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February 8, 2019 0 Comment

ST. MARY’S UNIVERSITY COLLEGE
SCHOOL OF GRADUATE STUDIES
MBA PROGRAM
NIB INTERNATIONAL BANK
FINANCIAL ANALYSIS FOR YEARS FROM 2007/08 TO 2011/12
PREPARED BY :
MICHAEL ADBIB (SGS1/0083/2004)
PREPARED AS A PARTIAL REQUIREMENT FOR THE COURSE
ACCOUNTING AND FINANCE FOR MANAGERS
SUBMITTED TO :
ASHENAFI BEYENE (PhD)
MARCH 2013
ADDIS ABABA
I. INTRODUCTIONNib International Bank S.C. was established on 26th May 1999 under license No. LBB/007/99 in accordance with the Commercial Code of Ethiopia and the proclamation for Licensing and Supervision of Banking Business No. 84/1994 with a paid up capital of Birr 27.6 million and authorized capital of Birr 150 million by 717 shareholders and commenced its operation on 28th October 1999.

At the end of December 2012, the authorized and Paid-up capital of the Bank reached Birr 2 billion and Birr 980 million respectively. Shareholders’ and employees number also increased and reached to 3,832 and 2,168 respectively. Moreover, It operates through its head office in Addis Ababa, 62 branches, and 2 agency offices for foreign exchange transactions in and outside Addis Ababa. The Bank along with Awash International Bank and United Bank has also established a joint company named Premiere Switch Solutions (PSS) and has a network of about 60 ATMs providing 24 hours a day banking convenience to its customers.
1.1. VISION
NIB’s vision is to become an icon of excellence and the leading commercial Bank in Ethiopia.

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1.2. MISSIONNIB’s Mission is to provide efficient and effective full-fledged commercial banking services by utilizing qualified, honest and motivated staff and state-of-the-art technology and thereby optimize stakeholders’ interest.

1.3. VALUES of NIBNIB’s management and employees maintain the following essential values:
Loyalty
Transparency
Accountability
Confidentiality
Sustained growth
Competitive services
Honesty and integrity
Organizational excellence
Equal opportunity employer
Responsiveness to social obligations
Prudent and professional banking practices
1.4. OBJECTIVES of NIBNIB strives to efficiently operate to realize the following objectives:
Rendering efficient and customer focused domestic and international banking services supported by the state of the art technology;Making remarkable contribution for the monetization and growth of the economy by expanding banking habits in the society;Introducing and popularizing modern banking practices in the country; andGenerating optimum return for the shareholders of the Bank
Meeting the aforementioned objectives by the company requires various resources among which human resource is the crucial one. The other resources can not be utilized efficiently for the achievement of the company goals without having motivated and capable employees.
The objective of this paper is to show the financial status of Nib International Bank S.C (NIB) for the financial periods covering 2007/08 to 2011/12.

2. FINANCIAL ANALYSISFinancial analysis is the process of taking accounting and other financial data and organizing into a form which reveals a firm’s strengths and weaknesses. By heightening these areas, the users of financial information can make more informed decisions about the organizations. Bank financial performance and overall financial health is customarily evaluated using a CAMEL framework. The acronym “CAMEL” refers to the five components of a bank’s condition: Capital adequacy, Asset quality, Management, Earnings, and Liquidity. A sixth component, a Bank’s Sensitivity to market risk was added in 1997; hence the acronym was changed to CAMELS. CAMELS is basically a ratio-based model for evaluating the performance of banks. However, this paper focuses on the first five components of the model. Various ratios forming this model are explained below:
2.1. CAPITAL ADEQUACY
Capital adequacy ultimately determines how well financial institutions can cope with shocks to their balance sheets. Thus, it is useful to track capital-adequacy ratios that take into account the most important financial risks—foreign exchange, credit, and interest rate risks—by assigning risk weightings to the institution’s assets. (Ravi M., et. al., 2000)
It is important for a bank to maintain depositors’ confidence and preventing the bank from going bankrupt. It reflects the overall financial condition of banks and also the ability of management to meet the need of additional capital. The following ratios measure capital adequacy:
2.1.1. Shareholders’ Equity to Total Asset or Capital Adequacy Ratio
The capital adequacy ratio is developed to ensure that banks can absorb a reasonable level of losses occurred due to operational losses and determine the capacity of the bank in meeting the losses. According to Bank Supervision Regulation Committee (The Basle Committee) of Bank for International Settlements and NBE directive, a minimum 8 percent CAR is required.

Shareholders’ Equity to Total Asset = Total Shareholders Equity / Total Assets
Table 1: Capital Adequacy Ratios of NIB (2007/08-2011/12)
2007/08 2008/09 2009/10 2010/11 2011/12
Total Assets 3,650,111,159 4,806,507,027 5,970,511,304 7,111,808,078 8,239,472,177
Average Assets 3,128,353,765 4,228,309,093 5,388,509,166 6,541,159,691 7,675,640,128
Total Liabilities 3,051,986,485 4,077,683,469 5,054,002,878 5,941,048,159 6,747,749,153
Shareholders Equity 416,901,000 487,129,000 579,867,000 717,018,500 943,806,500
Capital ; Reserves 598,124,674 728,823,558 916,508,426 1,170,759,919 1,527,946,224
Capital Adequacy Ratios Year
2007/08 2008/09 2009/10 2010/11 2011/12
Debt-Equity Ratio 5.10 5.59 5.51 5.07 4.42
Shareholders Equity to Total Asset 13.3% 11.5% 10.8% 11.0% 12.3%
Capital adequacy ratio is calculated with the help of equity (Paid-up) capital of the bank with respect to its total risk weighted assets. However, since this is done through a more systematic way of classifying banks assets based on their risk category, we considered Capital Adequacy of the Bank as a ratio of shareholders capital divided by total assets mainly for simplicity reasons.

Central banks in most countries determine and keep the minimum CAR for commercial banks of the country. Minimum CAR determined by National Bank of Ethiopia (NBE) is 8%. In this regard, NIB managed to register good CAR and the ratio shows good quality of compliance with the regulatory requirements.
As can be seen in table 1, during the period under review, Capital Adequacy Ratio of Nib International Bank was well above the minimum 8% requirement set by the National Bank of Ethiopia. This indicates how the Bank’s asset growth is adequately backed by proportionate growth of equity. Especially, during the periods 2009/10 up to 2011/12, NIB’s capital adequacy ratio is increasing year after year and reached 12.3% in the financial year 2011/12; showing further improvement from the two preceding years level of 10.8% and 11.0%. The main reason for the increase in CAR of Nib International Bank is due to a substantial increase made in the paid-up capital of the Bank. The raising of this equity capital has helped the Bank continue its growth strategy and has strengthened its capital adequacy ratio.

Chart 1 : Trend in Shareholders Equity to Total Asset (2007/08-2011/12)

2.1.2. Debt-Equity Ratio (D/E)
This ratio indicates the degree of leverage of a bank. It indicates how much of the bank business is financed through debt and how much through equity.
Debt Equity Ratio = Liabilities / (Share Capital + Reserves)
The Debt to Equity Ratio also measures how much money a bank should safely be able to borrow over long periods of time. A bank that has a higher debt to equity ratio should be looked at more carefully to make sure that there are no liquidity problems.

The Debt Equity ratio of Nib International Bank was greater than 5 for the periods 2007/08 to 2010/11. i.e. The debt level is 5 times more than the equity of the Bank. This ratio is continuously declining year after year and reached 4.42 in 2011/12 from the level of 5.59 in 2009/10. The reason for the decline in the ratio is because of the sizable increase in the profit, capital and reserve of the Bank.

Chart 2 : Trend in Debt-Equity ratio (2007/08-2011/12)

2.2. ASSETS QUALITY
Asset quality determines the healthiness of financial institutions against loss of value in the assets. The weakening value of assets, being prime source of banking problems, directly pour into other areas, as losses are eventually written-off against capital, which ultimately expose the earning capacity of the institution. With this backdrop, the asset quality is gauged in relation to the level and severity of non-performing assets, adequacy of provisions, recoveries, distribution of assets etc. Popular indicators include non performing loans to advances, loan default to total advances, and recoveries to loan default ratios.

The quality of assets is an important parameter to gauge the strength of bank. The prime motto behind measuring the assets quality is to ascertain the component of non-performing assets as a percentage of the total assets. The ratios necessary to assess the assets quality are:
2.2.1. Non-Performing Loan (NPLs) to Total Advances
Advances are classified into performing and non-performing advances. A loan becomes nonperforming when it ceases to generate income for the Bank. According to National Bank of Ethiopia (NBE) Directives No. SBB/ 48/2010, a non performing loan includes (a) short term loans past due more than 90 days and (b) medium and long term loans past due more than 180 days. Extent of non-performing loan in the loan portfolio of a bank can be measured as follows:
Non-Performing Loan (NPLs) = NPLs / Total Loan Outstanding
Table 2: Asset Quality Ratios of NIB (2007/08-2011/12)
2007/08 2008/09 2009/10 2010/11 2011/12
Outstanding Loan 2,033,788,606 2,118,055,100 2,446,830,784 2,652,420,293 3,608,327,548
NPLs 99,835,609 100,859,766 112,876,690 119,517,021 103,867,275
Provision for Doubtful Debts 80,025,961 102,234,320 99,305,083 114,102,029 100,572,158
Asset Quality Ratios Year
2007/08 2008/09 2009/10 2010/11 2011/12
Non-Performing Loan (NPLs) 4.9% 4.8% 4.6% 4.5% 2.9%
Provision for loan losses: 3.9% 4.8% 4.1% 4.3% 2.8%
The percentage levels of Non Performing Loans reflect the performance of a bank with regard to maintaining quality assets. A high level of NPLs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of a bank and also wear down the value of the asset. Loans and advances of Nib International Bank represent the lion share of its total asset. It monitors the quality of the bank’s loan portfolio. The higher the ratio, the higher the credit risk.
When looking at chart 3 below the percentage level of NPLs for Nib International Bank is continuously decreasing from 2007/08 up to 2011/12 and able to maintain the level of NPLs below 5% throughout the period under review. For this reason, it can be said that the Bank is in a good position and it is successful in implementing a prudent lending practice and carrying out a proper follow-up and monitoring of credits extended to customers.

Chart 3 : Trend in Non-Performing Loans (2007/08-2011/12)

2.2.2. Provision for Loan Losses
Provision for Loan Loss = Provision for Doubtful Loans / Total Loan Outstanding
This ratio is used to check whether the bank’s gross NPLs are increasing year on year. An increasing amount would suggest that the bank is adding a fresh stock of bad loans. It would mean the bank is either not exercising enough caution when offering loans or is too sloppy in terms of following up with borrowers on timely repayments.

Banks having large amount of non-performing assets usually have to provide more provision against these non-performing loans. What we observed in our findings in Nib International Bank is that non-performing loans are greater than the provision for loan losses it provided against these loans.

As it is shown in Chart 4 ; 5, except for the financial year 2008/09, the percentage of provision held for loan losses is continuously decreasing and reached to the level of 2.8% from what has been in the financial year 2008/09 which was 4.8%. Moreover, the percentage of provision held for loan loss was below the percentage of non-performing loans of the Bank throughout the past five years.

Chart 4 : Trend in Provision for Loan Loss (2007/08-2011/12)

Chart 5 : Trend in %age of Non Performing Loan(NPL) ; Provision for Loan Loss (2007/08-2011/12)

2.3. MANAGEMENT EFFICIENCY
Management efficiency is another important element of the CAMEL Model. The ratio in this segment involves subjective analysis to measure the efficiency and effectiveness of management. The ratios used to evaluate management efficiency are described as:
2.3.1. Total Advances to Total Deposits (TA/TD)This ratio measures the efficiency and ability of the bank’s management in converting the deposits available with the bank excluding other funds like equity capital, etc. into high earning advances.

Total Advance to Total Deposit Ratio = Total Advance / Total Deposit
Table 3: Management Efficiency Ratios of NIB (2007/08-2011/12)
2007/08 2008/09 2009/10 2010/11 2011/12
Outstanding Loan 2,033,788,606 2,118,055,100 2,446,830,784 2,652,420,293 3,608,327,548
Total Assets 3,650,111,159 4,806,507,027 5,970,511,304 7,111,808,078 8,239,472,177
Average Assets 3,128,353,765 4,228,309,093 5,388,509,166 6,541,159,691 7,675,640,128
Total Deposits 2,469,931,303 3,296,389,970 4,127,188,480 5,157,401,343 5,838,126,809
Total Income 316,582,374 426,016,429 556,505,111 656,654,036 759,429,631
Profit After Tax 113,038,847 154,058,453 200,886,555 246,432,996 286,234,320
No. of Employees 1,329 1,513 1,606 1,832 2,042
Management Efficiency Ratios Year
2007/08 2008/09 2009/10 2010/11 2011/12
Total Advance to Total Deposit Ratio 82.3% 64.3% 59.3% 51.4% 61.8%
Revenue (Income) per Employee: 238,210.97 281,570.67 346,516.26 358,435.61 371,904.81
Profit per Employee: 85,055.57 101,823.17 125,085.03 134,515.83 140,173.52
The loan to deposit ratio is used to calculate a lending institution’s ability to cover withdrawals made by its customers. A lending institution that accepts deposits must have a certain measure of liquidity to maintain its normal daily operations. Loans given to its customers are mostly not considered liquid meaning that they are investments over a longer period of time. Although a bank keeps a certain level of mandatory reserves, it may also choose to keep a percentage of its non-lending investing in short term securities to ensure that any monies needed can be accessed in the short term. (Ravi M., et. al., 2000)
When looking at the loan to deposits ratio of Nib International Bank, the ratio has been continuously decreasing for four consecutive years starting from 2007/08 up to 2010/11. In this regard the ratio has been declining year after year from 82.3% in 2007/08 to 51.4% in 2010/11. The main reason for the decline in this ratio is because of the imposition of credit cap by NBE in 2008 which inturn diminished the lending capacity of the bank until the credit cap is lifted and replaced by the purchase of NBE bills in April 2010. However, during the financial year 2011/12, the ratio has slightly increased to 61.8% mainly due to the lifting of the credit cap by the National Bank of Ethiopia and for the reason that the Bank was able to extend about one billion birr in 2011/12. In general, it can be said that the loan to deposits ratio of NIB is in a very good position and the lending practice of the Bank is in line with the regulatory requirement.

Chart 6 : Trend in Total Advance to Total Deposit Ratio (2007/08-2011/12)

2.3.2. Profit per Employee (PPE)This shows the surplus earned per employee. It is known by dividing the profit after tax earned by the bank by the total number of employees. Profit per employee is a measure of how efficiently a bank is utilizing its employees. Ideally, a bank wants the highest profit per employee.

Profit per Employee = Profit after tax / No. of Employees
In Nib International Bank, the profit per employee was Birr 85,055 in 2007/08 and it has increased to Birr 140,173 in 2011/12 which shows that profit per employee is increasing year after year throughout the periods under consideration i.e. 2007/08 – 2011/12. The main reason for the continuous increase in PPE is due to the fact that a relatively more profit is generated than the additional number of staff employed. This shows that the efficiency of the work force of Nib International Bank is in a good position and a remarkable one.
Chart 7 : Trend in Revenue per Employee ; Profit per Employee (2007/08-2011/12)

2.3.3. Revenue per Employee (RPE)Revenue per employee shows the productivity of human force of bank. It is used as a tool to measure the efficiency of employees of a bank in generating revenue for the bank.

Revenue per Employee = Total Income / No. of Employees
Revenue per employee is a measure of how efficiently a particular bank is utilizing its employees. Ideally, a bank wants the highest income per employee possible, as it denotes higher productivity. In Nib International Bank, this ratio increases continuously year after year from Birr 238,210 in the year 2007/08 to Birr 358,435 and Birr 371,904 in 2010/11 and 2011/12 respectively. This continuous rising revenue per employee which is registered in Nib International Bank is a positive sign that suggests the bank is finding ways to squeeze more revenues out of each of its employee.
2.4. EARNING QUALITY
The quality of earnings is a very important criterion that determines the ability of a bank to earn consistently. It basically determines the profitability of bank and explains its sustainability and growth in earnings in future. (Prasad, K.V.N. and Ravinder, G.,2012). Although different indicators are used to serve the purpose, the most widely used indicators are Return on Assets (ROA), Return on Equity (ROE), and Interest Income to total income. The following ratios explain the quality of income generation.
2.4.1. Return on Assets (ROA)This ratio measures return on assets employed or the efficiency in utilization of assets. Return on Asset Ratio shows that how much return a bank can get from its total asset. The higher the ratio of ROA, it is a good sign for the bank.

Return on Asset (ROA) = Net Profit / Average Asset
As it can be shown in the chart below, the ROA of Nib International Bank has been continuously and slightly increasing until the financial year 2010/11 but it declined to 3.7% in 2011/12. In 2010/11 this ratio was 3.8% and it has decreased in 2011/12 to 3.7%. The ratio decreased in the financial year 2011/12 because of 17.3% increment in average assets against the increase in net profit which was 16.1%.
Chart 8 : Trend in Return on Assets – ROA (2007/08-2011/12)

Table 4: Earning Quality Ratios of NIB (2007/08-2011/12)
2007/08 2008/09 2009/10 2010/11 2011/12
Total Assets 3,650,111,159 4,806,507,027 5,970,511,304 7,111,808,078 8,239,472,177
Average Assets 3,128,353,765 4,228,309,093 5,388,509,166 6,541,159,691 7,675,640,128
Shareholders Equity /Capital/ 416,901,000 487,129,000 579,867,000 717,018,500 943,806,500
Average Shareholders Equity 357,237,250 452,015,000 533,498,000 648,442,750 830,412,500
Interest Income 209,998,084 253,590,455 266,283,969 332,858,672 433,645,833
Total Income 316,582,374 426,016,429 556,505,111 656,654,036 759,429,631
Profit After Tax 113,038,847 154,058,453 200,886,555 246,432,996 286,234,320
Earning Quality Ratios Year
2007/08 2008/09 2009/10 2010/11 2011/12
Return on Asset (ROA) 3.6% 3.6% 3.7% 3.8% 3.7%
Return on Equity (ROE) 31.6% 34.1% 37.7% 38.0% 34.5%
Interest Income to Total Income 66.3% 59.5% 47.8% 50.7% 57.1%
2.4.2. Return on Equity (ROE)
This is net income after taxes to shareholders equity ratio. A higher ratio indicates the better income generating capacity of the equity and better efficiency of management.

Return on Equity (ROE) = Net Profit / Average Shareholder’s Equity
When looking at the ROE of Nib International Bank, it was continuously increasing year after year from 31.6% in 2007/08 to 38.0% in the year 2010/11. This is a good time for the Bank to be ‘giving back’, for it has just completed a very successful year. In this regard, its net profit rose by an average of about Birr 40 million annually and efficiency levels have risen well over the periods 2007/08 up to 2010/11. However, during the financial year 2011/12, return on Paid-up Capital expressed as the ratio of net profit after tax to average paid-up capital stood at 34.5% .The return is about 3.5% lower than that of the preceding year. Thus, a share with a par value of Birr 500 earned about Birr 172 showing a decline of Birr 18 per share. The main reason for the decline in Return on Equity (ROE) is due to the substantial increase in the paid-up capital of the Bank.

Chart 9 : Trend in Return on Equity – ROE (2007/08-2011/12)

2.4.3. Interest Income to Total IncomeInterest income is a basic source of revenue for banks. The interest income to total income indicates the ability of the bank in generating income from its lending. In other words, this ratio measures the income from lending operations as a percentage of the total income generated by the bank in a year.
Interest Income to Total Income = Interest Income / Total Income
When examining the financial statements of Nib International Bank, this ratio had been declining between the periods 2007/08 up to 2009/10. During these periods the ratio has been falling down from 66.3% in 2007/08 to 47.8% in 2009/10; which was a good sign for the Bank. However, during the next two years the ratio has exhibited an increase and reached to 50.7% and 57.1% in 2010/11 and 2011/12 respectively. By looking at these it can be said that NIB is making the lion share of its income from interest earned on loans and advances extended to borrowers. For this reason it can also be said that the Bank is more dependent on interest income than other areas of businesses. In this regard, since being dependent on single type of income has a great risk, the management should take care of being solely dependent on it and should also look for other mix of business activities.

Chart 10 : Trend in Interest Income to Total Income (2007/08-2011/12)

2.5. LIQUIDITY
An adequate liquidity position refers to a situation, where an institution can obtain sufficient funds, either by increasing liabilities or by converting its assets quickly at a reasonable cost. It is, therefore, generally assessed in terms of overall assets and liability management, as mismatching gives rise to liquidity risk. Risk of liquidity is curse to the image of bank. Bank has to take a proper care to hedge the liquidity risk; at the same time ensuring good percentage of funds are invested in high return generating securities, so that it is in a position to generate profit with provision liquidity to the depositors (Prasad, K.V.N. and Ravinder, G.,2012). The following ratios are used to measure the liquidity:
2.5.1. Liquid Assets to Total Assets (LA/TA)
It measures the overall liquidity position of the bank. Liquidity for a bank means the ability to meet its financial obligations as they come due. Bank lending finances investments in relatively illiquid assets, but it fund its loans with mostly short term liabilities. Thus one of the main challenges to a bank is ensuring its own liquidity under all reasonable conditions. Liquid assets include cash in hand, balance with NBE, balance with other banks (both local and foreign), and investment in government securities with maturity less than a year.

Liquid Asset to Total Asset = Liquid Asset / Total Asset
Table 5: Liquidity Ratios of NIB (2007/08-2011/12)
2007/08 2008/09 2009/10 2010/11 2011/12
Liquid Assets 1,332,685,620 2,334,559,125 2,568,663,358 3,444,564,168 2,730,682,840
Total Assets 3,650,111,159 4,806,507,027 5,970,511,304 7,111,808,078 8,239,472,177
Total Deposits 2,469,931,303 3,296,389,970 4,127,188,480 5,157,401,343 5,838,126,809
Liquidity Ratios Year
2007/08 2008/09 2009/10 2010/11 2011/12
Liquid Asset to Total Asset 36.5% 48.6% 43.0% 48.4% 33.1%
Liquid Asset to Total Deposit 54.0% 70.8% 62.2% 66.8% 46.8%
In Nib International Bank, the trend of this ratio is fluctuating and showing ups and downs from year to year during the period under consideration. In 2007/08 this ratio was 36.5% and it increased to 48.6% in 2008/09. This ratio, however, decreased to 43% in the year 2009/10 because of increment in total assets by about Birr 1.2 billion. In 2010/11, this ratio has increased to 48.4% but in 2011/12 it falls down to the record low ratio of 33.1%. The decline for this ratio mainly attributes to the decline in the balance of the payment and settlement account with NBE and a substantial increase registered in the total assets of the Bank.

Chart 11: Trend in Liquid Asset to Total Asset & Liquid Asset to Total Deposit (2007/08-2011/12)

2.5.2. Liquid Assets to Total Deposits (LA/TD)This ratio measures the liquidity available to the total deposits of the bank. Total deposits include demand deposits, savings deposits and fixed time deposits.

Liquid Asset to Total Deposit = Liquid Asset / Total Deposit
The ratio shows how much part of the deposits invested into liquid asset, which can be easily converted into monetary value at the time of need. In Nib International Bank, the ratio was 54.0% in 2007/08 and after some ups and downs it reached 46.8% in 2011/12.

In the year 2008/09, the ratio had hit a record high of 70.8% for the reason that NBE has imposed a credit ceiling which inturn limits the lending capacity of NIB and obliged the Bank to hold excess cash on hand. Due to this, NIB has been so liquid during the credit cap period (2008/09-2010/11) and able to maintain a liquid asset to total deposit ratio of more than 60%. However in 2011/12, right after the lifting of the credit cap, this ratio has sharply declined and reached to 46.8%. The decline for this ratio mainly attributes to the decline in the balance of the payment and settlement account with NBE and a substantial increase registered in the total deposits of the Bank.

3. ISSUES THAT REQUIRE MANAGEMENT ATTENTIONFrom the overall financial ratio analysis of NIB, for the periods covering 2007/08 to 2011/12, it can be observed that the Bank is in a good financial position and it is performing considerably well. However, from the financial analysis we made, we have also observed that there are some areas where the Management of the Bank has to focus on. One of these areas is concerning liquidity issue. In this regard, the liquidity position of the Bank is falling down in recent years especially after the financial year 2010/11. So that it needs serious attention from top Management of the Bank.

The other area of attention to the Management of Nib International Bank is to minimize the relatively high dependency on interest income. As can be observed in the financial ratio analysis, the Bank is much dependent on interest income by constituting an average of about more than 50% of the total income. Since being dependent on single type of income has a great risk, the management should take care of this and should look for other lines of banking businesses.

4. CONCLUSION & RECOMMENDATION4.1. CONCLUSIONThis financial analysis made an attempt to examine and interpret the financial ratios of Nib International Bank. The analysis is based on the CAMEL Model which examines the capital adequacy, asset quality, management efficiency, earning capacity and liquidity. This paper has found out lots of financial ratio results, some of which are mentioned as below:
The Bank has succeeded in maintaining a higher capital adequacy ratio which is well above the minimum required level of 8% set by the National Bank of Ethiopia. This is a very good sign for the bank to cope up with shocks and expand its business in the future.

The percentage of Non Performing Loan (NPL) ratio has registered a declining trend for all the past five financial years starting from 2007/08 up to 2011/12. This indicates that there is an improvement in the asset quality of the Bank. In this regard, NIB has been successful in managing the level of NPL below the regulatory requirement of 5%.
Concerning Management Quality, we have found that Revenue per Employee Ratio and Profit per Employee Ratio of NIB has been continuously increasing during the last five years. This permanent increment shows the growth of the bank as well as efficiency of the employee, which is very good for the bank as it will help the bank to grow in the future.
Regarding Earnings Quality, the major part of income for the Bank comes from Interest income. Because of this, it can be said that the Bank is much dependent on interest income realized from loans and advances. For this reason, a little change in the behavior of borrowers or the lending interest rate will highly affect the profitability of NIB.

Though there are some fluctuations as well as ups and downs, the results of the liquidity ratios indicate that the Bank is in a better liquidity position and performed well throughout the period under consideration. However, the liquidity position of the Bank is falling down in recent years especially after the financial year 2010/11. For this reason, it needs serious attention from top Management of the Bank.

4.2. RECOMMENDATIONS
Based on the above mentioned findings and results, we suggest the Management of Nib International Bank to look for the following recommendations.

From the financial analysis we made, we observed that the liquidity position of the Bank is falling down in recent years which is not a good signal for the Bank. In order to tackle this problem and improve the liquidity position of the Bank, the management has to do more in mobilizing more deposits and foreign exchanges by devising ways to expand its branch network and foreign exchange bureaus in strategic locations of the country.

In the main body of this paper, we identified that the Bank is getting the lion share of its income from interest earned on loans and advances. For this reason, the ratio of interest income to total income is found to be high which inturn lead the Bank to become much dependent on interest income. Since being dependent on single type of income has a great risk, the management should take care of this and should look for other lines of banking businesses like international banking operations, commissions and other fee based incomes.

5. REFERENCESAudited Annual Reports of Nib International Bank (2007/08 up to 2011/12)
Bubula, A. and I. Otker-Robe (2002), “The Evolution of Exchange Rate Regimes Since 1990: Evidence From De Facto Policies”, IMF Working Paper No. 02/155.
Diamond, D. and P. Dybvig (1983), Bank runs, deposit insurance, and liquidity, Journal of Political Economy, 91, 401–419.
http://www.investopedia.com/terms/l/loan-to-deposit-ratio.asp. Accessed on February 21,2013 Prasad, K.V.N. and Ravinder, G.(2012) “A Camel Model Analysis of Nationalized Banks In India” Int. J. of Trade and Commerce-IIARTC, Vol. 1, No. 1, pp.23–33
Ravi, M., Amin, P. (2010), Rating the Performance of the Bank through CAMELS Model, Tolani Institute of Management Studies, India
Thakor (1996) “The design of financial systems: An overview”, Journal of Banking & Finance, 20(5), 917-948
Tirole, J. (2002), Financial Crises, Liquidity, and the International Monetary System, Princeton University Press.

AnnexNBE Camels Rating for Dec.2012

TABLE OF CONTENTS
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TOC o “1-3” h z u I. INTRODUCTION PAGEREF _Toc349855365 h 01.1. VISION PAGEREF _Toc349855366 h 11.2. MISSION PAGEREF _Toc349855367 h 11.3. VALUES of NIB PAGEREF _Toc349855368 h 21.4. OBJECTIVES of NIB PAGEREF _Toc349855369 h 22. FINANCIAL ANALYSIS PAGEREF _Toc349855370 h 32.1. CAPITAL ADEQUACY PAGEREF _Toc349855371 h 32.1.1. Shareholders’ Equity to Total Asset or Capital Adequacy Ratio PAGEREF _Toc349855372 h 32.1.2. Debt-Equity Ratio (D/E) PAGEREF _Toc349855373 h 52.2. ASSETS QUALITY PAGEREF _Toc349855374 h 62.2.1. Non-Performing Loan (NPLs) to Total Advances PAGEREF _Toc349855375 h 62.2.2. Provision for Loan Losses PAGEREF _Toc349855376 h 72.3. MANAGEMENT EFFICIENCY PAGEREF _Toc349855377 h 92.3.1. Total Advances to Total Deposits (TA/TD) PAGEREF _Toc349855378 h 92.3.2. Profit per Employee (PPE) PAGEREF _Toc349855379 h 102.3.3. Revenue per Employee (RPE) PAGEREF _Toc349855380 h 112.4. EARNING QUALITY PAGEREF _Toc349855381 h 122.4.1. Return on Assets (ROA) PAGEREF _Toc349855382 h 122.4.2. Return on Equity (ROE) PAGEREF _Toc349855383 h 132.4.3. Interest Income to Total Income PAGEREF _Toc349855384 h 142.5. LIQUIDITY PAGEREF _Toc349855385 h 152.5.1. Liquid Assets to Total Assets (LA/TA) PAGEREF _Toc349855386 h 152.5.2. Liquid Assets to Total Deposits (LA/TD) PAGEREF _Toc349855387 h 173. ISSUES THAT REQUIRE MANAGEMENT ATTENTION PAGEREF _Toc349855388 h 184. CONCLUSION ; RECOMMENDATION PAGEREF _Toc349855389 h 194.1. CONCLUSION PAGEREF _Toc349855390 h 194.2. RECOMMENDATIONS PAGEREF _Toc349855391 h 205. REFERENCES PAGEREF _Toc349855392 h 21
AcknowledgementWe wish to express our special gratitude to our instructor, Ashenafi Beyene (PhD), for giving us the opportunity to apply what we have learned in classroom sessions to a real business firm experience and deepen our understanding about financial analysis of a company.

ACRONYMSCAR-Capital Adequacy Ratio
DE-Debt to Equity
LA-Liquid Assets
NBE-National Bank of Ethiopia
NIB-Nib International Bank
PPE-Profit per Employee
ROA-Return on Assets
ROE-Return on Equity
RPE-Revenue per Employee
TA-Total Assets
TD-Total Deposits

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