NIB 220 415 441 459 682 659

United 134 361 358 429 489 707

CBO 86 476 557 37 239 670

Lion … 127 276 350 351 480

Zemen … 165 201 270 356 342

OIB … 205 294 286 379 938

Bunna … 108 182 250 265 427

Berhan … 122 139 350 471 411

Abay … 76 168 192 248 419

Addis … 60 78 113 188 148

Enat … 33 64 102 128 217

Debub … 18 23 68 68 142

All Banks' Profits, Birr mns 4,141 14,404 18,136 19,508 22,205 20,803 Private banks' profit share, % 34.4% 32.8% 30.0% 29.8% 34.2% 50.4%All Banks' Profits, % GDP 1.2% 1.4% 1.4% 1.2% 1.2% 0.9%All Banks' Profits, USD mns 397$ 754$ 901$ 923$ 970$ 816$

GDP, Birr bns 336 1,061 1,298 1,568 1,833 2,202

Exchange rate, year average 10.4 19.1 20.1 21.2 22.5 26.2

Source: Banks' Annual Reports and CBE website



39

Table 7.2: Earnings Per Share at Private Banks (in Percent Terms for Par Value of Shares)

Banks Ranked by Highest EPS level since 2010

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-181 Dashen Bank 60.9% 75.3% 92.6% 82.3% 67.0% 58.9% 48.7% 39.2% 43.0% 63.1%2 Awash Bank 49.3% 56.0% 46.9% 45.6% 47.5% 44.5% 37.1% 40.9% 54.3% 46.9%3 Abyssinia Bank 44.7% 56.7% 54.4% 50.2% 38.1% 27.8% 31.5% 37.6% 24.4% 40.6%4 Zemen Bank 38.7% 58.1% 57.7% 41.0% 32.1% 32.0% 35.0% 38.4% 28.6% 40.2%5 United Bank 47.7% 52.8% 52.8% 47.7% 34.1% 29.8% 32.4% 27.2% 35.4% 40.0%6 Coop Bank of Oromia 17.0% 29.0% 45.0% 52.0% 61.0% 50.0% 4.4% 22.0% 42.0% 35.8%7 Wegagen Bank 38.0% 44.8% 37.8% 33.0% 26.1% 24.4% 22.2% 28.0% 36.5% 32.3%8 Lion Bank … 17.6% 24.4% 31.5% 23.6% 42.5% 47.9% 31.2% 30.2% 31.1%9 NIB Bank 37.6% 38.0% 34.4% 29.4% 28.6% 27.4% 25.8% 31.4% 26.8% 31.0%

10 Oromia Intl Bank 12.3% 20.5% 14.8% 19.2% 31.0% 36.4% 31.0% 27.8% 52.5% 27.3%11 Berhan Bank … 17.5% 20.6% 20.5% 23.9% 20.7% 39.9% 32.8% 20.4% 24.5%12 Bunna Bank … 10.7% 13.3% 21.1% 22.8% 28.7% 34.0% 24.2% 28.6% 22.9%13 Abay Bank … -2.5% 12.2% 14.4% 16.3% 27.2% 23.1% 22.9% 28.4% 17.7%14 Addis International Bank … … 5.7% 15.9% 19.6% 18.7% 19.3% 18.7% 17.1% 16.4%15 Enat Bank … … … … 14.9% 16.4% 16.8% 14.9% 18.4% 16.3%16 Debub Global Bank … … … … 9.1% 6.6% 22.8% 17.4% 13.1% 13.8%

Average 38.5% 36.5% 36.6% 36.0% 31.0% 30.8% 29.5% 28.4% 31.2% 31.3%Median 38.7% 38.0% 36.1% 32.2% 27.4% 28.3% 31.3% 27.9% 28.6% 31.1%

Older six 46.4% 53.9% 53.1% 48.0% 40.2% 35.5% 33.0% 34.1% 36.7% 42.3%Newer ten 22.7% 21.5% 24.2% 27.0% 25.4% 27.9% 27.4% 25.0% 27.9% 24.6%

Max 60.9% 75.3% 92.6% 82.3% 67.0% 58.9% 48.7% 40.9% 54.3% 63.1%Min 12.3% -2.5% 5.7% 14.4% 9.1% 6.6% 4.4% 14.9% 13.1% 13.8%


Average 2010-18

Table 7.3: Dupont analysis: Bank by bank analysis for FY 2017-18 data

Awash Dashen Abyssinia Wegagen NIB United CBO Lion Zemen OIB Bunna Berhan Abay Addis Enat DebubGross interest income to Assets 8.8% 8.0% 9.4% 8.8% 8.7% 9.0% 7.8% 9.3% 6.4% 7.5% 9.0% 9.0% 8.3% 7.6% 8.6% 8.0%Gross interest expense to Assets -3.1% -3.5% -3.6% -3.1% -3.7% -4.1% -2.6% -3.4% -4.0% -2.7% -3.4% -3.4% -3.4% -3.5% -5.5% -3.0%Net interest income to Assets 5.7% 4.4% 5.8% 5.6% 5.0% 4.9% 5.2% 5.9% 2.4% 4.8% 5.6% 5.7% 4.9% 4.0% 3.1% 5.0%Other income to Asssets 2.5% 2.9% 1.9% 4.0% 1.7% 2.5% 2.8% 3.0% 3.8% 4.8% 3.1% 3.5% 4.2% 5.3% 4.6% 7.8%Operating income to Assets 8.2% 7.4% 7.7% 9.7% 6.7% 7.4% 7.9% 9.0% 6.3% 9.6% 8.8% 9.2% 9.1% 9.3% 7.7% 12.8%

Operating expenses to Assets -4.1% -4.6% -4.6% -5.1% -3.8% -4.2% -5.4% -4.8% -2.9% -4.8% -4.7% -5.6% -4.6% -5.2% -3.8% -7.1%Operating profit to Assets 4.1% 2.8% 3.1% 4.6% 2.9% 3.2% 2.5% 4.2% 3.3% 4.8% 4.1% 3.5% 4.5% 4.1% 3.9% 5.7%Provisions to Assets 0.0% -0.3% -0.4% -0.3% -0.2% -0.4% 0.3% -0.4% -0.2% -0.1% -0.4% -0.2% -0.5% -0.2% -0.1% -0.4%

Profit before tax to assets 4.1% 2.5% 2.6% 4.3% 2.8% 2.8% 2.8% 3.8% 3.1% 4.7% 3.7% 3.3% 4.0% 3.9% 3.8% 5.3%Taxes to assets -1.0% -0.5% -0.7% -1.1% -0.6% -0.5% -0.6% -0.7% -0.6% -1.0% -1.0% -0.7% -1.0% -0.9% -1.0% -1.3%Profit after tax to assets (ROAA) 3.1% 2.0% 1.9% 3.3% 2.2% 2.3% 2.2% 3.1% 2.4% 3.6% 2.8% 2.7% 3.0% 3.0% 2.8% 4.0%Leverage ratio (assets/total equity) 8.0 7.3 7.6 6.9 7.5 9.2 12.5 7.9 7.3 9.4 6.8 6.1 6.8 4.6 5.5 5.0 Return on equity (ROAE) 25.0% 14.8% 14.8% 22.5% 16.2% 21.0% 27.4% 24.5% 17.8% 34.3% 18.9% 16.3% 20.3% 13.7% 15.3% 20.0%

Total capital to paid-up capital ratio 2.2 2.9 1.6 1.6 1.7 1.7 1.5 1.2 1.6 1.5 1.5 1.3 1.4 1.2 1.2 0.7 Earnings per share, actual 54.3% 43.0% 24.4% 36.5% 26.8% 35.4% 42.0% 30.2% 28.6% 52.5% 28.6% 20.4% 28.4% 17.1% 18.4% 13.1%

Source: Cepheus research based on banks' Annual Reports. Shaded cells show bank with best performance for given line-item



40

Table 7.4: EPS Correlates based on bivariate regressions

Source: Cepheus research computation based on banks' Annual Reports

y = 2.2121x + 3.8347R² = 0.6372

0

10

20

30

40

50

60

0 5 10 15 20 25

EPS vs Leverage Ratio [Asset/Paidup Capital]

y = -0.6347x + 91.388R² = 0.1948

0

10

20

30

40

50

60

75 80 85 90 95 100 105 110

EPS vs Modified L-D Ratio

y = 0.0047x + 17.623R² = 0.373

0

10

20

30

40

50

60

0 1000 2000 3000 4000 5000 6000 7000

EPS vs Capital

y = 0.0818x + 14.409R² = 0.5068

0

10

20

30

40

50

60

0 50 100 150 200 250 300 350 400

EPS vs Branch

y = -0.8539x + 43.275R² = 0.3231

0

10

20

30

40

50

60

0 5 10 15 20 25 30 35 40 45

EPS vs % Time Deposits

y = 0.0006x + 16.935R² = 0.5064

0

10

20

30

40

50

60

0 10000 20000 30000 40000 50000 60000

EPS vs Assets

y = -0.2784x + 38.842R² = 0.0382

0

10

20

30

40

50

60

0 10 20 30 40 50 60

EPS vs NIR to GI Ratio

y = -847.97x + 68.78R² = 0.3327

0

10

20

30

40

50

60

3% 4% 4% 5% 5% 6% 6% 7% 7% 8%

EPS vs Effective Deposit Rate



41

Table 7.5 Efficiency ratios: Cost-to-income, Branch Productivity, and Employee Productivity

Bank Cost-to-

income

ratio

Bank Deposit per

branch:

Birr mns

Bank Revenue

per branch:

Birr mns

Bank Profit per

branch:

Birr mns

Bank Revenue per

employee:

Birr

Bank Profit per

employee:

Birr

Enat 29.6% Zemen 393.0 Zemen 43.7 Zemen 10.4 Enat 1,605,342 Zemen 374,309

Zemen 30.9% Enat 124.4 Enat 18.8 Awash 4.1 Zemen 1,569,061 Enat 339,530

Awash 36.3% Awash 118.7 Awash 14.8 Enat 4.0 Bunna 997,135 OIB 225,666

NIB 38.2% United 100.8 United 12.6 OIB 2.9 Addis 950,581 Bunna 225,645

OIB 40.0% NIB 100.6 Dashen 11.9 Wegagen 2.9 United 774,772 Addis 218,992

United 40.1% Dashen 96.5 NIB 11.6 Debub 2.7 OIB 765,189 Debub 193,466

Abay 41.0% Abyssinia 90.2 Abyssinia 11.4 United 2.5 Debub 763,158 Wegagen 190,540

Bunna 41.3% CBO 86.6 Wegagen 11.1 Dashen 2.5 Wegagen 741,345 Awash 189,367

Wegagen 41.6% OIB 80.4 Debub 10.5 NIB 2.4 CBO 715,549 United 154,053

Lion 41.9% Wegagen 74.0 OIB 10.0 Lion 2.1 Awash 686,182 CBO 149,330

Addis 42.3% Lion 61.3 Berhan 8.5 Abyssinia 2.0 NIB 573,523 NIB 118,883

Dashen 44.2% Berhan 59.8 CBO 8.4 Abay 2.0 Abyssinia 562,026 Abay 117,888

Abyssinia 44.4% Abay 59.0 Addis 8.3 Addis 1.9 Dashen 494,972 Lion 109,010

Berhan 46.5% Bunna 58.2 Lion 8.2 Bunna 1.8 Abay 489,401 Dashen 103,799

Debub 47.1% Debub 53.8 Bunna 8.1 Berhan 1.8 Berhan 478,221 Berhan 101,328

CBO 48.6% Addis 50.3 Abay 8.1 CBO 1.8 Lion 434,031 Abyssinia 96,652

Source: Cepheus research based on banks' Annual Reports

Table 7.6: Multiple Received on Invested Funds at Private Banks--Performance since 2010

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Multiple of

Invested FundsDashen Bank 100,000 175,300 337,628 615,495 1,027,877 1,633,297 2,428,713 3,380,769 4,834,499 48.3xAwash Bank 100,000 156,000 229,164 333,663 492,153 711,161 975,001 1,373,777 2,119,737 21.2xAbyssinia Bank 100,000 156,650 241,805 363,070 501,400 640,789 842,894 1,159,822 1,442,818 14.4xZemen Bank 100,000 158,100 249,324 351,546 464,393 612,999 827,548 1,145,326 1,472,890 14.7xUnited Bank 100,000 152,810 233,494 344,870 462,471 600,287 794,780 1,010,961 1,368,841 13.7xCoop Bank of Oromia 100,000 129,000 187,050 284,316 457,749 686,623 716,835 874,538 1,241,844 12.4xWegagen Bank 100,000 144,800 199,534 265,381 334,645 416,299 508,717 651,158 888,830 8.9xLion Bank 100,000 117,600 146,247 192,286 237,666 338,673 500,898 657,178 855,646 8.6xNIB Bank 100,000 138,000 185,472 240,001 308,641 393,209 494,656 649,979 824,173 8.2xOromia Intl Bank 100,000 120,500 138,334 164,894 216,011 294,639 385,978 493,279 752,251 7.5xBerhan Bank 100,000 120,555 145,268 179,987 217,245 303,925 403,613 485,950 4.9xBunna Bank 100,000 113,250 137,180 168,457 216,804 290,517 360,822 464,017 4.6xAbay Bank 100,000 112,180 128,368 149,291 189,899 233,765 287,298 368,890 3.7xAddis International Bank 100,000 115,900 138,616 164,538 196,293 233,000 272,843 2.7xEnat Bank 100,000 116,400 135,955 156,213 184,956 1.3xDebub Global Bank 100,000 106,600 130,905 153,682 173,815 1.7x

Industry Average 100,000 134,520 185,288 263,017 333,710 458,716 610,461 811,963 1,109,500 11.1xIndustry Median 100,000 138,000 186,261 252,691 273,153 365,941 497,777 650,568 839,909 8.4xTop 5 Banks' Median 100,000 156,650 241,805 351,546 492,153 640,789 842,894 1,159,822 1,472,890 14.7x

CPI Index [Re-based 2009-10=100] 100.0 118.1 158.4 179.8 194.3 209.3 229.6 246.1 278.3 2.8xExchange Rate (year-avg) 12.9 16.1 17.28 18.23 19.11 20.13 21.16 22.47 26.23 …USD Terms 7,758$ 8,355$ 10,723$ 14,428$ 17,463$ 22,788$ 28,850$ 36,135$ 42,299$ 5.5x

Source: Cepheus calculation based on EPS returns in banks' Annual Reports. Calculation assumes the full re-investment of each year's dividends. Amount of new shares available each year may not always be as high as the re-investable dividend, so calculation above may overstate returns for some banks.Also, legal reserves deductions are ignored, but since these remain and accumulate on the banks' balance sheet, they are considered equivalent to shareholder funds



42

SECTION 8: Bank-by-bank valuations Key points

§ Based on three methodologies to value bank shares, we estimate that share prices for Ethiopia’s banks would range from Birr 1,300 to 4,500 (for a par value of Birr 1,000) in a competitive exchange.

§ The implied valuations from these prices suggests an aggregate market capitalization of Birr 71bn, equal to $2.6bn, or roughly 3.2 percent of GDP.

§ As is the norm in most African stock markets, we think banks will make up the largest single sector (excluding state enterprises) in any prospective Ethiopian stock market.

Pricing bank shares: Given the prospect of capital markets, we conduct an illustrative valuation exercise using three share-pricing methods: (1) benchmarking against price-to-earnings (P/E) ratios of banks in emerging markets; (2) benchmarking against price-to-book (P/B) ratios of banks in emerging markets; and (3) pricing bank shares to target a given Birr rate of return that is seen as a minimum expectation by domestic investors. Bank-by-bank valuations: Setting all bank shares to a par value of Birr 1,000, we estimate the trading prices for each private bank under the three methodologies noted above:

• Price-to-earnings ratios: P/E ratios across emerging and frontier market banks are generally in the range of 8-12x based on a sample of 30 comparable countries, i.e., investors in listed banks are—on average—willing to pay 8 to 12 times the annual return offered by a given bank share. One approach to take in valuing Ethiopian banks would thus be to take the average P/E ratio seen in these comparable countries; however, with overall GDP growth and banking sector growth much stronger in Ethiopia than most comparator markets, there is a strong case to be made to take an above-average P/E ratio and we thus consider the 75-th percentile of comparator country bank P/E ratios. On this basis, we find that the average P/E ratio would be around 10x, and so for each Ethiopian bank, the share price would be equivalent to ten times that bank’s annual earnings per share (EPS). Thus, with an EPS of 30 percent, the bank returns Birr 300 for each share of par value Birr 1,000 and the corresponding price for that share would be Birr 3,000 (i.e., 300 x 10 = 3,000). On this basis, and reflecting the varying EPS performance across banks, we find that Ethiopia’s private banks would be priced from a low of Birr 1,310 to a high of 5,430 considering EPS results of the most recent (2017-18) fiscal year. In an alternative exercise, we also use the EPS results of the past three years, so as not to rely solely on just one year’s EPS performance, and find that the results are not materially different for most banks.

• Price-to-book ratios: Rather than relying on earnings, P/B ratios show investors’ willingness to pay for the net worth (or net book value) of a given bank, expressed on a per share basis. Thus, banks with higher net worth would—all else equal—generally command higher prices. P/B ratios for listed banks are can vary widely, but generally range from 1x-2x (with a 1x valuation indicating investors are willing to value the bank exactly in line with the recorded book value of the company). On this approach, and considering again the 75-th percentile of comparator bank P/B ratios, we use a P/B ratio of 1.5x across all banks. We find that Ethiopia’s private banks would be priced from a low of Birr 1,764 to a high of Birr 3,952 considering their book values from the most recent (2017-18) fiscal year. We take as net book value banks’ total capital (i.e. assets available to shareholders after deducting all liabilities of the bank).

• Targeting a return of 15 percent: Alternatively, rather than relying on comparables from other country banks, shares can be priced based on the investment return targets and expectations sought by domestic



43

investors. Assuming, for example that an investor seeks a 15 percent annual return and a bank is providing an EPS return of Birr 150 per share, then the maximum price an investor would be willing to pay is Birr 1,000 (since 150/1000 = 15%); however, for a bank earning twice that amount, or Birr 300 per share, then the investor is willing to pay as much as Birr 2,000 (since the return to the investor is still 15% even at that higher price, i.e., 300/2000 = 15%). For banks with EPS returns of 45 percent or more (Birr 450), then the prices offered by domestic investors seeking a 15 percent return would rise to Birr 3,000 (450/3000 = 15%). In terms of a target return, we set a minimum return expectation of 15 percent, as that fully covers inflation and offers some modest real yield (with inflation at 10% then there is a 5% real yield), and since we also expect that investors would demand returns to be slightly higher than those already offered and available by time deposits at banks (currently 10-12 percent per annum for those will to place long-term time deposits at banks). On this basis, for a target 15 percent yield, prices for Ethiopian bank shares would range from Birr 873 to Birr 3,620.

• Average of above approaches: As any given valuation approach has its strengths and weaknesses, and since each approach focuses only on one particular aspect of a bank’s performance (say earnings or book value), an average of several valuation approaches is often useful and warranted. Accordingly, we take an average of the three share-pricing approaches noted above and find that bank share prices would range from Birr 1,316 to Birr 4,120 per share (1.3 to 4.1 times par values) for Ethiopia’s private banks. It is worth noting that these prices are well below prices offered for bank shares at some ad hoc share auctions conducted by banks in recent years for regulatory or other reasons. In such auctions, prices offered have been as high as 5 to 11 times par values and, in few cases, even as high as 20 to 26 times par values (Table 8.3). However, these prices have been exceptional offers (outliers) given by a few individuals in the absence of open, transparent share buying/selling mechanisms. With the establishment of a stock market, we would not expect such prices to prevail given the competitive interactions of thousands of buyers/sellers, the wider range of bank share opportunities that become available, and the improved information base that should emerge—among investors—on the returns associated with particular price offers.

Aggregate valuation and market capitalization: For given share prices, each bank would carry an implied aggregate market valuation that reflects its price and number of shares outstanding. We compute these implied valuations and find that Ethiopia’s private banks would collectively show a Birr 71bn market capitalization, or $2.6bn in dollar terms and equivalent to 3.2 percent FY2017-18 GDP (note that these are aggregate valuations of private banks and do not include CBE). Valuations for specific private banks would range from a low of Birr 763mn ($28mn), a median of Birr 3.9bn ($142mn), and a high of Birr 12.1bn ($445mn). Implications for an Ethiopian stock market: Our review of four large African stock markets—Kenya, Nigeria, Ghana, and South Africa—shows the market capitalizations of their three largest banks range from $729mn to $1,568mn in Kenya (CBO and Equity respectively); $1,231mn to $2,684mn in Nigeria (Stanbic and GTB); $205mn to $494mn in Ghana (GCB and Stanchart Ghana); and $9,448mn to $25,930mn in South Africa (Absa and First Rand). By contrast, excluding CBE, the market capitalizations of Ethiopia’s three largest banks—Awash, Dashen, Abyssinia—are an estimated $445mn, $303mn, and $205mn respectively. The market capitalization of Ethiopia’s largest banks is thus seen to be small fraction of some of the largest African banks, but somewhat in line with the largest banks in countries such as Ghana, Tanzania, and Zambia. In most of these countries, banks are in the aggregate the largest single sector within the stock market, which is likely to be the case (excluding large state enterprises) in any prospective stock market in Ethiopia as well.



44

Table 8.1: Bank Valuations: An Illustrative Scenario based on three share pricing methods

AwashDashen

AbyssiniaW

egagenNIB

UnitedCBO

LionZemen

OIBBunna

Berhan Abay

Addis Enat

DebubPrice-to-earnings based valuationEPS expected: Latest FY performance

54.3%43.0%

24.4%36.5%

26.8%35.4%

42.0%30.2%

28.6%52.5%

28.6%20.4%

28.4%17.1%

18.4%13.1%

EPS return, for Birr 1,000 par value543

430

244

365

268

354

420

302

286

525

286

204

284

171

184

131

Applicable Price-to-Earnings ratio

10.0

10.0

10.0

10.0

10.0

10.0

10.0

10.0

10.0

10.0

10.0

10.0

10.0

10.0

10.0

10.0

Share price, Using P-E Method

5,430

4,300

2,440

3,650

2,680

3,540

4,200

3,020

2,860

5,250

2,860

2,040

2,840

1,710

1,840

1,310

Price-to-book based valuationAssets of bank

55,268

45,425

31,983

27,391

26,689

28,031

29,888

14,320

12,439

23,797

13,021

14,068

12,325

4,209

6,482

3,261

Liabilities, excl capital & reserves48,772

39,558

27,738

23,564

23,309

25,077

27,512

12,511

10,742

21,206

11,038

11,866

10,522

3,312

5,296

2,579

Net Assets (Total Capital), Birr mns

6,496

5,867

4,245

3,827

3,380

2,954

2,376

1,809

1,697

2,591

1,983

2,202

1,803

897

1,187

682

Paid-up capital of bank, Birr mns2,944

2,227

2,563

2,310

2,076

1,781

1,597

1,184

1,125

1,607

1,475

1,709

1,325

710

971

580

No of shares, mns (Par value at 1,000)

2.944

2.227

2.563

2.310

2.076

1.781

1.597

1.184

1.125

1.607

1.475

1.709

1.325

0.710

0.971

0.580

Share value, book-value basis, Birr2,207

2,634

1,656

1,656

1,628

1,659

1,488

1,528

1,508

1,612

1,344

1,288

1,361

1,263

1,222

1,176

Applicable Price-to-Book ratio

1.5

1.5

1.5

1.5

1.5

1.5

1.5

1.5

1.5

1.5

1.5

1.5

1.5

1.5

1.5

1.5

Share price, Using P-B Method

3,310

3,952

2,484

2,484

2,442

2,488

2,231

2,291

2,263

2,418

2,017

1,933

2,041

1,895

1,834

1,764

Valuation for target percent returnEPS expected: Latest FY performance

54.3%43.0%

24.4%36.5%

26.8%35.4%

42.0%30.2%

28.6%52.5%

28.6%20.4%

28.4%17.1%

18.4%13.1%

EPS return, for Birr 1,000 par value543

430

244

365

268

354

420

302

286

525

286

204

284

171

184

131

Target return in real terms

5.0%5.0%

5.0%5.0%

5.0%5.0%

5.0%5.0%

5.0%5.0%

5.0%5.0%

5.0%5.0%

5.0%5.0%

Inflation rate10.0%

10.0%10.0%

10.0%10.0%

10.0%10.0%

10.0%10.0%

10.0%10.0%

10.0%10.0%

10.0%10.0%

10.0%Target return in nominal terms

15.0%15.0%

15.0%15.0%

15.0%15.0%

15.0%15.0%

15.0%15.0%

15.0%15.0%

15.0%15.0%

15.0%15.0%

Share price, Using target return method3,620

2,867

1,627

2,433

1,787

2,360

2,800

2,013

1,907

3,500

1,907

1,360

1,893

1,140

1,227

873

SUMMARY OF VALUATION METHODS:Awash

DashenAbyssinia

Wegagen

NIBUnited

CBOLion

ZemenOIB

Bunna Berhan

AbayAddis

EnatDebub

Method 1: Price to Earnings5,430

4,300

2,440

3,650

2,680

3,540

4,200

3,020

2,860

5,250

2,860

2,040

2,840

1,710

1,840

1,310

Method 2: Price to Book

3,310

3,952

2,484

2,484

2,442

2,488

2,231

2,291

2,263

2,418

2,017

1,933

2,041

1,895

1,834

1,764

Method 3: Target return3,620

2,867

1,627

2,433

1,787

2,360

2,800

2,013

1,907

3,500

1,907

1,360

1,893

1,140

1,227

873

Average of three methods:4,120

3,706

2,184

2,856

2,303

2,796

3,077

2,442

2,343

3,723

2,261

1,778

2,258

1,582

1,633

1,316




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Table 8.2: Estimated market capitalizations given presumed share prices

Estimated share

price: Average of

three methods

Actual

Paid-up capital

(Birr mns)

Estimated

Market Cap

(Birr mns)

Estimated

Market Cap

(USD mns)

Awash 4,120 2,944 12,127 445$ Dashen 3,706 2,227 8,254 303$

Abyssinia 2,184 2,563 5,597 205$ Wegagen 2,856 2,310 6,598 242$

NIB 2,124 2,076 4,410 162$ United 2,796 1,781 4,980 183$

CBO 3,077 1,597 4,914 180$ Lion 2,442 1,184 2,891 106$

Zemen 2,343 1,125 2,636 97$ OIB 3,723 1,607 5,983 219$

Bunna 2,261 1,475 3,335 122$ Berhan 1,778 1,709 3,038 111$

Abay 2,258 1,325 2,992 110$ Addis 1,582 710 1,123 41$

Enat 1,633 971 1,586 58$ DGB 1,316 580 763 28$

Total … 26,184 71,227 2,613$


Awash Dashen Abyssinia United #1 United #2 NIB Zemen Bunna EnatPar Value 1,000 1,000 25 100 100 500 1,000 1,000 1,000Highest bid 20,000 5,050 661 1,012 1,027 2,000 1,550 4,100 1,500Multiple paid by auction winner 20x 5x 26x 10x 10.3 4x 1.5x 4x 1.5x

EPS (in percent terms) 41% 39% 38% 27% 35% 31% 38% 24% 15%Expected Return (for auction buyer) 2.1% 7.7% 1.4% 2.7% 3.4% 7.8% 24.5% 5.9% 10.0%

Source: Addis Fortune Newspaper April 2, 2017 and Cepheus Research for implied return calculations

Note: Share auctions generally took place during 2015-17, and EPS returns reported are for FY 2016-17 years.

United #1 refers to auction from 2016-17 and United#2 refers to auction of March 2019.

Table 8.3: Prices Paid for Ethiopian Bank Shares at Open Auctions in Recent years



46

SECTION 9: Cross-country context Key points

§ Seen in a cross-country context, Ethiopian banks are both very large and very small at the same time—CBE is a giant relative to the size of the Ethiopian economy and versus most regional peers, but private banks are still generally small on both measures.

§ In terms of banking operations, Ethiopia’s private banks stand out for their limited service offerings, reliance on loans/interest income, lower operating costs, and lower provisioning expenses.

§ With respect to measures of profitability, specifically ROE, Ethiopian banks are broadly in line with most African and Asian comparators, with ROEs of 20 percent seen in Ethiopia vs a similar 20 percent for a sample of large African countries and 19 percent for a sample of emerging markets.

Cross-country comparisons: Seen in relation to banks in comparable countries in Africa and Asia, Ethiopian banks show the following notable contrasts versus African and emerging market (EM) comparables (Table 9.1 and Table 9.2):

• Size: With respect to size, Ethiopia’s banks are both much bigger than the norm (for the exceptional case of CBE) and also much smaller than the emerging market norm (with respect to the private banks). The size of CBE is exceptionally large when seen relative to the size of the local economy, and indeed on some metrics it may qualify as one of the ‘largest’ banks globally in proportion to the domestic economy within which it operates (Table 9.3). At the other extreme, Ethiopia’s newer banks (given their recent entry and the much longer head-starts of other country banks) are quite small in both assets and profits when seen in a regional/global context.

• Service offerings: On service offerings, the main contrasts with respect to peer countries are in access to loans, particularly the very limited or non- existent offerings of SME/consumer/long-term/non-collateralized loans and of services such as digital banking, credit cards, and capital market services. A comparison to neighbouring Kenya, based on FSD Kenya 2017 survey data, shows the contrasts in multiple areas: for example, around 27 percent of Kenyan adults have borrowed digitally at least once; there are more than 20 digital credit providers; and the largest digital credit providers each have millions of active customers (including Equity Bank’s Eazzy loan, CBO’s M-Coop Cash, KCB’s Mpesa, and CBA’s M-shwari platforms).8 Beyond just mobile-based borrowing facilities, consumer loans make up as much as 20 percent of the main bank’s loan books while payment services for bills, wages, and merchants are now predominantly and routinely conducted in electronic (mobile) channels. Because of the strength of the digital banking ecosystem, Kenya has also been able to provide some globally innovative financial service offerings such as mobile-based ‘pay-as-you-go’ payment plans for large household purchases (M-KOPA for solar panels) and government bond issues (the M-Akiba bond) conducted solely via mobile phones and targeted at retail/individual savers (who can buy government bonds in amounts as low as $30 or Birr 850).

8 Information as compiled in Renaissance Capital’s “Kenya Banks” report of October 2018. The comparison with Kenya is not fair, in some respects, as the country is a global (not just regional) leader in digital payments/banking, but the contrasts nonetheless reveal the large scope for new bank service offerings in the Ethiopian context.



47

• Income streams: The average 63 percent revenue share derived from net interest income is somewhat higher than the 50-55 percent seen in most EM/FM markets, indicating the lower menu of non-lending, fee-based offerings at Ethiopian banks.

• NPLs/Cost of Risk: As proxied by ‘loan provision’ expenses that are readily available from most banks’

financial statements, the size of banks’ NPL problems seem very limited at Ethiopia’s private banks, compared to EM/FM norms, with a provision expense of 0.4 percent of loans in Ethiopia (private banks) versus a norm of 2 percent of assets or more seen for most EM banks. This low figure reflects the conservative and heavily collateral based nature of private bank lending in Ethiopia, which limits NPL figures to the 2-4 percent range at most private banks (i.e. given high credit demand, banks are also able to pick among the strongest borrowers and can sell collateral quickly if/when NPLs arise to minimize year-end loan provisioning and write-off costs).

• Efficiency: Cost-to-income ratios are considerably lower in Ethiopia, at around 40 percent, than the

emerging market norm of near 60 percent, owing to low employee costs, the use of typically simple branch facilities, limited IT expenses for most of the past ten years, and low NPLs/provisions. These low overheads partly explain the slightly better ROA/ROE performance of Ethiopian banks vs peers in emerging markets.

• Profitability ratios: ROEs in Ethiopian banks are seen to be slightly, but not substantially, higher than

those recorded in other EM/FMs. Based on a sample of over 30 emerging market (EM) banks across Sub-Saharan Africa, Middle East, and Asia, average ROEs are seen to be around 18.6 percent only slightly lower than the average ROE of 20.2 percent at Ethiopia banks. Comparisons with five large African markets (Kenya, Nigeria, Ghana, Tanzania, South Africa) show the ROEs to be essentially identical (Table 9.2). From a Dupont Analysis, Ethiopian banks show generally lower leverage (a median equity/assets ratio of 8.3 percent vs 10.5 percent) but this is offset by somewhat higher ROAs (median 2.8% in Ethiopia vs 1.9% in EMs). Within the latter, the main areas of over-performance for Ethiopian banks were with respect to their low operating costs (cost-income ratio) and low provisioning expenses.

• Profit levels: In terms of absolute profit levels across African banking markets, a cross-country comparison shows Ethiopia’s profit pool of $816mn last year ranks fifth in the continent behind South Africa, Nigeria, Angola, and Kenya (Table 9.4).9 Ethiopia’s standing gives it a roughly 6 percent share in Africa-wide banking industry profits.

9 This is based on 2016 cross-country data from Renaissance Capital (“Africa Banks” report of February 2018), with extrapolations for 2017 and 2018 based on trend growth rates for other countries and actual data used for Ethiopia.



48

Table 9.1: Ethiopian Banking in a Comparative Emerging Market Context

Bank-by-Bank Indicators Across Selected Emerging Markets

Profitability IndicatorsAssets, $mn Deposits, $mn Loan/Assets NII margin NIR yield Prov/Loan C-I ratio Revenue, $mn ROA ROE

1 KENYA1 Equity Bank 5,072$ 3,609$ 53.2% 8.4% 6.8% 1.5% 53.5% 646$ 3.8% 21.7%2 KCB Bank 6,254$ 4,831$ 65.4% 8.6% 7.2% 0.6% 50.9% 717$ 3.2% 19.5%3 Cooperative Bank 3,741$ 2,779$ 65.6% 8.6% 7.0% 0.8% 52.2% 431$ 3.1% 17.4%4 Barclays Kenya 3,266$ 2,055$ 52.5% 5.9% 7.1% 1.6% 54.0% 313$ 2.5% 16.8%5 Diamond Trust 3,604$ 2,643$ 57.3% 10.0% 5.8% 1.4% 38.3% 251$ 1.9% 14.4%

2 GHANA1 Stanchart Ghana 817$ 688$ 29.6% 34.5% 9.1% 0.6% 50.0% 155$ 3.5% 36.5%2 Ecobank Ghana 2,013$ 1,447$ 29.5% 11.3% 8.2% 3.1% 52.4% 155$ 3.0% 25.4%3 Ghana Comm Bank 2,130$ 1,532$ 21.8% 15.3% 8.8% 3.8% 67.3% 284$ 3.0% 20.6%4 CAL Bank 934$ 537$ 43.9% 10.9% 8.2% 2.6% 40.8% 112$ 3.9% 25.7%

3 NIGERIA1 GT Bank 628,260$ 434,449$ 38.4% 16.3% 6.7% 0.0% 827$ 5.5% 31.3%2 Zenith Bank 16,638$ 10,309$ 43.6% 11.5% 5.1% 0.5% 60.7% 1,262$ 3.1% 20.8%3 Union Bank 4,040$ 2,390$ 35.4% 13.7% 5.2% 5.2% 75.8% 226$ 1.0% 4.6%4 Stanbic IBTC 4,646$ 2,254$ 26.5% 18.5% 5.0% 5.7% 61.4% 499$ 3.2% 24.9%5 UBA 13,637$ 9,357$ 35.5% 12.2% 4.6% 0.3% 77.5% 929$ 2.0% 17.8%6 Access Bank 13,841$ 7,163$ 44.8% 8.0% 3.9% 0.6% 74.1% 681$ 2.2% 19.0%

4 TANZANIA1 NMB Bank 2,433$ 1,832$ 13.0% 15.2% 8.8% 0.1% 65.2% 301$ 1.9% 12.7%2 CRDB Bank 6,037$ 4,688$ 51.7% 10.1% 14.1% 3.7% 73.0% 291$ 1.1% 8.6%

5 ZAMBIA1 Stanchart Zambia 817$ 688$ 29.6% 25.7% 7.7% 1.8% 62.4% 105$ 3.5% 36.5%2 Zanaco 890$ 746$ 51.0% 22.2% 10.3% 5.7% 75.3% 136$ 1.3% 11.3%

6 SOUTH AFRICA1 Standard Bank 112,388$ 89,837$ 59.6% 6.3% 3.8% 2.4% 55.5% 5,636$ 1.7% 17.1%2 Absa 81,941$ 58,222$ 57.8% 4.8% 30.7% 2.8% 56.7% 6,374$ 1.3% 15.1%3 FirstRand 107,771$ 89,142$ 74.4% 11.3% 6.5% 1.7% 51.7% 5,991$ 2.0% 23.1%4 Nedbank 69,158$ 50,047$ 73.5% 3.8% 2.8% 1.7% 57.7% 4,550$ 1.2% 17.4%5 Capitec 5,975$ 4,503$ 49.2% 4.8% 6.5% 35.8% 1,569$ 5.6% 25.9%

7 EGYPT1 CIB 336$ 125$ 37.2% 14.8% 5.7% 2.4% 61.8% 1,296$ 3.0% 30.6%2 Qatar Natl Bank 14,914$ 11,896$ 53.3% 8.8% 4.6% 0.5% 732$ 3.0% 28.2%

8 MOROCCO1 Attijariwafa Bank 49,579$ 32,356$ 65.5% 4.3% 2.9% 0.6% 3,448$ 1.2% 12.8%

9 VIETNAM1 Vietcom Bank 44,563$ 19,896$ 51.7% 2.4% 2.4% 1.5% 40.4% 1,874$ 1.0% 18.1%2 Bank for Inv & Dev(BID) 51,751$ 31,247$ 72.1% 2.8% 2.8% 1.3% 39.7% 3,913$ 0.6% 14.9%3 Vietin Bank 110$ 1,131$ 39.6% 14.7% 7.0% 45.4% 22$ 6.8% 12.1%4 AgriBank 82$ 49$ 50.0% 7.1% 4.3% 52.6% 165$ 3.7% 3.7%5 Military Com Bank 15,502$ 10,266$ 70.8% 17.0% 4.3% 1.2% 69.8% 952$ 1.8% 20.1%

# BANGLADESH1 BRAC Bank 3,825$ 2,594$ 61.2% 5.2% 8.0% 5.0% 58.0% 311$ 1.8% 21.3%2 Islami Bank 10,756$ 9,014$ 75.0% 3.1% 4.0% 0.0% 52.0% 122$ 0.6% 9.9%3 Dutch Bangla 3,729$ 2,795$ 64.2% 4.7% 6.0% 2.0% 69.0% 271$ 0.9% 13.2%4 Eastern Bank(EBL) 3,064$ 1,996$ 71.9% 3.4% 5.7% 2.0% 43.0% 162$ 1.0% 11.4%5 City Bank 3,325$ 2,187$ 68.7% 3.4% 6.4% 2.0% 55.0% 1.3% 15.0%

# INDIA1 HDFC Bank 152,208$ 112,786$ 63.5% 6.1% 1.4% 2.4% 81.7% 10,065$ 1.6% 18.4%2 Kotak Mahindra Bank 48,315$ 27,358$ 61.0% 4.3% 4.1% 2.0% 84.2% 4,392$ 2.0% 13.5%3 ICICI Bank 125,778$ 80,254$ 58.3% 3.2% 2.0% 3.5% 90.6% 13,172$ 0.8% 7.2%4 State Bank of India 494,242$ 387,174$ 56.0% 3.9% 1.3% 3.4% 24,928$ -0.2% -2.0%

# PAKISTAN1 MCB Bank 21,805$ 15,402$ 35.7% 7.6% 0.7% 0.5% 76.2% 541$ 0.4% 7.1%2 Habib Bank 14,430$ 10,437$ 37.7% 3.8% 1.3% 0.6% 52.5% 813$ 0.8% 9.3%

Average of EM Banks Above: … … 51.1% 9.7% 6.2% 2.0% 59.3% … 2.2% 17.4%Median of EM Banks Above: … … 52.5% 8.4% 5.7% 1.7% 56.7% … 1.9% 17.4%

ETHIOPIA1 Commercial Bank 21,562$ 17,226$ 30.6% 12.6% 0.2% n.a. n.a. 1,420$ 1.4% 18.1%2 Awash Bank 2,107$ 1,657$ 56.2% 7.9% 2.2% 0.0% 36.3% 150$ 3.1% 25.0%3 Dashen Bank 1,732$ 1,372$ 50.8% 6.1% 2.6% 0.5% 44.2% 114$ 2.0% 14.8%4 Bank of Abyssinia 1,219$ 984$ 55.6% 7.7% 1.7% 0.7% 44.4% 85$ 1.9% 14.8%5 Wegagen Bank 1,044$ 782$ 54.0% 7.5% 3.5% 0.4% 41.6% 89$ 3.3% 22.5%6 NIB Bank 1,018$ 824$ 50.6% 6.7% 1.5% 0.3% 38.2% 61$ 2.2% 16.2%7 United Bank 1,069$ 880$ 53.0% 6.5% 2.2% 0.7% 40.1% 71$ 2.3% 21.0%8 CBO 1,140$ 984$ 49.2% 7.5% 2.2% -0.4% 48.6% 72$ 2.2% 27.4%9 Lion 546$ 444$ 51.5% 8.1% 2.7% 0.7% 41.9% 43$ 3.1% 24.5%

10 Zemen Bank 474$ 390$ 40.2% 4.0% 3.4% 0.5% 30.9% 26$ 2.4% 17.8%11 OIB 907$ 760$ 41.9% 7.6% 4.0% 0.2% 40.0% 73$ 3.6% 34.3%12 Bunna 496$ 379$ 52.5% 7.6% 2.8% 0.6% 41.3% 38$ 2.8% 18.9%13 Berhan 536$ 415$ 50.2% 7.9% 3.1% 0.4% 46.5% 43$ 2.7% 16.3%14 Abay 470$ 365$ 47.9% 6.9% 3.6% 0.9% 41.0% 37$ 3.0% 20.3%15 Addis 160$ 113$ 48.3% 6.1% 4.8% 0.4% 42.3% 14$ 3.0% 13.7%16 Enat 247$ 190$ 51.1% 4.4% 4.0% 0.2% 29.6% 17$ 2.8% 15.3%17 DGB 124$ 82$ 47.6% 7.7% 6.3% 0.7% 47.1% 13$ 4.0% 20.0%

Ethiopia average: … … 48.9% 7.2% 3.0% 0.4% 40.9% … 2.7% 20.1%Ethiopia median: … … 50.6% 7.5% 2.8% 0.4% 41.5% … 2.8% 18.9%

Private median: … … 50.0% 6.9% 3.2% 0.4% 40.9% … 2.8% 20.2%Private average: … … 50.7% 7.5% 2.9% 0.4% 41.5% … 2.8% 19.4%

Source: FactSet, Renaissance Capital, Exotix Capital, and Cepheus compilation from Ethiopian banks' Annual Reports, CBE website, and CBE 75th Anniversary "Profile" pamphlet.CBE revenue based on gross basis (per CBE website); certain estimates used for CBE as FY 2017-18 audit report is not published.

Balance Sheet Indicators Income Statement Indicators



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Table 9.2: Valuation Ratios for Selected Emerging Market Banks, 2018 Data

Market cap, $mn P/E Ratio P/B Ratio ROE1 Kenya

1 KCB 1,283$ 5.4 1.0 19.02 Equity 1,568$ 6.2 1.4 23.53 Coop Bank of Kenya 729$ 5.8 1.0 18.2

2 Nigeria1 Guaranty 2,847$ 5.7 1.9 30.02 Zenith 1,766$ 3.5 0.8 24.03 Access Bank 560$ 2.1 0.3 16.0

3 Ghana1 Stanchart Ghana 494$ 14.6 2.0 23.12 Ecobank Ghana 485$ 6.5 1.7 25.93 Ghana Commercial Bank 205$ 3.1 0.9 22.24 CAL Bank 108$ 3.5 0.6 18.7

4 Tanzania1 NMB 509$ 6.4 1.1 17.72 CRDB 148$ 3.3 0.3 10.4

5 Zambia1 Stanchart Zambia 323$ 16.7 4.9 30.62 Zanaco 90$ 7.9 0.9 12.3

6 South Africa1 First Rand 25,937$ 13.0 2.7 22.02 Standard Bank 22,403$ 11.5 1.9 17.03 Nedbank Group 9,110$ 9.4 1.4 16.04 ABSA Group 9,980$ 8.6 1.3 16.0

7 Egypt1 CIB Egypt 6,266$ 11.3 3.1 29.02 Credit Agricole Egypt 837$ 7.2 2.3 38.03 QNB Alahi 2,490$ 6.0 1.5 24.04 HDB 389$ 4.3 1.2 37.05 ADIB-Egypt 140$ 3.6 0.8 33.06 Al Baraka Bank Egypt 144$ 3.4 0.7 25.0

8 Morocco1 Attijariwafa Bank 9,234$ 15.3 1.9 13.0

9 Abu Dhabi1 Emirates NBD 18,158$ 6.9 1.2 18.02 First Abu Dhabi Bank 45,097$ 13.8 1.8 14.03 Dubai Islamic Bank 8,899$ 7.4 1.5 20.04 ADCB 12,525$ 10.3 1.5 15.0

10 Saudi Arabia1 Samba 20,610$ 14.3 1.8 12.02 Riyad Bank 19,917$ 16.7 2.0 11.03 Saudi British Bank 15,957$ 12.7 1.8 14.04 Al Rajhi Bank 48,792$ 18.1 3.5 18.05 Banque Saudi Fransi 12,759$ 12.5 1.5 12.06 Arab National Bank 9,918$ 11.0 1.5 13.07 National Comm Bank 45,593$ 15.8 2.8 17.0

11 Quatar1 Qatar National Bank 45,160$ 12.1 2.4 20.02 Commercial Bank of Qatar 5,034$ 13.4 1.2 9.0

12 Kuwait 1 National Bank of Kuwait 19,353$ 16.4 1.9 12.02 Burgan Bank 3,310$ 13.0 1.3 11.03 Masraf Al Rayan 7,357$ 12.7 2.0 16.0

13 Turkey1 Turkiye Is Bankasi-C 4,723$ 4.7 0.6 13.02 Turkiye Garanti Bankasi 6,715$ 5.8 0.8 15.03 Akbank 6,072$ 5.1 0.6 14.04 Yapi Kredi 3,298$ 4.2 0.5 12.0

14 Russia1 Sberbank 75,174$ 5.9 1.3 23.02 VTB Bank 7,205$ 3.3 0.5 12.03 Bank St Petersburg 424$ 3.2 0.4 12.0

P/E Ratio P/B Ratio ROEAverage--African banks 4,364$ 7.4 1.5 20.1 Average--All above 11,252$ 8.8 1.5 18.6 Median--All above 5,553$ 7.3 1.4 17.0

ETHIOPIAMarket cap

estimateAssumed P/E

ratioAssumed P/B

ratio ROE1 Awash Bank 445$ 10.0 1.5 25.02 Dashen Bank 303$ 10.0 1.5 14.83 Bank of Abyssinia 205$ 10.0 1.5 14.84 Wegagen Bank 242$ 10.0 1.5 22.55 NIB Bank 162$ 10.0 1.5 16.26 United Bank 183$ 10.0 1.5 21.07 CBO 180$ 10.0 1.5 27.48 Lion 106$ 10.0 1.5 24.59 Zemen Bank 97$ 10.0 1.5 17.8

10 OIB 219$ 10.0 1.5 34.311 Bunna 122$ 10.0 1.5 18.912 Berhan 111$ 10.0 1.5 16.313 Abay 110$ 10.0 1.5 20.314 Addis 41$ 10.0 1.5 13.715 Enat 58$ 10.0 1.5 15.316 DGB 28$ 10.0 1.5 20.0

Ethiopia average: … 10.0 1.5 20.2Ethiopia median: … 10.0 1.5 19.4

Source: FactSet, Renaissance Capital, and Exotix Capital for EM bank data; market capitalizations are for April 2019. For Ethiopian banks, data are Cepheus illustrative market cap estimates (based on EPS returns) as explained in text.



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TABLE 9.3: Relative Size of Biggest Bank in Ethiopia vs Selected Countries

Country Biggest bank in country

Assets, USD bn

Deposits, USD bn

Assets-to-GDP

Deposits-to-GDP

Deposits-to-Revenue

GDP: USD bns

Revenue: USD bns

Ethiopia CBE 21$ 17$ 25% 20% 149% 84$ 11.1$

Kenya Equity 5$ 4$ 7% 5% 11% 75$ 34$ Nigeria GTB 9$ 6$ 2% 2% 66% 376$ 10$ Ghana Stanchart 1$ 1$ 3% 2% 10% 43$ 9$ South Africa Standard 112$ 90$ 32% 26% 88% 349$ 102$ Egypt CIB 20$ 16$ 8% 7% 33% 235$ 48$

Brazil Itau Unibanco 385$ 114$ 19% 6% 31% 2,056$ 361$ Russia Sberbank 483$ 322$ 31% 20% 58% 1,578$ 555$ India SBI 494$ 387$ 19% 15% 73% 2,597$ 533$ China ICBC 113$ 71$ 1% 1% 3% 12,240$ 2,692$

Turkey Guaranti 65$ 39$ 8% 5% 26% 851$ 150$ Vietnam Vietcom 45$ 20$ 20% 9% 45% 224$ 44$

US JP Morgan 2,622$ 1,470$ 14% 8% 41% 19,390$ 3,569$ France BNP Paribas 2,279$ 958$ 88% 37% 68% 2,583$ 1,409$ Germany Deutsche Bank 1,506$ 630$ 41% 17% 37% 3,677$ 1,712$

Average of three advanced country banks: 48% 21% 49%Average of emerging market banks: 14% 9% 40%

Commercial Bank of Ethiopia: 25% 20% 149%

Notes and Source: Factset data as of 2018 and CBE website for CBE data. IMF WEO for macro data on GDP and revenue.

Table 9.4: African banking industry profits by country, $mns

2009 2013 2014 2015 2016 2017 2018South Africa 3,364 5,207 5,273 5,245 5,471 5,563 5,657 Angola 1,261 920 1,182 793 1,063 1,168 1,283 Nigeria 646 2,982 3,923 3,510 1,533 1,353 1,193 Ghana 173 464 942 683 704 888 1,121 Kenya 434 1,012 1,143 957 1,007 1,013 1,020 Ethiopia 397 692 754 901 923 970 816 Cote d'Ivoire 145 132 111 185 250 322 414 Mauritius 395 451 473 379 319 286 257 Tanzania 164 176 232 222 194 204 214

Source: Renaissance Capital for data up to 2016, while 2017 and 2018 data are estimates based on three-year average trend growth rates. Ethiopia data are Cepheus Research compilation based on banks' annual reports and inclusive of CBE.



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SECTION 10: Sector outlook Key points

§ Based on the outlook for key drivers of banking growth (deposits and fx), we forecast the sector’s aggregate balance sheet, income levels, and rates of return for the coming three years.

§ By our calculations, Ethiopian banks will by 2022 roughly double their deposit base (to Birr 1.7 trillion or near 40 percent of GDP), loan out a broadly similar sum of funds, and handle $18bn in annual fx trading. We project the sector will generate close to Birr 49bn ($1.5bn) in annual profits, making it either the third or fourth largest banking industry (by profits) in Sub-Saharan Africa.

§ With respect to shareholder returns, we project these will fall somewhat from recent highs but still remain comfortably above 25 percent per annum in Birr terms.

Macro drivers of banking growth: Ethiopia’s macroeconomic environment is expected to be supportive of banking activity over the coming years, reflecting the government’s still-strong development orientation and ambitions, high investment levels (by both private and public sectors), and improving conditions for private sector activity, including with respect to the ease of doing business. Cepheus projects growth of 8-9 percent for the coming years, largely in line with the projections of international institutions such as the IMF and the World Bank. At the same time, inflation is likely to be close to 10-12 percent per year for the coming years, in our view. Taken together, this implies that nominal GDP will grow by close to (or slightly above) 20 percent per annum over the coming years, providing a minimum floor—in our view—for the likely growth in the main balance sheet aggregates such as deposits and assets. Such strong nominal GDP growth rates are expected to be supported by continued high investment levels, of around 34-36 percent of GDP per the norms in recent years, which will increasingly be financed by FDI equity inflows as well as by expansion taking place in the banking sector itself. Sector forecasts: Based on the above macro outlook, our overall banking sector model presented below offers forecasts for the key macro drivers (deposits, fx) as well as projections for bank-specific operating ratios (effective deposit/lending rates, non-interest revenue yield, cost-to-income ratios, provisioning costs, and leverage), which taken together generate implied profit levels and shareholder returns conditional on these assumptions. To elaborate on the specific line-items:

• Deposit levels: Given annual deposit growth rates of between 22-25 percent, or slightly above nominal GDP growth, we see bank deposits almost doubling in three years’ time from current levels of around Birr 837bn as of March 2019. More specifically, the assumed growth rates show deposits reaching Birr 1.7 trillion by 2022 (almost 40% of GDP), consistent with expectations of modest financial deepening in the coming years.

• Loans and Bonds: With private and public sector credit demand expected to remain strong, and newer

groups of borrowers likely to become active users of bank financing (e.g. SMEs and consumers), we expect that virtually all mobilized funds can be fully deployed by most banks. We thus see the loan-to-deposit ratio (modified to include the effect of reserve requirements and NBE bill purchases) remaining between 95-100 percent, as has been the norm in recent years. On this basis, total credit (including loans and bonds) would also be in the neighbourhood of Birr 1.7 trillion, or 39 percent of GDP, by 2022.

• Operating ratios: On key operating metrics, we see a gradual decline in net interest margins as effective

deposit ranges trend slightly upward and as lending rates trend slightly downward. We assume spreads will be around 7.5 percentage points at private banks and 4.5 percentage points at the state bank. For



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non-interest income (see fx discussion below), we expect these to grow broadly in line with fx inflows as we don’t expect any marked reduction in fees in the current fx environment. For cost-to-income ratios, these are likely to rise materially (from unusually low bases at most banks) given rising expense lines at most banks related to rising salaries and rents, IT modernization expenses, headquarter building projects, and execution of new strategy plans; however, with strong nominal growth in income, banks can bear most of these higher incremental costs without much deterioration in cost-to-income ratios so we would not expect an increase of more than a few percentage points.

• Capital: We forecast 20 percent average growth in private bank capital (with somewhat faster growth

at smaller banks who need to cross the Birr 2bn minimum threshold), which would take commercial banks’ collective capital to Birr 188bn by 2022. For CBE, whose capital has been raised in ad hoc, one-off adjustments in recent years, we presume a gradual incremental rise (20 percent annual increments) beginning from the Birr 48bn anticipated as of June 2019 to around Birr 83bn by 2022.

• FX: We see rising remittance, services, transfer and FDI inflows allowing for near 15 percent growth in

fx inflows at banks, thus driving non-interest income and raising the fx flows traded/intermediated by all commercial banks from an estimated $10bn in 2017-18 to an amount closer to $18bn by 2022.

• Profits: Reflecting all of the above assumptions, the forecast profit levels at all commercial banks will

reach Birr 49bn in three years’ time (FY 2021-22) from an estimated Birr 30bn for this fiscal year (2018-19).10 Profit growth rates would moderate from the high growth registered this year and move towards a range of 16 to 20 percent per annum for the next three years, based on our projections. As these profit growth rates will still be among the continent’s fastest, and given the current ranking of banking industry profit pools across Africa (Table 9.4), we expect the forecast 2022 profit level of $1.5bn for Ethiopia’s banks to be the third or fourth largest in Sub-Saharan Africa after South Africa, Nigeria, and possibly Kenya.

• EPS: Focusing on private banks, the above-projected profit levels translate into modest declines in EPS

returns—given capital growth assumptions—but should still comfortably deliver average shareholder returns of at least 25 percent in Birr terms for each of the coming three years (Table 10.1).

10 Bank profit projections are presented here are somewhat higher than those in our 2019 Macroeconomic Handbook, reflecting the strong March 2019 provisional results seen at commercial banks.



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Table 10.1: Banking Model--Key Balance Sheet, Income Statement, and Operating metrics

Estimate

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22

Private Banks Key Financials: Birr bns

Deposits 146.5 201.8 278.5 339.8 421.4 526.7 658.4 Loans 91.4 132.6 178.8 221.7 277.1 354.7 454.1 NBE Bills 41.7 53.6 71.3 84.1 99.9 120.8 146.2 Total Assets 190.5 259.7 348.6 425.3 527.4 659.2 824.0 Total Capital 33.1 26.0 44.0 53.3 66.7 83.4 104.2 Paid-up Capital 16.1 20.9 26.2 32.7 40.9 51.1 63.9 Profit Before Tax 5.8 7.6 10.4 11.2 13.2 16.4 20.1 Profit After Tax 4.5 5.7 8.1 8.7 10.2 12.6 15.5 Earnings per share 29.5% 28.4% 30.6% 29.5% 27.7% 27.4% 26.9%

Key Operating MetricsEffective deposit rate 5.5% 3.9% 4.5% 4.7% 4.9% 5.0% 5.0%Effective lending rate 10.4% 10.4% 11.9% 13.5% 13.0% 12.8% 12.5%Net interest margin 4.6% 6.2% 6.9% 5.9% 5.4% 5.2% 5.1%Other income growth 13.2% 30.6% 10.9% 25.0% 23.0% 22.0% 20.0%Provision-to-Assets 0.80% 0.47% 0.34% 0.34% 0.34% 0.34% 0.34%Leverage 5.7x 10.0x 7.9x 8.0x 7.9x 7.9x 7.9x

Commercial Bank of EthiopiaDeposits 288.6 364.9 451.8 551.2 678.0 833.9 1,025.7 Loans 138.8 154.2 173.3 216.6 266.4 327.7 403.1 Bonds 188.7 237.8 291.4 364.3 448.0 551.1 677.8 Total Capital 16.1 40.0 43.9 48.2 57.9 69.5 83.4 Total Assets 384.6 485.7 565.5 689.9 848.6 1043.8 1283.8Profit before tax 13.7 14.6 10.4 18.9 23.0 26.0 29.1

All Commerical BanksDeposits 435.1 566.7 730.3 891.0 1,099.3 1,360.6 1,684.1 Total Capital 49.2 66.0 87.8 101.6 124.6 152.8 187.6 Profit before tax, Birr bns 19.5 22.2 20.8 30.1 36.2 42.4 49.2 Profit before tax, USD bns 0.92$ 0.99$ 0.82$ 1.07$ 1.22$ 1.36$ 1.49$

Growth rates--all banks: Deposits … 30.2% 28.9% 22.0% 23.4% 23.8% 23.8% Credit … 25.5% 23.6% 24.1% 23.1% 24.1% 24.1% Profits … 14.0% -6.6% 45.0% 20.3% 17.0% 16.0%

Source: Banks' Annual Reports, CBE website Finanacial Highlights, NBE Annual Reports for Bond estimates,and Cepheus Research for certain estimates and projections

Actuals Projections



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APPENDIX TABLES:

Private Banks Overview: FY 2017-18

Balance Sheet AIB DB BOA WB NIB UB CBO LIB ZB OIB Bunna Berhan Abay Addis Enat DGBAssets 55,268 45,425 31,983 27,391 26,689 28,031 29,888 14,320 12,439 23,797 13,021 14,068 12,325 4,209 6,482 3,261 Loans and Advances 31,049 23,058 17,781 14,785 13,499 14,870 14,712 7,374 4,995 9,969 6,842 7,067 5,898 2,035 3,314 1,554

NBE Bills 8,479 10,169 6,314 6,395 6,230 6,275 5,424 3,312 2,419 4,845 2,870 3,030 2,628 806 1,380 686

Foreign Assets 2,970 1,346 432 184 48 824 669 33 1,463 1,287 25 252 995 189 79 163 LiabilitiesDeposits 43,451 35,987 25,795 20,506 21,619 23,079 25,808 11,640 10,218 19,927 9,947 10,889 9,566 2,970 4,976 2,153 Paid-up Capital 2,944 2,227 2,563 2,310 2,076 1,781 1,597 1,184 1,125 1,607 1,475 1,709 1,325 710 971 580 Total Capital 6,496 5,867 4,245 3,827 3,380 2,954 2,376 1,809 1,697 2,591 1,983 2,202 1,803 897 1,187 682

Income Statement Interest Income 4,202 3,244 2,721 2,116 2,073 2,264 1,850 1,173 712 1,506 1,033 1,113 873 289 490 214 Interest Expense 1,479 1,433 1,056 752 876 1,027 620 424 442 543 389 417 358 135 312 80 Net Interest Income 2,723 1,811 1,665 1,364 1,197 1,237 1,230 749 270 962 644 696 515 154 178 133 Other Income 1,206 1,186 553 972 412 623 658 383 424 963 359 435 443 202 262 207 Expenses Incl provisions 1,964 1,960 1,453 1,286 950 1,157 1,218 652 352 987 576 720 540 207 223 198

o/w: Salaries and Benefits 1,234 1,095 863 677 554 679 700 348 172 623 286 439 260 97 118 85 o/w: Provisions 5 105 118 61 46 99 (66) 50 27 18 41 25 55 8 5 10 o/w: Admin and all other 725 760 471 547 350 380 584 254 153 346 249 256 225 103 99 103

o/w: Rent expenses 182 241 183 173 139 144 122 - 39 39 101 87 72 43 36 26 Profit before tax 1,964 1,143 766 1,050 659 707 670 480 342 938 427 411 419 148 217 142 Tax 472 214 203 257 144 133 146 90 71 210 112 83 102 35 58 35 Profit after tax 1,492 929 563 794 515 574 523 391 271 728 315 328 317 113 159 107

Key YOY growth ratesAssets 31.7 31.2 26.3 30.8 27.0 28.0 68.6 30.5 28.6 46.1 32.6 34.1 42.9 23.3 33.7 58.1Loans and Advances 39.6 30.1 27.7 44.5 26.0 25.5 52.0 34.4 25.8 41.6 29.3 31.7 38.0 30.3 35.8 98.9Foreign Assets 19.9 -38.2 54.8 67.5 -93.2 -6.4 110.5 -87.4 29.1 16.8 -95.1 -23.4 437.8 -20.3 -51.4 25.2NBE Bills 23.2 23.8 23.3 25.4 22.3 29.7 64.4 38.7 20.6 42.3 184.2 39.1 30.4 26.7 44.2 63.4Deposits 42.0 29.5 24.6 31.2 31.7 30.5 80.8 32.6 39.4 48.6 33.0 43.4 40.8 30.8 35.2 50.4Paidup capital 11.3 15.6 42.2 11.5 15.8 14.3 59.7 26.2 32.4 37.6 46.0 22.4 32.5 16.6 27.1 65.2Total Capital 35.1 46.9 46.1 14.0 14.4 17.4 56.6 24.8 29.0 55.5 46.6 16.8 35.8 18.5 30.6 61.2Total Income 43.7 29.8 37.6 44.1 27.6 43.6 64.4 49.2 17.6 65.2 50.6 32.9 51.6 29.8 55.9 74.5Total Expenses 42.7 34.1 50.0 41.9 44.2 43.5 43.0 55.4 30.0 32.4 40.4 64.1 45.1 32.5 43.9 61.2Profit before tax 45.5 16.8 8.8 48.3 -3.4 44.6 180.3 36.8 -3.9 147.5 61.1 -12.7 69.0 -21.3 69.1 108.8

Per share data (%)Earnings per share (par 1000) 543 430 244 365 268 354 420 302 286 525 286 204 284 171 184 131 Book Value per share (par 1000) 2,207 2,634 1,656 1,656 1,628 1,659 1,488 1,528 1,508 1,612 1,344 1,288 1,361 1,263 1,222 1,176

No. of: Branches 366 373 286 277 215 229 298 190 26 248 171 182 162 59 40 40 Employees 7,881 8,950 5,825 4,165 4,332 3,726 3,505 3,585 724 3,226 1,396 3,237 2,689 516 468 551

Source: Cepheus compilaton based on Banks's FY 2017-18 Annual Reports. The data presentation format follows that of Renaissance Capital's bank reports, but modified in various places for the Ethiopian context.



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Private Banks Overview: FY 2017-18

Balance Sheet Ratios (%) AIB DB BOA WB NIB UB CBO LIB ZB OIB Bunna Berhan Abay Addis Enat DGBLoans/Assets 56 51 56 54 51 53 49 51 40 42 53 50 48 48 51 48 Loans/Deposits 96.0 97.3 98.4 108.3 96.3 96.6 83.0 96.8 77.6 79.3 102.6 97.7 94.1 100.7 99.3 109.0 Assets/Total Equity 851 774 753 716 790 949 1,258 792 733 918 657 639 684 469 546 478 Deposits/Liabilities 89 91 93 87 93 92 94 93 95 94 90 92 91 90 94 84 Capital Ratio (%)Capital/Assets 12 13 13 14 13 11 8 13 14 11 15 16 15 21 18 21

Deposit CompositionTotal Deposits 43,451 35,987 25,795 20,506 21,619 23,079 25,808 11,640 10,218 19,927 9,947 10,889 9,566 2,970 4,976 2,153 % Saving Deposits 62.9 63.6 62.8 48.8 60.2 57.4 61.1 70.7 61.0 58.0 58.7 53.0 64.2 43.0 43.0 57.9 % Checking Deposits 29.9 23.1 21.2 38.5 22.0 21.4 35.9 20.7 29.0 35.0 22.5 36.7 21.7 33.0 17.8 27.0 % Time Deposits 7.2 13.3 15.9 12.7 17.8 21.2 3.0 8.6 10.0 7.0 18.7 10.3 14.1 24.0 39.3 15.0

Revenue Composition (%)Net Interest Income/Income 69.3 60.4 75.1 58.4 74.4 66.5 65.1 66.1 38.9 50.0 64.2 61.5 53.8 43.3 40.4 39.2 Non -nterest Income/Income 30.7 39.6 24.9 41.6 25.6 33.5 34.9 33.9 61.1 50.0 35.8 38.5 46.2 56.7 59.6 60.8

Cost Ratios (%)Costs (exc int)/Income 36.3 44.2 44.4 41.6 38.2 40.1 48.6 41.9 30.9 40.0 41.3 46.5 41.0 42.3 29.6 47.1 Costs (exc int)/Avg Assets 4.1 4.8 5.0 5.3 4.0 4.6 5.1 5.2 3.2 4.9 5.0 5.9 5.1 5.4 3.9 7.4 Personal Expenses/Total Exp 35.8 32.3 34.4 33.2 30.3 31.1 38.1 32.3 21.7 40.7 29.7 38.6 29.0 28.2 22.1 30.3 Rent Expenses/Total Exp 5.3 7.1 7.3 8.5 7.6 6.6 6.6 - 4.9 2.5 10.5 7.7 8.0 12.6 6.7 9.5 Provision Expenses/Total Exp 0.2 3.1 4.7 3.0 2.5 4.5 (3.6) 4.7 3.4 1.2 4.2 2.2 6.2 2.4 1.0 3.7 Effective Tax Rate 24.0 18.7 26.5 24.4 21.9 18.8 21.9 18.7 20.8 22.4 26.2 20.2 24.3 23.6 26.6 24.9

MarginsEffective Deposit Rate 4.0 4.5 4.5 4.2 4.6 5.0 3.1 4.1 4.9 3.3 4.5 4.5 4.4 5.1 7.1 4.5 Effective Lending Rate (incl Bills) 12.2 10.9 12.6 11.6 11.6 11.9 11.2 12.7 10.6 11.9 12.2 12.7 11.8 11.4 12.1 12.4 Spread 8.2 6.4 8.1 7.5 7.0 6.9 8.1 8.5 5.7 8.6 7.8 8.2 7.4 6.3 5.0 7.9 NIM 7.9 6.1 7.7 7.5 6.7 6.5 7.5 8.1 4.0 7.6 7.6 7.9 6.9 6.1 4.4 7.7

Profitability Ratios (%)RoAA 3.1 2.0 1.9 3.3 2.2 2.3 2.2 3.1 2.4 3.6 2.8 2.7 3.0 3.0 2.8 4.0 RoAE 25.0 14.8 14.8 22.5 16.2 21.0 27.4 24.5 17.8 34.3 18.9 16.3 20.3 13.7 15.3 20.0 EPS 54.3 43.0 24.4 36.5 26.8 35.4 42.0 30.2 28.6 52.5 28.6 20.4 28.4 17.1 18.4 13.1

Efficiency RatiosBranch productivity

Deposit per branch 118.7 96.5 90.2 74.0 100.6 100.8 86.6 61.3 393.0 80.4 58.2 59.8 59.0 50.3 124.4 53.8 Loans per branch 84.8 61.8 62.2 53.4 62.8 64.9 49.4 38.8 192.1 40.2 40.0 38.8 36.4 34.5 82.9 38.8 Revenue per branch 14.8 11.9 11.4 11.1 11.6 12.6 8.4 8.2 43.7 10.0 8.1 8.5 8.1 8.3 18.8 10.5 Profit per branch 4.1 2.5 2.0 2.9 2.4 2.5 1.8 2.1 10.4 2.9 1.8 1.8 2.0 1.9 4.0 2.7

Employee productivityRevenue per employee 686,182 494,972 562,026 741,345 573,523 774,772 715,549 434,031 1,569,061 765,189 997,135 478,221 489,401 950,581 1,605,342 763,158 Profit per employee 189,367 103,799 96,652 190,540 118,883 154,053 149,330 109,010 374,309 225,666 225,645 101,328 117,888 218,992 339,530 193,466

Source: Cepheus compilaton based on Banks's FY 2017-18 Annual Reports. The data presentation format follows that of Renaissance Capital's bank reports, but modified in various places for the Ethiopian context.



56

Awash Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18Balance Sheet Balance Sheet Ratios (%)Assets 22,106 25,210 31,148 41,975 55,268 Loans/Assets 40.6 48.7 48.8 53.0 56.2Loans and Advances 8,967 12,265 15,215 22,247 31,049 Loans/Deposits 91.7 100.2 94.9 100.2 96.0NBE Bills 4,067 5,365 5,306 6,885 8,479 Assets/Total Equity 851.2 791.5 791.8 872.8 850.8Foreign Assets 1,684 1,134 1,758 2,477 2,970 Deposits/Liabilities 77.1 84.1 83.9 82.3 89.1Liabilities Capital Ratio(%)Deposits 15,039 18,520 22,832 30,591 43,451 Capital/Assets 11.7 12.6 12.6 11.5 11.8Paid-up Capital 1,394 1,777 2,243 2,645 2,944 Total Capital 2,597 3,185 3,934 4,809 6,496

Deposit CompositionDeposits 15,039 18,520 22,832 30,591 43,451

Income Statement % Saving Deposits 68.2 66.7 65.5 65.8 62.9 Interest Income 1,218 1,461 1,922 2,588 4,202 % Checking Deposits 24.1 22.9 15.9 26.9 29.9 Interest Expense 476 639 782 914 1,479 % Time Deposits 7.7 10.4 5.1 7.2 7.2 Net Interest Income 742 822 1,140 1,674 2,723 Other Income 703 839 901 1,176 1,206 Expenses Incl provisions 617 801 1,273 1,499 1,964 Revenue Composition (%)

o/w: Salaries and Benefits 341 467 615 848 1,234 Net Interest Income/Income 51.3 49.5 55.9 58.7 69.3o/w: Provisions 31 8 236 94 5 Non-interest Income/Income 48.7 50.5 44.1 41.3 30.7o/w: Admin and all other 244 326 422 557 725

o/w: Rent expenses 69 93 116 145 182 Profit before tax 829 861 986 1,350 1,964 Cost Ratios (%)Tax 211 216 244 347 472 Costs (exc int)/Income 32.1 34.8 45.1 39.8 36.3Profit after tax 618 645 744 1,003 1,492 Costs (exc int)/Avg Assets 3.1 3.4 4.5 4.1 4.1

Personal Expenses/Total Exp 31.2 32.4 29.9 35.1 35.8Rent Expenses/Total Exp 6.3 6.5 5.6 6.0 5.3

Key YOY growth rates (%) Provision Expenses/Total Exp 2.8 0.6 11.5 3.9 0.2Assets 24.3 14.0 23.6 34.8 31.7 Effective Tax Rate 25.4 25.1 24.7 25.7 24.0Loans and Advances 16.3 36.8 24.1 46.2 39.6 Foreign Assets - (32.7) 55.0 40.9 19.9 NBE Bills 29.3 31.9 (1.1) 29.8 23.2 Margins (%)Deposits 19.9 23.1 23.3 34.0 42.0 Effective Deposit Rate 3.5 3.8 3.8 3.4 4.0Paidup capital 19.1 27.5 26.2 17.9 11.3 Effective Lending Rate (incl Bills) 14.8 9.5 10.1 10.4 12.2Total Capital 25.7 22.6 23.5 22.2 35.1 Spread 11.3 5.7 6.3 7.0 8.2Total Income 35.3 19.7 22.7 33.3 43.7 NIM 9.0 5.4 6.0 6.7 7.9Total Expenses 30.6 31.7 42.7 17.4 42.7 Profit before tax 42.2 3.9 14.5 36.9 45.5

Profitability Ratios (%)RoAA 3.1 2.7 1.9 2.7 3.1

Per share data (ETB) RoAE 26.5 22.3 14.7 23.0 25.0Earnings per share (par 1000) 475 445 371 409 543 EPS 47.5 44.5 37.1 40.9 54.3Book Value per share (par 1000) 1,863 1,792 1,754 1,818 2,207

Efficiency RatiosNo. of: Branch productivity: Birr MillionsBranches 150 202 240 316 366 Deposit per branch 100.3 91.7 95.1 96.8 118.7Employees 4,787 5,847 6,003 6,772 7,881 Loans per branch 59.8 60.7 63.4 70.4 84.8

Revenue per branch 12.8 11.4 11.8 11.9 14.8Compensation costs Profit per branch 4.1 3.2 3.1 3.2 4.1Wages & Salaries, Birr mn 341 467 615 848 1,234 Employee productivity: BirrEmployees 4,787 5,847 6,003 6,772 7,881 Revenue per employee 401,295 500,700 361,786 384,948 441,940 Average monthly salary, Birr 5,936 6,656 8,537 10,435 13,052 Profit per employee 129,100 166,200 98,214 114,512 133,560

DATA IN USD TERMS:

Balance Sheet, USD mns 2013-14 2014-15 2015-16 2016-17 2017-18 Income Statement, USD mns 2013-14 2014-15 2015-16 2016-17 2017-18

Assets 1,129$ 1,226$ 1,429$ 1,816$ 2,027$ Interest Income 64$ 73$ 91$ 115$ 160$ Loans and Advances 458$ 596$ 698$ 963$ 1,139$ Interest Expense 25$ 32$ 37$ 41$ 56$ NBE Bills 208$ 261$ 243$ 298$ 311$ Net Interest Income 39$ 41$ 54$ 75$ 104$ Foreign Assets 86$ 55$ 81$ 107$ 109$ Other Income 37$ 42$ 43$ 52$ 46$ Liabilities Expenses Incl provisions 32$ 40$ 60$ 67$ 75$ Deposits 768$ 901$ 1,047$ 1,324$ 1,594$ Profit before tax 43$ 43$ 47$ 60$ 75$ Paid-up Capital 71$ 86$ 103$ 114$ 108$ Tax 11$ 11$ 12$ 15$ 18$ Total Capital 133$ 155$ 180$ 208$ 238$ Profit after tax 32$ 32$ 35$ 45$ 57$

Exchange rate, end-period 19.6 20.6 21.8 23.1 27.3 Exchange rate, year-avg 19.1 20.1 21.2 22.5 26.2

Source: Awash Bank Annual Reports and Cepheus Research compilation



57

Dashen Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18Balance Sheet Balance Sheet Ratios (%)Assets 21,962 24,763 28,576 34,624 45,425 Loans/Assets 42.9 45.8 43.7 51.2 50.8Loans and Advances 9,430 11,333 12,478 17,717 23,058 Loans/Deposits 81.5 91.5 88.1 98.3 97.3NBE Bills 4,090 5,811 6,430 8,217 10,169 Assets/Total Equity 845.3 846.9 825.9 867.1 774.3Foreign Assets 2,305 1,506 1,813 2,177 1,346 Deposits/Liabilities 91.3 90.7 90.6 90.7 91.0Liabilities Capital Ratio(%)Deposits 17,681 19,814 22,758 27,782 35,987 Capital/Assets 11.8 11.8 12.1 11.5 12.9Paid-up Capital 1,064 1,239 1,492 1,927 2,227 Total Capital 2,598 2,924 3,460 3,993 5,867


Income Statement % Saving Deposits 67.3 68.6 66.9 66.6 63.6 Interest Income 1,141 1,414 1,522 2,070 3,244 % Checking Deposits 26.0 24.0 26.1 24.3 23.1 Interest Expense 573 667 741 1,017 1,433 % Time Deposits 6.6 7.4 7.0 9.1 13.3 Net Interest Income 568 747 781 1,053 1,811 Other Income 1,004 1,101 1,212 1,344 1,186 Expenses Incl provisions 614 884 1,042 1,514 1,960 Revenue Composition (%)

o/w: Salaries and Benefits 313 501 569 788 1,095 Net Interest Income/Income 36.1 40.4 39.2 43.9 60.4o/w: Provisions - 13 29 132 105 Non -nterest Income/Income 63.9 59.6 60.8 56.1 39.6o/w: Admin and all other 301 370 444 594 760

o/w: Rent expenses 64 94 121 193 241 Profit before tax 958 964 951 979 1,143 Cost Ratios (%)Tax 245 235 224 223 214 Costs (exc int)/Income 28.6 35.1 38.1 44.3 44.2Profit after tax 712 729 727 756 929 Costs (exc int)/Avg Assets 2.9 3.8 3.9 4.8 4.8


Key YOY growth rates (%) Provision Expenses/Total Exp 0.0 0.8 1.6 5.2 3.1Assets 11.2 12.8 15.4 21.2 31.2 Effective Tax Rate 25.6 24.4 23.6 22.8 18.7Loans and Advances 8.9 20.2 10.1 42.0 30.1 Foreign Assets (8.4) (34.7) 20.4 20.1 (38.2) NBE Bills 39.9 42.1 10.7 27.8 23.8 Margins (%)Deposits 11.5 12.1 14.9 22.1 29.5 Effective Deposit Rate 3.4 3.6 3.5 4.0 4.5Paidup capital 44.4 16.4 20.4 29.2 15.6 Effective Lending Rate (incl Bills) 12.6 9.2 8.4 9.2 10.9Total Capital 27.0 12.5 18.3 15.4 46.9 Spread 9.2 5.7 5.0 5.2 6.4Total Income 18.1 17.2 8.7 24.9 29.8 NIM 6.3 4.9 4.3 4.7 6.1Total Expenses 18.2 30.7 15.0 41.9 34.1 Profit before tax 17.8 0.6 (1.3) 2.9 16.8




Revenue per branch 16.1 16.1 12.4 11.3 11.9Compensation costs Profit per branch 5.4 4.7 3.3 2.5 2.5Wages & Salaries, Birr mn 313 501 569 788 1,095 Employee productivity: BirrEmployees 4,284 4,597 5,630 7,297 8,950 Revenue per employee 500,700 547,096 485,613 467,864 494,972 Average monthly salary, Birr 6,089 9,082 8,422 8,999 10,196 Profit per employee 166,200 158,582 129,130 103,604 103,799

DATA IN USD TERMS:


Assets 1,122$ 1,204$ 1,311$ 1,498$ 1,666$ Interest Income 60$ 70$ 72$ 92$ 124$ Loans and Advances 482$ 551$ 572$ 767$ 846$ Interest Expense 30$ 33$ 35$ 45$ 55$ NBE Bills 209$ 283$ 295$ 356$ 373$ Net Interest Income 30$ 37$ 37$ 47$ 69$ Foreign Assets 118$ 73$ 83$ 94$ 49$ Other Income 53$ 55$ 57$ 60$ 45$ Liabilities Expenses Incl provisions 32$ 44$ 49$ 67$ 75$ Deposits 903$ 963$ 1,044$ 1,202$ 1,320$ Profit before tax 50$ 48$ 45$ 44$ 44$ Paid-up Capital 54$ 60$ 68$ 83$ 82$ Tax 13$ 12$ 11$ 10$ 8$ Total Capital 133$ 142$ 159$ 173$ 215$ Profit after tax 37$ 36$ 34$ 34$ 35$


Source: Dashen Bank Annual Reports and Cepheus Research compilation



58

Bank of Abyssinia Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18Balance Sheet Balance Sheet Ratios (%)Assets 11,276 13,668 16,828 25,325 31,983 Loans/Assets 44.9 43.2 47.6 55.0 55.6Loans and Advances 5,061 5,905 8,012 13,927 17,781 Loans/Deposits 90.4 88.6 90.8 97.0 98.4NBE Bills 2,711 3,389 3,683 5,121 6,314 Assets/Total Equity 737.5 754.7 792.3 871.8 753.4Foreign Assets 494 448 351 279 432 Deposits/Liabilities 93.3 93.8 92.7 92.3 93.0Liabilities Capital Ratio(%)Deposits 9,096 11,118 13,635 20,701 25,795 Capital/Assets 13.6 13.2 12.6 11.5 13.3Paid-up Capital 924 1,120 1,275 1,802 2,563 Total Capital 1,529 1,811 2,124 2,905 4,245


Income Statement % Saving Deposits 70.4 68.8 68.6 60.2 62.8 Interest Income 734 854 1,098 1,590 2,721 % Checking Deposits 20.4 23.1 25.0 28.0 21.2 Interest Expense 316 371 453 599 1,056 % Time Deposits 9.3 8.0 6.4 11.8 15.9 Net Interest Income 418 483 645 991 1,665 Other Income 279 352 536 789 553 Expenses Incl provisions 345 460 693 1,074 1,453 Revenue Composition (%)

o/w: Salaries and Benefits 173 239 389 615 863 Net Interest Income/Income 60.0 57.8 54.6 55.7 75.1o/w: Provisions - (2) 19 82 118 Non -nterest Income/Income 40.0 42.2 45.4 44.3 24.9o/w: Admin and all other 172 223 285 377 471

o/w: Rent expenses 55 74 112 146 183 Profit before tax 351 374 487 704 766 Cost Ratios (%)Tax 76 82 107 164 203 Costs (exc int)/Income 34.1 38.1 42.4 45.1 44.4Profit after tax 275 291 380 540 563 Costs (exc int)/Avg Assets 3.2 3.7 4.5 5.1 5.0


Key YOY growth rates (%) Provision Expenses/Total Exp 0.0 -0.2 1.7 4.9 4.7Assets 11.0 21.2 23.1 50.5 26.3 Effective Tax Rate 21.7 21.9 22.0 23.3 26.5Loans and Advances 9.8 16.7 35.7 73.8 27.7 Foreign Assets 33.2 (9.3) (21.7) (20.5) 54.8 NBE Bills 29.7 25.0 8.7 39.0 23.3 Margins (%)Deposits 7.1 22.2 22.6 51.8 24.6 Effective Deposit Rate 3.6 3.7 3.7 3.5 4.5Paidup capital 60.1 21.2 13.8 41.3 42.2 Effective Lending Rate (incl Bills) 15.2 10.0 10.5 10.3 12.6Total Capital 38.0 18.4 17.3 36.8 46.1 Spread 11.6 6.3 6.8 6.9 8.1Total Income 17.2 19.1 35.5 45.6 37.6 NIM 8.6 5.7 6.1 6.4 7.7Total Expenses 28.8 25.7 37.9 46.0 50.0 Profit before tax - 6.6 30.2 44.6 8.8




Revenue per branch 10.1 9.1 8.8 10.2 11.4Compensation costs Profit per branch 2.8 2.2 2.1 2.3 2.0Wages & Salaries, Birr mn 173 239 389 615 863 Employee productivity: BirrEmployees 2,800 3,290 4,144 4,144 5,825 Revenue per employee 361,786 366,565 394,305 574,083 562,026 Average monthly salary, Birr 5,149 6,054 7,823 12,367 12,346 Profit per employee 98,214 88,450 91,699 130,309 96,652

DATA IN USD TERMS:


Assets 576$ 665$ 772$ 1,096$ 1,173$ Interest Income 38$ 42$ 52$ 71$ 104$ Loans and Advances 259$ 287$ 368$ 603$ 652$ Interest Expense 17$ 18$ 21$ 27$ 40$ NBE Bills 138$ 165$ 169$ 222$ 232$ Net Interest Income 22$ 24$ 30$ 44$ 63$ Foreign Assets 25$ 22$ 16$ 12$ 16$ Other Income 15$ 17$ 25$ 35$ 21$ Liabilities Expenses Incl provisions 18$ 23$ 33$ 48$ 55$ Deposits 465$ 541$ 625$ 896$ 946$ Profit before tax 18$ 19$ 23$ 31$ 29$ Paid-up Capital 47$ 54$ 58$ 78$ 94$ Tax 4$ 4$ 5$ 7$ 8$ Total Capital 78$ 88$ 97$ 126$ 156$ Profit after tax 14$ 14$ 18$ 24$ 21$


Source: Bank of Abyssinia Annual Reports and Cepheus Research compilation



59

Wegagen Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18Balance Sheet Balance Sheet Ratios (%)Assets 11,529 13,711 16,190 20,949 27,391 Loans/Assets 39.3 44.3 46.4 48.9 54.0Loans and Advances 4,528 6,072 7,506 10,235 14,785 Loans/Deposits 95.3 105.2 104.9 103.1 108.3NBE Bills 3,040 4,162 4,345 5,099 6,395 Assets/Total Equity 537.7 568.0 577.0 624.2 715.8Foreign Assets 721 394 649 110 184 Deposits/Liabilities 89.3 90.4 88.7 88.8 87.0Liabilities Capital Ratio(%)Deposits 8,385 10,218 11,866 15,624 20,506 Capital/Assets 18.6 17.6 17.3 16.0 14.0Paid-up Capital 1,341 1,498 1,779 2,072 2,310 Total Capital 2,144 2,414 2,806 3,356 3,827


Income Statement % Saving Deposits 55.6 52.8 43.9 47.3 48.8 Interest Income 660 854 1,024 1,345 2,116 % Checking Deposits 36.8 40.2 9.5 37.1 38.5 Interest Expense 230 291 343 467 752 % Time Deposits 7.6 7.0 32.7 14.9 12.7 Net Interest Income 430 563 681 878 1,364 Other Income 409 473 509 798 972 Expenses Incl provisions 424 583 709 969 1,286 Revenue Composition (%)

o/w: Salaries and Benefits 243 324 380 544 677 Net Interest Income/Income 51.3 54.3 57.2 52.4 58.4o/w: Provisions (6) 28 40 38 61 Non -nterest Income/Income 48.7 45.7 42.8 47.6 41.6o/w: Admin and all other 187 231 289 386 547

o/w: Rent expenses 63 83 109 141 173 Profit before tax 414 453 478 708 1,050 Cost Ratios (%)Tax 95 100 103 176 257 Costs (exc int)/Income 39.7 43.9 46.2 45.2 41.6Profit after tax 318 353 375 532 794 Costs (exc int)/Avg Assets 3.9 4.6 4.7 5.2 5.3


Key YOY growth rates (%) Provision Expenses/Total Exp -0.9 3.2 3.8 2.7 3.0Assets 10.9 18.9 18.1 29.4 30.8 Effective Tax Rate 22.9 22.1 21.5 24.9 24.4Loans and Advances (1.2) 34.1 23.6 36.4 44.5 Foreign Assets (12.8) (45.4) 64.7 (83.1) 67.5 NBE Bills 28.9 36.9 4.4 17.4 25.4 Margins (%)Deposits 11.0 21.9 16.1 31.7 31.2 Effective Deposit Rate 2.9 3.1 3.1 3.4 4.2Paidup capital 22.9 11.7 18.8 16.5 11.5 Effective Lending Rate (incl Bills) 14.5 9.6 9.3 9.9 11.6Total Capital 17.2 12.6 16.2 19.6 14.0 Spread 11.6 6.5 6.2 6.5 7.5Total Income 10.2 24.1 15.5 39.8 44.1 NIM 9.4 6.3 6.2 6.5 7.5Total Expenses 26.5 33.6 20.4 36.5 41.9 Profit before tax (8.0) 9.4 5.5 48.1 48.3





DATA IN USD TERMS:


Assets 589$ 667$ 743$ 907$ 1,005$ Interest Income 35$ 42$ 48$ 60$ 81$ Loans and Advances 231$ 295$ 344$ 443$ 542$ Interest Expense 12$ 14$ 16$ 21$ 29$ NBE Bills 155$ 202$ 199$ 221$ 235$ Net Interest Income 22$ 28$ 32$ 39$ 52$ Foreign Assets 37$ 19$ 30$ 5$ 7$ Other Income 21$ 23$ 24$ 36$ 37$ Liabilities Expenses Incl provisions 22$ 29$ 34$ 43$ 49$ Deposits 428$ 497$ 544$ 676$ 752$ Profit before tax 22$ 23$ 23$ 32$ 40$ Paid-up Capital 68$ 73$ 82$ 90$ 85$ Tax 5$ 5$ 5$ 8$ 10$ Total Capital 110$ 117$ 129$ 145$ 140$ Profit after tax 17$ 18$ 18$ 24$ 30$


Source: Wegagen Bank Annual Reports and Cepheus Research compilation



60

Nib Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18

Balance Sheet Balance Sheet Ratios (%)Assets 10,747 13,256 15,830 21,020 26,689 Loans/Assets 50.3 52.0 47.5 51.0 50.6Loans and Advances 5,408 6,894 7,512 10,711 13,499 Loans/Deposits 107.2 114.2 99.0 101.3 96.3NBE Bills 2,686 3,775 4,168 5,096 6,230 Assets/Total Equity 547.2 608.9 628.7 711.6 789.6Foreign Assets 82 144 867 707 48 Deposits/Liabilities 90.2 88.2 93.3 90.9 92.7Liabilities Capital Ratio(%)Deposits 7,923 9,774 12,423 16,416 21,619 Capital/Assets 18.3 16.4 15.9 14.1 12.7Paid-up Capital 1,201 1,265 1,502 1,792 2,076 Total Capital 1,964 2,177 2,518 2,954 3,380


Income Statement % Saving Deposits 57.4 55.8 52.7 55.8 60.2 Interest Income 694 888 1,141 1,500 2,073 % Checking Deposits 31.7 30.7 33.3 29.0 22.0 Interest Expense 230 300 392 531 876 % Time Deposits 10.9 13.5 14.0 15.0 17.8 Net Interest Income 464 588 749 969 1,197 Other Income 345 310 290 447 412 Expenses Incl provisions 394 456 579 735 950 Revenue Composition (%)

o/w: Salaries and Benefits 194 236 291 387 554 Net Interest Income/Income 57.4 65.5 72.1 68.4 74.4o/w: Provisions 14 (11) 33 42 46 Non -nterest Income/Income 42.6 34.5 27.9 31.6 25.6o/w: Admin and all other 186 231 256 306 350



Key YOY growth rates (%) Provision Expenses/Total Exp 2.2 -1.5 3.4 3.3 2.5Assets 17.5 23.3 19.4 32.8 27.0 Effective Tax Rate 24.3 23.6 22.2 24.2 21.9Loans and Advances 22.1 27.5 9.0 42.6 26.0 Foreign Assets (77.0) 75.6 502.1 (18.5) (93.2) NBE Bills 40.6 40.5 10.4 22.3 22.3 Margins (%)Deposits 19.1 23.4 27.1 32.1 31.7 Effective Deposit Rate 3.2 3.4 3.5 3.7 4.6Paidup capital 20.2 5.3 18.7 19.3 15.8 Effective Lending Rate (incl Bills) 14.1 9.5 10.2 10.9 11.6Total Capital 17.9 10.8 15.7 17.3 14.4 Spread 11.0 6.1 6.7 7.2 7.0Total Income 22.1 15.3 19.4 36.1 27.6 NIM 9.4 6.3 6.7 7.1 6.7Total Expenses 31.9 21.2 28.4 30.4 44.2 Profit before tax 9.5 6.3 4.1 48.6 (3.4)





DATA IN USD TERMS:


Assets 549$ 645$ 726$ 910$ 979$ Interest Income 36$ 44$ 54$ 67$ 79$ Loans and Advances 276$ 335$ 345$ 464$ 495$ Interest Expense 12$ 15$ 19$ 24$ 33$ NBE Bills 137$ 184$ 191$ 221$ 229$ Net Interest Income 24$ 29$ 35$ 43$ 46$ Foreign Assets 4$ 7$ 40$ 31$ 2$ Other Income 18$ 15$ 14$ 20$ 16$ Liabilities Expenses Incl provisions 21$ 23$ 27$ 33$ 36$ Deposits 405$ 475$ 570$ 710$ 793$ Profit before tax 22$ 22$ 22$ 30$ 25$ Paid-up Capital 61$ 62$ 69$ 78$ 76$ Tax 5$ 5$ 5$ 7$ 5$ Total Capital 100$ 106$ 116$ 128$ 124$ Profit after tax 16$ 17$ 17$ 23$ 20$


Source: NIB Bank Annual Reports and Cepheus Research compilation



61

United Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18

Balance Sheet Balance Sheet Ratios (%)Assets 11,876 14,361 17,270 21,903 28,031 Loans/Assets 42.1 47.2 48.8 54.1 53.0Loans and Advances 4,997 6,776 8,423 11,848 14,870 Loans/Deposits 93.3 102.0 103.0 99.4 96.6NBE Bills 2,867 4,052 4,358 4,837 6,275 Assets/Total Equity 754.0 851.8 833.5 870.5 948.9Foreign Assets 827 546 773 880 824 Deposits/Liabilities 86.5 88.1 85.8 91.2 92.0Liabilities Capital Ratio(%)Deposits 8,909 11,164 13,038 17,684 23,079 Capital/Assets 13.3 11.7 12.0 11.5 10.5Paid-up Capital 898 975 1,252 1,558 1,781 Total Capital 1,575 1,686 2,072 2,516 2,954


Income Statement % Saving Deposits 63.6 62.3 62.3 52.1 57.4 Interest Income 716 948 1,226 1,549 2,264 % Checking Deposits 29.7 26.1 25.4 23.8 21.4 Interest Expense 278 386 526 635 1,027 % Time Deposits 6.7 11.6 12.3 17.4 21.2 Net Interest Income 438 562 700 914 1,237 Other Income 325 386 448 462 623 Expenses Incl provisions 401 590 720 887 1,157 Revenue Composition (%)

o/w: Salaries and Benefits 199 316 399 525 679 Net Interest Income/Income 57.4 59.3 61.0 66.4 66.5o/w: Provisions 1 11 27 37 99 Non -nterest Income/Income 42.6 40.7 39.0 33.6 33.5o/w: Admin and all other 201 263 294 325 380



Key YOY growth rates (%) Provision Expenses/Total Exp 0.1 1.1 2.2 2.4 4.5Assets 19.0 20.9 20.3 26.8 28.0 Effective Tax Rate 23.0 21.5 21.0 21.9 18.8Loans and Advances 8.1 35.6 24.3 40.7 25.5 Foreign Assets 155.2 (34.0) 41.6 13.8 (6.4) NBE Bills 31.2 41.3 7.6 11.0 29.7 Margins (%)Deposits 15.7 25.3 16.8 35.6 30.5 Effective Deposit Rate 3.3 3.8 4.3 4.1 5.0Paidup capital 49.7 8.6 28.4 24.4 14.3 Effective Lending Rate (incl Bills) 14.9 10.1 10.4 10.5 11.9Total Capital 31.1 7.0 22.9 21.4 17.4 Spread 11.5 6.3 6.0 6.5 6.9Total Income 14.9 28.1 25.5 20.1 43.6 NIM 9.1 6.0 5.9 6.2 6.5Total Expenses 27.6 43.7 27.7 22.2 43.5 Profit before tax (3.5) (0.8) 19.8 14.0 44.6





DATA IN USD TERMS:


Assets 607$ 698$ 792$ 948$ 1,028$ Interest Income 37$ 47$ 58$ 69$ 86$ Loans and Advances 255$ 329$ 386$ 513$ 545$ Interest Expense 15$ 19$ 25$ 28$ 39$ NBE Bills 146$ 197$ 200$ 209$ 230$ Net Interest Income 23$ 28$ 33$ 41$ 47$ Foreign Assets 42$ 27$ 35$ 38$ 30$ Other Income 17$ 19$ 21$ 21$ 24$ Liabilities Expenses Incl provisions 21$ 29$ 34$ 39$ 44$ Deposits 455$ 543$ 598$ 765$ 847$ Profit before tax 19$ 18$ 20$ 22$ 27$ Paid-up Capital 46$ 47$ 57$ 67$ 65$ Tax 4$ 4$ 4$ 5$ 5$ Total Capital 80$ 82$ 95$ 109$ 108$ Profit after tax 15$ 14$ 16$ 17$ 22$


Source: United Bank Annual Reports and Cepheus Research compilation



62

Cooperative Bank of Oromia: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18Balance Sheet Balance Sheet Ratios (%)Assets 7,350 11,538 10,687 17,724 29,888 Loans/Assets 49.6 56.9 54.8 54.6 49.2Loans and Advances 3,644 6,566 5,852 9,680 14,712 Loans/Deposits 87.3 114.5 94.9 95.9 83.0NBE Bills 840 1,505 1,776 3,299 5,424 Assets/Total Equity 674.3 775.9 875.3 1168.4 1258.1Foreign Assets 294 502 232 318 669 Deposits/Liabilities 87.1 73.3 89.7 88.1 93.8Liabilities Capital Ratio(%)Deposits 5,450 7,368 8,488 14,277 25,808 Capital/Assets 14.8 12.9 11.4 8.6 7.9Paid-up Capital 632 865 911 1,000 1,597 Total Capital 1,090 1,487 1,221 1,517 2,376


Income Statement % Saving Deposits 50.7 53.8 56.1 62.2 61.1 Interest Income 422 702 864 1,117 1,850 % Checking Deposits 46.4 43.6 34.9 33.2 35.9 Interest Expense 101 137 229 336 620 % Time Deposits 2.9 2.6 7.9 4.6 3.0 Net Interest Income 321 565 635 781 1,230 Other Income 460 524 255 409 658 Expenses Incl provisions 305 532 437 949 1,218 Revenue Composition (%)

o/w: Salaries and Benefits 120 162 189 415 700 Net Interest Income/Income 41.1 51.9 71.3 65.6 65.1o/w: Provisions 4 104 153 - (66) Non -nterest Income/Income 58.9 48.1 28.7 34.4 34.9o/w: Admin and all other 181 266 212 534 584

o/w: Rent expenses 35 53 72 96 122 Profit before tax 476 557 37 239 670 Cost Ratios (%)Tax 132 169 (2) 28 146 Costs (exc int)/Income 34.6 43.4 39.1 62.2 48.6Profit after tax 344 388 39 207 523 Costs (exc int)/Avg Assets 4.4 5.6 3.9 6.7 5.1


Key YOY growth rates (%) Provision Expenses/Total Exp 1.0 15.5 23.0 0.0 -3.6Assets 12.4 57.0 (7.4) 65.8 68.6 Effective Tax Rate 27.7 30.3 -5.4 11.7 21.9Loans and Advances 75.2 80.2 (10.9) 65.4 52.0 Foreign Assets (75.3) 70.7 (53.8) 37.1 110.5 NBE Bills 48.1 79.2 18.0 85.8 64.4 Margins (%)Deposits 22.1 35.2 15.2 68.2 80.8 Effective Deposit Rate 2.0 2.1 2.9 3.0 3.1Paidup capital 43.0 36.9 5.3 9.8 59.7 Effective Lending Rate (incl Bills) 14.7 11.2 11.0 10.8 11.2Total Capital 56.6 36.4 (17.9) 24.2 56.6 Spread 12.7 9.0 8.1 7.9 8.1Total Income 63.0 39.0 (8.7) 36.4 64.4 NIM 11.2 9.0 8.1 7.6 7.5Total Expenses 48.2 64.8 (0.4) 93.0 43.0 Profit before tax 78.3 17.0 (93.4) 545.9 180.3





DATA IN USD TERMS:


Assets 375$ 561$ 490$ 767$ 1,096$ Interest Income 22$ 35$ 41$ 50$ 71$ Loans and Advances 186$ 319$ 268$ 419$ 540$ Interest Expense 5$ 7$ 11$ 15$ 24$ NBE Bills 43$ 73$ 81$ 143$ 199$ Net Interest Income 17$ 28$ 30$ 35$ 47$ Foreign Assets 15$ 24$ 11$ 14$ 25$ Other Income 24$ 26$ 12$ 18$ 25$ Liabilities Expenses Incl provisions 16$ 26$ 21$ 42$ 46$ Deposits 278$ 358$ 389$ 618$ 947$ Profit before tax 25$ 28$ 2$ 11$ 26$ Paid-up Capital 32$ 42$ 42$ 43$ 59$ Tax 7$ 8$ (0)$ 1$ 6$ Total Capital 56$ 72$ 56$ 66$ 87$ Profit after tax 18$ 19$ 2$ 9$ 20$


Source: CBO Annual Reports and Cepheus Research compilation



63

Lion Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18Balance Sheet Balance Sheet Ratios (%)Assets 3,613 5,859 8,119 10,976 14,320 Loans/Assets 42.7 48.3 53.0 50.0 51.5Loans and Advances 1,541 2,830 4,303 5,486 7,374 Loans/Deposits 89.0 96.2 99.4 94.7 96.8NBE Bills 716 1,237 1,679 2,387 3,312 Assets/Total Equity 575.3 712.8 758.8 757.5 791.6Foreign Assets 74 504 219 261 33 Deposits/Liabilities 90.0 88.5 89.9 92.1 93.0Liabilities Capital Ratio(%)Deposits 2,687 4,457 6,334 8,775 11,640 Capital/Assets 17.4 14.0 13.2 13.2 12.6Paid-up Capital 447 510 642 938 1,184 Total Capital 628 822 1,070 1,449 1,809


Income Statement % Saving Deposits 61.3 58.7 64.2 67.7 70.7 Interest Income 209 327 527 764 1,173 % Checking Deposits 28.9 30.8 27.6 20.5 20.7 Interest Expense 74 107 170 241 424 % Time Deposits 9.8 10.5 8.3 11.4 8.6 Net Interest Income 135 220 357 523 749 Other Income 133 312 368 279 383 Expenses Incl provisions 141 256 376 451 652 Revenue Composition (%)


o/w: Rent expenses 23 33 46 59 - Profit before tax 127 276 350 351 480 Cost Ratios (%)Tax 31 75 88 82 90 Costs (exc int)/Income 41.2 40.1 42.0 43.2 41.9Profit after tax 97 201 261 268 391 Costs (exc int)/Avg Assets 4.3 5.4 5.4 4.7 5.2


Key YOY growth rates (%) Provision Expenses/Total Exp 1.9 8.3 7.1 3.8 4.7Assets 22.8 62.2 38.6 35.2 30.5 Effective Tax Rate 24.4 27.2 25.1 23.4 18.7Loans and Advances 18.4 83.6 52.0 27.5 34.4 Foreign Assets (56.7) 581.1 (56.5) 19.2 (87.4) NBE Bills 36.9 72.8 35.7 42.2 38.7 Margins (%)Deposits 27.6 65.9 42.1 38.5 32.6 Effective Deposit Rate 3.1 3.0 3.2 3.2 4.1Paidup capital 19.2 14.1 25.9 46.1 26.2 Effective Lending Rate (incl Bills) 14.7 10.3 10.5 11.0 12.7Total Capital 15.9 30.9 30.2 35.4 24.8 Spread 11.6 7.3 7.3 7.8 8.5Total Income 15.2 86.8 40.1 16.5 49.2 NIM 9.5 7.0 7.1 7.5 8.1Total Expenses 46.3 68.8 50.4 26.7 55.4 Profit before tax (15.9) 117.3 26.8 0.3 36.8





DATA IN USD TERMS:




Source: LIB Annual Reports and Cepheus Research compilation



64

Zemen Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18

Balance Sheet Balance Sheet Ratios (%)Assets 3,925 4,874 7,374 9,669 12,439 Loans/Assets 33.2 44.3 44.1 41.1 40.2Loans and Advances 1,304 2,157 3,254 3,971 4,995 Loans/Deposits 79.3 97.0 94.0 86.6 77.6NBE Bills 947 1,358 1,632 2,006 2,419 Assets/Total Equity 597.4 637.1 735.9 735.3 733.0Foreign Assets 466 444 1,075 1,133 1,463 Deposits/Liabilities 92.7 92.9 86.1 87.7 95.1Liabilities Capital Ratio(%)Deposits 3,031 3,819 5,487 7,328 10,218 Capital/Assets 16.7 15.7 13.6 13.6 13.6Paid-up Capital 450 500 650 850 1,125 Total Capital 657 765 1,002 1,315 1,697


Income Statement % Saving Deposits 64.8 60.1 49.5 58.8 61.0 Interest Income 205 263 367 463 712 % Checking Deposits 31.0 26.7 28.2 26.4 29.0 Interest Expense 114 137 207 295 442 % Time Deposits 4.2 13.1 22.3 14.7 10.0 Net Interest Income 91 126 160 168 270 Other Income 251 239 336 503 424 Expenses Incl provisions 175 165 199 316 352 Revenue Composition (%)

o/w: Salaries and Benefits 54 74 96 135 172 Net Interest Income/Income 26.6 34.5 32.3 25.0 38.9o/w: Provisions 55 - 24 40 27 Non -nterest Income/Income 73.4 65.5 67.7 75.0 61.1o/w: Admin and all other 66 91 79 141 153



Key YOY growth rates (%) Provision Expenses/Total Exp 19.0 0.0 5.9 6.6 3.4Assets 20.8 24.2 51.3 31.1 28.6 Effective Tax Rate 22.4 23.4 24.8 25.8 20.8Loans and Advances 4.1 65.4 50.9 22.0 25.8 Foreign Assets 13.4 (4.7) 142.1 5.4 29.1 NBE Bills 29.9 43.4 20.2 22.9 20.6 Margins (%)Deposits 21.0 26.0 43.7 33.6 39.4 Effective Deposit Rate 4.1 4.0 4.4 4.6 4.9Paidup capital 30.8 11.1 30.0 30.8 32.4 Effective Lending Rate (incl Bills) 16.0 9.1 8.7 8.5 10.6Total Capital 33.3 16.4 31.0 31.2 29.0 Spread 11.9 5.1 4.3 3.9 5.7Total Income 12.3 10.1 40.0 37.4 17.6 NIM 7.1 4.4 3.8 3.1 4.0Total Expenses 2.5 4.5 34.4 50.4 30.0 Profit before tax 33.1 21.8 34.3 31.9 (3.9)



Efficiency RatiosNo. of: Branch productivity: Birr MillionsBranches 9 11 11 15 26 Deposit per branch 336.8 347.2 498.8 488.5 393.0Employees 396 438 565 735 724 Loans per branch 144.9 196.1 295.8 264.7 192.1

Revenue per branch 50.7 45.6 63.9 64.4 43.7Compensation costs Profit per branch 14.2 13.9 18.5 17.6 10.4Wages & Salaries, Birr mn 54 74 96 135 172 Employee productivity: BirrEmployees 396 438 565 735 724 Revenue per employee 1,151,515 1,146,119 1,244,248 1,314,286 1,569,061 Average monthly salary, Birr 11,364 14,079 14,159 15,306 19,797 Profit per employee 323,232 349,315 359,292 359,184 374,309

DATA IN USD TERMS:




Source: Zemen Bank Annual Reports and Cepheus Research compilation



65

Oromia International Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18

Balance Sheet Balance Sheet Ratios (%)Assets 6,151 9,535 11,282 16,293 23,797 Loans/Assets 41.2 52.1 45.8 43.2 41.9Loans and Advances 2,532 4,963 5,166 7,042 9,969 Loans/Deposits 77.5 91.1 85.7 82.9 79.3NBE Bills 1,095 1,932 2,380 3,405 4,845 Assets/Total Equity 821.2 960.2 856.0 978.0 918.4Foreign Assets 250 193 248 1,102 1,287 Deposits/Liabilities 92.7 93.7 93.8 91.7 94.0Liabilities Capital Ratio(%)Deposits 5,005 8,006 9,348 13,414 19,927 Capital/Assets 12.2 10.4 11.7 10.2 10.9Paid-up Capital 540 679 921 1,168 1,607 Total Capital 749 993 1,318 1,666 2,591






Key YOY growth rates (%) Provision Expenses/Total Exp 2.9 4.9 3.9 3.5 1.2Assets 57.3 55.0 18.3 44.4 46.1 Effective Tax Rate 25.4 24.5 22.7 23.7 22.4Loans and Advances 58.4 96.0 4.1 36.3 41.6 Foreign Assets (21.6) (22.8) 28.5 344.4 16.8 NBE Bills 54.7 76.4 23.2 43.1 42.3 Margins (%)Deposits 64.1 60.0 16.8 43.5 48.6 Effective Deposit Rate 2.5 2.4 2.7 2.9 3.3Paidup capital 23.0 25.7 35.6 26.8 37.6 Effective Lending Rate (incl Bills) 15.8 9.8 10.8 10.1 11.9Total Capital 36.7 32.6 32.7 26.4 55.5 Spread 13.3 7.4 8.0 7.2 8.6Total Income 63.7 56.0 36.8 28.5 65.2 NIM 10.9 6.8 7.4 6.5 7.6Total Expenses 47.6 63.0 47.7 40.9 32.4 Profit before tax 101.0 43.4 (2.7) 32.5 147.5





DATA IN USD TERMS:




Source: OIB Annual Reports and Cepheus Research compilation



66

Bunna Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18Balance Sheet Balance Sheet Ratios (%)Assets 3,011 4,500 6,821 9,820 13,021 Loans/Assets 44.6 53.7 53.2 53.9 52.5Loans and Advances 1,343 2,418 3,632 5,290 6,842 Loans/Deposits 95.5 103.2 101.9 89.2 102.6NBE Bills 605 1,019 1,586 1,010 2,870 Assets/Total Equity 582.4 663.7 709.8 725.8 656.6Foreign Assets 220 106 244 512 25 Deposits/Liabilities 86.3 91.6 91.9 88.3 90.1Liabilities Capital Ratio(%)Deposits 2,152 3,501 5,385 7,479 9,947 Capital/Assets 17.2 15.1 14.1 13.8 15.2Paid-up Capital 417 508 686 1,010 1,475 Total Capital 517 678 961 1,353 1,983






Key YOY growth rates (%) Provision Expenses/Total Exp 2.7 4.0 7.2 3.8 4.2Assets 41.5 49.5 51.6 44.0 32.6 Effective Tax Rate 25.9 25.8 25.2 24.2 26.2Loans and Advances 43.2 80.0 50.2 45.6 29.3 Foreign Assets 20.9 (51.8) 130.2 109.8 (95.1) NBE Bills 53.9 68.4 55.6 (36.3) 184.2 Margins (%)Deposits 39.0 62.7 53.8 38.9 33.0 Effective Deposit Rate 3.0 3.2 3.9 3.9 4.5Paidup capital 35.4 21.8 35.0 47.2 46.0 Effective Lending Rate (incl Bills) 15.9 11.4 11.3 11.9 12.2Total Capital 37.9 31.1 41.7 40.8 46.6 Spread 12.9 8.3 7.4 8.0 7.8Total Income 53.9 62.3 52.5 25.7 50.6 NIM 11.0 8.1 7.3 7.1 7.6Total Expenses 66.4 60.1 60.8 41.9 40.4 Profit before tax 35.0 68.5 37.4 6.0 61.1



Efficiency RatiosNo. of: Branch productivity: Birr MillionsBranches 60 80 102 138 171 Deposit per branch 35.9 43.8 52.8 54.2 58.2Employees 550 747 938 1,167 1,396 Loans per branch 22.4 30.2 35.6 38.3 40.0

Revenue per branch 5.0 6.0 7.2 6.7 8.1Compensation costs Profit per branch 1.3 1.7 1.8 1.5 1.8Wages & Salaries, Birr mn 51 87 130 190 286 Employee productivity: BirrEmployees 550 747 938 1,167 1,396 Revenue per employee 540,000 645,248 783,582 791,774 997,135 Average monthly salary, Birr 7,727 9,705 11,549 13,568 17,073 Profit per employee 145,455 180,723 199,360 172,237 225,645

DATA IN USD TERMS:




Source: Bunna Bank Annual Reports and Cepheus Research compilation



67

Berhan Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18Balance Sheet Balance Sheet Ratios (%)Assets 2,814 4,172 7,196 10,488 14,068 Loans/Assets 41.4 44.9 51.4 51.2 50.2Loans and Advances 1,165 1,875 3,702 5,367 7,067 Loans/Deposits 90.1 92.6 104.5 104.4 97.7NBE Bills 547 814 1,567 2,178 3,030 Assets/Total Equity 507.9 573.9 678.9 556.4 638.9Foreign Assets 29 141 271 329 252 Deposits/Liabilities 89.0 89.1 86.3 88.2 91.8Liabilities Capital Ratio(%)Deposits 2,012 3,069 5,296 7,592 10,889 Capital/Assets 19.7 17.4 14.7 18.0 15.7Paid-up Capital 435 573 731 1,396 1,709 Total Capital 554 727 1,060 1,885 2,202






Key YOY growth rates (%) Provision Expenses/Total Exp 2.2 3.0 6.2 3.0 2.2Assets 28.1 48.3 72.5 45.7 34.1 Effective Tax Rate 26.2 24.5 25.7 25.9 20.2Loans and Advances 20.9 60.9 97.4 45.0 31.7 Foreign Assets (84.2) 386.2 92.2 21.4 (23.4) NBE Bills 56.7 48.8 92.5 39.0 39.1 Margins (%)Deposits 26.3 52.5 72.6 43.4 43.4 Effective Deposit Rate 3.4 2.9 3.2 3.5 4.5Paidup capital 39.0 31.7 27.6 91.0 22.4 Effective Lending Rate (incl Bills) 15.8 9.5 11.6 10.7 12.7Total Capital 45.0 31.2 45.8 77.8 16.8 Spread 12.4 6.7 8.3 7.2 8.2Total Income 78.0 24.7 110.7 48.2 32.9 NIM 10.1 6.2 8.2 7.2 7.9Total Expenses 81.6 31.5 98.9 48.8 64.1 Profit before tax 74.3 13.9 151.8 34.6 (12.7)



Efficiency RatiosNo. of: Branch productivity: Birr MillionsBranches 37 72 105 161 182 Deposit per branch 54.4 42.6 50.4 47.2 59.8Employees 693 1,181 1,815 2,470 3,237 Loans per branch 31.5 26.0 35.3 33.3 38.8

Revenue per branch 8.1 5.2 7.5 7.2 8.5Compensation costs Profit per branch 2.4 1.5 2.5 2.2 1.8Wages & Salaries, Birr mn 45 75 159 283 439 Employee productivity: BirrEmployees 693 1,181 1,815 2,470 3,237 Revenue per employee 431,457 315,834 433,058 471,660 478,221 Average monthly salary, Birr 5,411 5,292 7,300 9,548 11,302 Profit per employee 128,427 88,908 143,251 141,296 101,328

DATA IN USD TERMS:




Source: Berhan Bank Annual Reports and Cepheus Research compilation



68

Abay Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18Balance Sheet Balance Sheet Ratios (%)Assets 3,197 4,582 6,187 8,624 12,325 Loans/Assets 46.1 50.4 49.7 49.6 47.9Loans and Advances 1,475 2,311 3,074 4,274 5,898 Loans/Deposits 88.6 97.5 100.6 97.6 94.1NBE Bills 630 1,040 1,546 2,015 2,628 Assets/Total Equity 707.3 639.9 643.8 649.4 683.6Foreign Assets 45 155 83 185 995 Deposits/Liabilities 91.7 93.7 92.5 93.1 90.9Liabilities Capital Ratio(%)Deposits 2,518 3,624 4,833 6,792 9,566 Capital/Assets 14.1 15.6 15.5 15.4 14.6Paid-up Capital 372 551 719 1,000 1,325 Total Capital 452 716 961 1,328 1,803






Key YOY growth rates (%) Provision Expenses/Total Exp 3.2 3.3 4.1 3.3 6.2Assets 63.9 43.3 35.0 39.4 42.9 Effective Tax Rate 23.7 25.6 23.4 23.8 24.3Loans and Advances 75.0 56.7 33.0 39.0 38.0 Foreign Assets (2.2) 244.4 (46.5) 122.9 437.8 NBE Bills 68.4 65.1 48.7 30.3 30.4 Margins (%)Deposits 70.6 43.9 33.4 40.5 40.8 Effective Deposit Rate 3.2 3.5 3.5 3.8 4.4Paidup capital 28.7 48.1 30.5 39.1 32.5 Effective Lending Rate (incl Bills) 14.1 10.4 10.5 10.0 11.8Total Capital 33.7 58.4 34.2 38.2 35.8 Spread 10.9 6.9 7.0 6.3 7.4Total Income 72.4 70.0 27.5 36.7 51.6 NIM 8.5 6.5 6.8 6.0 6.9Total Expenses 81.7 51.4 33.9 40.0 45.1 Profit before tax 49.0 121.1 14.3 29.2 69.0



Efficiency RatiosNo. of: Branch productivity: Birr MillionsBranches 71 90 110 144 162 Deposit per branch 35.5 40.3 43.9 47.2 59.0Employees 741 876 1,058 1,249 2,689 Loans per branch 20.8 25.7 27.9 29.7 36.4

Revenue per branch 4.1 5.5 5.8 6.0 8.1Compensation costs Profit per branch 0.8 1.4 1.3 1.3 2.0Wages & Salaries, Birr mn 66 100 129 193 260 Employee productivity: BirrEmployees 741 876 1,058 1,249 2,689 Revenue per employee 395,412 568,493 600,189 694,956 489,401 Average monthly salary, Birr 7,422 9,513 10,161 12,877 8,058 Profit per employee 78,273 143,836 138,941 151,321 117,888

DATA IN USD TERMS:




Source: Abay Bank Annual Reports and Cepheus Research compilation



69

Addis International Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18Balance Sheet Balance Sheet Ratios (%)Assets 1,263 1,715 2,462 3,415 4,209 Loans/Assets 40.0 44.4 42.6 45.7 48.3Loans and Advances 505 762 1,050 1,562 2,035 Loans/Deposits 91.5 102.5 101.4 101.8 100.7NBE Bills 180 320 456 636 806 Assets/Total Equity 401.0 385.4 387.1 451.1 469.2Foreign Assets 66 118 165 237 189 Deposits/Liabilities 83.5 87.4 85.6 85.4 89.7Liabilities Capital Ratio(%)Deposits 792 1,110 1,563 2,271 2,970 Capital/Assets 24.9 25.9 25.8 22.2 21.3Paid-up Capital 262 366 516 609 710 Total Capital 315 445 636 757 897

Deposit CompositionDeposits 792 1,110 1,563 2,271 2,970





Key YOY growth rates (%) Provision Expenses/Total Exp 2.3 3.1 2.2 2.4 2.4Assets 37.9 35.8 43.6 38.7 23.3 Effective Tax Rate 25.0 25.6 23.9 13.8 23.6Loans and Advances 55.4 50.9 37.8 48.8 30.3 Foreign Assets 4.8 78.8 39.8 43.6 (20.3) NBE Bills 74.8 77.8 42.5 39.5 26.7 Margins (%)Deposits 41.2 40.2 40.8 45.3 30.8 Effective Deposit Rate 3.7 4.4 4.7 4.6 5.1Paidup capital 35.1 39.7 41.0 18.0 16.6 Effective Lending Rate (incl Bills) 14.7 10.9 11.6 10.8 11.4Total Capital 40.0 41.3 42.9 19.0 18.5 Spread 11.0 6.4 6.9 6.2 6.3Total Income 71.8 41.8 42.5 28.1 29.8 NIM 8.7 6.1 6.7 6.1 6.1Total Expenses 79.2 50.0 40.3 42.7 32.5 Profit before tax 62.2 30.0 44.9 66.4 (21.3)




Revenue per branch 6.6 6.7 7.4 7.3 8.3Compensation costs Profit per branch 2.0 1.9 2.1 1.8 1.9Wages & Salaries, Birr mn 18 31 47 77 97 Employee productivity: BirrEmployees 184 290 360 431 516 Revenue per employee 793,478 713,793 819,444 877,030 950,581 Average monthly salary, Birr 8,152 8,908 10,880 14,888 15,585 Profit per employee 244,565 200,000 236,111 213,457 218,992

DATA IN USD TERMS:




Source: Addis International Bank Annual Reports and Cepheus Research compilation



70

Enat Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18

Balance Sheet Balance Sheet Ratios (%)Assets 1,417 2,209 3,248 4,848 6,482 Loans/Assets 35.8 51.3 49.8 50.4 51.1Loans and Advances 507 1,133 1,616 2,441 3,314 Loans/Deposits 73.7 99.2 95.2 97.3 99.3NBE Bills 131 342 539 957 1,380 Assets/Total Equity 488.6 496.4 487.7 533.3 546.2Foreign Assets 3 42 112 162 79 Deposits/Liabilities 82.4 88.7 92.5 93.5 94.0Liabilities Capital Ratio(%)Deposits 929 1,565 2,389 3,681 4,976 Capital/Assets 20.5 20.1 20.5 18.8 18.3Paid-up Capital 262 384 565 764 971 Total Capital 290 445 666 909 1,187

Deposit CompositionDeposits 929 1,565 2,389 3,681 4,976





Key YOY growth rates (%) Provision Expenses/Total Exp 8.3 5.3 3.3 4.3 1.0Assets - 55.9 47.0 49.3 33.7 Effective Tax Rate 12.1 17.2 23.5 22.7 26.6Loans and Advances - 123.5 42.6 51.1 35.8 Foreign Assets - 1,300.0 166.7 44.6 (51.4) NBE Bills - 161.1 57.6 77.6 44.2 Margins (%)Deposits - 68.5 52.7 54.1 35.2 Effective Deposit Rate 3.4 5.1 5.3 6.6 7.1Paidup capital - 46.6 47.1 35.2 27.1 Effective Lending Rate (incl Bills) 16.5 11.9 10.1 10.7 12.1Total Capital - 53.4 49.7 36.5 30.6 Spread 13.1 6.9 4.8 4.1 5.0Total Income - 110.6 59.1 53.0 55.9 NIM 10.2 6.0 4.4 3.5 4.4Total Expenses - 121.7 60.9 73.7 43.9 Profit before tax - 93.9 59.4 25.5 69.1




Revenue per branch 10.4 18.0 15.0 14.2 18.8Compensation costs Profit per branch 3.2 4.8 3.8 2.9 4.0Wages & Salaries, Birr mn 13 27 45 71 118 Employee productivity: BirrEmployees 103 195 288 402 468 Revenue per employee 912,621 1,015,385 1,093,750 1,199,005 1,605,342 Average monthly salary, Birr 10,518 11,538 13,021 14,718 21,047 Profit per employee 281,553 271,795 274,306 246,269 339,530

DATA IN USD TERMS:




Source: Enat Bank Annual Reports and Cepheus Research compilation



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Debub Global Bank: Summary Financials, Birr mn unless otherwise stated

2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18Balance Sheet Balance Sheet Ratios (%)Assets 875 1,144 1,292 2,063 3,261 Loans/Assets 30.5 29.3 45.7 37.9 47.6Loans and Advances 267 335 591 781 1,554 Loans/Deposits 77.4 64.8 105.8 88.9 109.0NBE Bills 95 155 288 420 686 Assets/Total Equity 483.4 522.4 401.2 487.7 478.1Foreign Assets 72 42 11 130 163 Deposits/Liabilities 72.0 88.5 89.9 87.3 83.5Liabilities Capital Ratio(%)Deposits 500 819 872 1,432 2,153 Capital/Assets 20.7 19.1 24.9 20.5 20.9Paid-up Capital 177 198 262 351 580 Total Capital 181 219 322 423 682

Deposit CompositionDeposits 500 819 872 1,432 2,153


o/w: Salaries and Benefits 20 32 43 60 85 Net Interest Income/Income 38.5 29.2 37.8 32.3 39.2o/w: Provisions 3 - 6 6 10 Non -nterest Income/Income 61.5 70.8 62.2 67.7 60.8o/w: Admin and all other 24 34 35 67 103

o/w: Rent expenses 10 14 18 23 26 Profit before tax 18 23 68 68 142 Cost Ratios (%)Tax - 5 16 17 35 Costs (exc int)/Income 61.0 60.0 46.4 55.1 47.1Profit after tax 18 17 52 51 107 Costs (exc int)/Avg Assets 7.5 6.5 6.9 7.9 7.4


Key YOY growth rates (%) Provision Expenses/Total Exp 5.1 0.0 5.5 3.2 3.7Assets 129.7 30.7 12.9 59.7 58.1 Effective Tax Rate 0.0 21.7 23.5 25.0 24.9Loans and Advances 169.7 25.5 76.4 32.1 98.9 Foreign Assets 33.3 (41.7) (73.8) 1,081.8 25.2 NBE Bills 239.3 63.2 85.8 45.8 63.4 Margins (%)Deposits 216.5 63.8 6.5 64.2 50.4 Effective Deposit Rate 3.6 3.2 3.0 3.5 4.5Paidup capital 39.4 11.9 32.3 34.0 65.2 Effective Lending Rate (incl Bills) 20.2 11.0 12.3 10.1 12.4Total Capital 60.2 21.0 47.0 31.4 61.2 Spread 16.6 7.8 9.3 6.6 7.9Total Income 413.3 42.9 64.5 33.1 74.5 NIM 13.7 6.1 8.6 6.3 7.7Total Expenses 103.4 47.5 25.3 58.5 61.2 Profit before tax (228.6) 27.8 195.7 - 108.8




Revenue per branch 4.1 5.0 6.5 6.9 10.5Compensation costs Profit per branch 0.9 0.8 1.9 1.5 2.7Wages & Salaries, Birr mn 20 32 43 60 85 Employee productivity: BirrEmployees 329 376 478 533 551 Revenue per employee 234,043 292,553 378,661 452,158 763,158 Average monthly salary, Birr 5,066 7,092 7,497 9,381 12,780 Profit per employee 54,711 45,213 108,787 95,685 193,466

DATA IN USD TERMS:


Assets 45$ 56$ 59$ 89$ 120$ Interest Income 2$ 2$ 4$ 5$ 8$ Loans and Advances 14$ 16$ 27$ 34$ 57$ Interest Expense 1$ 1$ 1$ 2$ 3$ NBE Bills 5$ 8$ 13$ 18$ 25$ Net Interest Income 1$ 1$ 3$ 3$ 5$ Foreign Assets 4$ 2$ 1$ 6$ 6$ Other Income 2$ 3$ 5$ 6$ 8$ Liabilities Expenses Incl provisions 2$ 3$ 4$ 6$ 8$ Deposits 26$ 40$ 40$ 62$ 79$ Profit before tax 1$ 1$ 3$ 3$ 5$ Paid-up Capital 9$ 10$ 12$ 15$ 21$ Tax -$ 0$ 1$ 1$ 1$ Total Capital 9$ 11$ 15$ 18$ 25$ Profit after tax 1$ 1$ 2$ 2$ 4$


Source: Debub Global Bank Annual Reports and Cepheus Research compilation



72

DISCLAIMER Cepheus Growth Capital Partners (“Cepheus”) makes no warranty as to the accuracy or completeness of any information contained in this research report and hereby excludes any liability of any kind for the information contained herein or for the transmission, reception, storage or use of such information in any way whatsoever. Any opinions expressed in this report are those of the author(s) and do not necessarily reflect the views or opinions of the Fund’s Managing Partners, Advisors, or Investors.

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