By Hayal Alemayehu

A policy decision made by the National Bank of Ethiopia (NBE) has partly contributed to a slow-down witnessed in credit growth rate at Awash International Bank (AIB), the bank's board of directors' report released on Thursday indicated.

Issued last year, the reported policy decision raised the statutory reserve requirement of commercial banks operating in the country from five percent to ten percent.

 According to the report, the move has contributed to the reduction of funds that the bank could loan out during the year 2007.

Outstanding loans and advances the bank mobilized, including provisions for doubtful loans and advances, stood at 2.5 billion birr as of the end of  2007, registering a three percent rate of growth against that of the previous year, the report said. The rate of credit growth the bank registered during the previous year was over 59 percent, which diminished to a mere three percent during the reported year.  

Although the total deposits of the bank have increased reasonably, loans and advances failed to do so, both in terms of rate of growth and magnitude," reads the report. "There are two basic reasons for this. The first is related to policy decision made by the NBE, which raised the statutory reserve requirement from five percent to ten percent during the year 2007. The impact of this policy move is reduction of funds that AIB could have loaned out during the year under review."

The second reason is related to the shrinkage of carry over excess liquidity to the year 2007, according to the report. "There was a good opportunity of using accumulated liquidity carried over from the past years during 2006 which lead to substantial growth in loans and advances raising the bank's loan/deposit ratio to a record high level.

The lion's share of the bank's outstanding loans and advances, about 32.7 percent, was taken by domestic trade and services. Transport, building and construction, manufacturing, import, agriculture and export sectors have taken 10.4 percent, 11.1 percent, 9.7 percent, 13.4 percent, 6.5 percent, and 10.2 percent, respectively, during the year 2007, while the remaining six percent was the share of personal loans and others.

The report stated that the bank was able to significantly reduce the level of its non-performing loans. "The bank has continued giving special attention to the subject of minimizing credit risk through pre-disbursement precautions and post-disbursement follow up of loans and advances. Consequently, a lower single digit ratio of non-performing loans was achieved at the end of the reported year."

The other area the bank registered good performance was in the international banking services it offers for exporters and importers, according to the report. "The value of imports and exports handled during the year 2007 grew by 35 percent and 8.5 percent respectively, compared with the level of imports and exports achieved during 2006," reads the report. "Although the rate of growth of exports, the major source of foreign exchange for financing imports has been low, significant efforts were made during the year to enhance foreign exchange earnings through inward money transfers in order to meet the continuously growing foreign exchange demand for imports to the extent possible."

According to the report, the total income the bank generated from international banking services picked up by about 35 percent against that of the previous year. The bank is poised to further strengthen its international banking service in the future, the report noted.

During the reported year, the bank netted 126.6 million in profits, the amount being 33 percent higher than what it secured in profits during the previous year.

Earnings per share for the year 2007 stood at about 526 birr, almost equal to that of the previous year. The paid-up capital of the bank has, however, increased from 200 million birr at the end of 2006 to 282.3 million birr at the end of the reported year, according to the report.

The report said that the level of profit the bank achieved to make in 2007 was higher than the level envisaged by its strategic plan spanning five year from the report year. The result was mainly attributed to a sizeable increase in aggregate income of the bank which picked up from 284 million birr in 2006 to 382.1 million birr during the year 2007.

The significant component of the total income the bank made was the interest income (61 percent), followed by gains on foreign exchange dealings, commission and service charges, and other incomes respectively contributing 22 percent, 14 percent and three percent, according the report.
The bank's total expenses also increased 35 percent from 149.9 million birr to 202.8 million birr between the years 2006 and 2007.

During the reported year the bank mobilized a total of 3.5 billion in deposits, which was higher than the amount registered during the previous year by about 26 percent. Saving deposit accounted for the significant share of about 69 percent, followed by demand deposit (20 percent) and time deposit (8.4 percent), while the remaining balance accounted for by margin held accounts on L/Cs.

The bank currently operates across 47 branches in Addis Ababa and outside.

At the closing of the reported year, the bank's total assets reached over 4.78 billion birr, up by 1.1 billion birr from the level registered at the end of the previous year, according to the report. The bank's capital and reserves also increased by 41 percent to stand at 483 million birr as of the end of 2007.