FINANCIAL PERFORMANCE EVALUATION- A CASE OF AWASH INERNATIONAL BANK SHARE COMPANY

Abstract

This study was conducted under the title “Financial performance evaluation: a case study Of Awash International Bank (AIB) S.C.”. Its main objective was to compare and examine empirically the performance of the first private commercial bank in Ethiopia, i.e. Awash International Bank (AIB) in comparison with industry average with respect to liquidity profitability; credit risk & solvency and efficiency for the period of 2004-2015. This study was employing ratios (14 in total) such as Return on Asset (ROA), Return on Equity (ROE), Profit Expense Ratio (PER), Net Interest Margin (NIM), Loan to Deposit ratio (LDR), Cash To Deposit Ratio (CDR) Loan to Assets Ratio (LAR), Debt to Equity Ratio (DER), Debt to Total Asset Ratio (DTAR); Equity Multiplier(EM), Nonperforming Loans to Total Loans, Asset Utilization (AU), Income to Expense ratio (IER) and Operating Efficiency(OE). From the researcher analysis, AIB to be more profitable than industry average, what we expect when it comes to risk and solvency measures is according to the basic rule of finance “the higher the expected return the higher the risk”. Our findings of profitability and risk & solvency perfectly fit in this risk-return profile and allow us to conclude that AIB is more profitable, also more risky, and less solvent than industry average. Analysis of the results of all the risk and solvency measures, Debt Equity Ratio (DER), Debt to Total Assets ratio (DTAR), Equity Multiplier (EM), and Non Performing Loans to Total Loan Ratio (NPTL) indicates AIB to be more risky and less solvent than industry average. Like in profitability, and risk & solvency measures, AIB is found to be more efficient in terms of generating income or Income Expense Ratio (IER) and managing their expenses or Operating Efficiency (OE) as compared to industry average. In contrast, AIB is more efficient in terms of utilization of their assets or Asset Utilization (AU) ratio. This gives us some insight regarding AIB’s improvement in generating income, utilization of assets, and effective management in controlling expenses.