Provision expense dwindles Wegagen Bank’s profits

The provision expense of Wegagen Bank triple slashing the profit by 82 percent for the financial year that ended in June 2021.
The bank that disclosed the 2020/21 financial year report a week ago, stated that its total expense surged by 44 percent in the stated period.
In the 2019/20 financial year the bank’s total expense was 3.3 billion birr which ballooned to 4.8 billion birr in the financial year that ended on June 30, 2021.
According to the annual report, although the provision expense took 18 percent of the total expense of the 2020/21 financial year it has contributed to increase in the total expense significantly.
The report stated that the provision expense increased by 307 percent compared with the preceding year due to the non performing loans (NPL) rate showing increment in the year.
A year ago the share of provision expense for doubtful loans and advances was only 6 percent of the total expenses which went on to stretch to 18 percent in the past financial year.
In the reported year, the bank was forced to hold 864 million birr as provision expense due the NPL while but a year ago this amount was 231 million birr.
From the total expense, the salary and benefit took the lion share followed closely by interest expense and general expense with 31 percent, 30 percent and 20 percent respectively.
In the financial year ended on June 30, 2020, it is worth recalling that the interest expense stood at the top taking 37 percent share from the total expense amount.
According to Abdishu Hussien, Chairperson of the Board of Directors of Wegagen Bank, the provision expense increment has significantly affected the bank’s profit in the reported period.
In the year, the bank managed to secure 193.1 million birr in profit before tax which is a huge chop of 82 percent when compared with 1.07 billion birr in the preceding year.
Abdishu said that NPL mainly occurred in relation to the conflict in northern part of the country. He said that the bank was unable to collect loans provided for customers in the stated conflict area.
In the year the bank totally secured five billion birr in revenue which increased by 13 percent in comparison with 4.4 billion birr of the 2019/20 financial year.
Similarly, the deposit mobilization has shown a five percent increment to stand at 31.5 billion birr.
According to the annual report, the total outstanding loans and advances increased by 15 percent to reach 27.3 billion birr.
At the end of the reported year, the total asset of the bank has reached almost 40 billion birr with four percent growth on year to year basis.
At the reported period, the paid up capital of Wegagen increased by 400 million birr to reach at 3.3 billion birr. In the year Wegagen’s profit after tax has stood at 126.7 million birr showing significant shrinkage from 832 million birr on June 30, 2020.