Oromia Bank 2020 - 21 Report
Oromia Bank 2020 - 21 Report
REPORT
Page 1
Our Vision
Annual Report 2020/21
To Become the
Bank of Your
First Choice
Page 2
ANNUAL
REPORT
2020/21
Our Mission
Our Values
Page 6
Our Bank’s Key Performance Trend as at June 30,2021
Deposit Loan+IFB Financing
34.35 B
25.77 B
27.73 B
20.30 B
26.59 B
17.42 B
19.93 B
11.65 B
13.46 B 8.28 B
9.37 B 5.77 B
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
41.69 B
5.49 B
33.83 B
4.60 B
31.78 B
3.71 B
23.80 B
2.59 B
16.23 B 1.65 B
11.20 B 1.32 B
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
2,489,484 11,760
10,740
1,716,131
10,262
1,390,773
8,240
1,114,467
6,874
806,739
5,242
537,960
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
2016/17
2017/18
2015/16
2016/17
2017/18
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
2018/19
2019/20
2020/21
2018/19
2019/20
2020/21
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Board of Directors
Dr. Assefa Seme Obbo Ajema Gondel Eshetu Temesgen (PhD) Obbo Deressa Kenea
Member Member Member Member
Girma Balcha (PhD) Obbo Worku Homa Obbo Gudeta Gelalcha Fanta Tesgera (PhD)
Member Member Member Member
Dear respected shareholders, invited guests, observers from the Growth is concentrated in a few major
National Bank of Ethiopia and Documents Authentication and economies, with most emerging markets
Registration Agency (DARA); and developing economies (EMDEs) lagging
behind: while about 90% of advanced
Ladies and Gentlemen;
economies are expected to regain their pre-
On behalf of the Board of Directors and myself, I am honored pandemic per capita income levels by 2022,
to welcome you all to the 12th Annual General Meeting of only about one-third of EMDEs are expected
Shareholders. It is also a great privilege for me to present to do so. Global GDP is expected to remain
the Annual Report of the Board of Directors focusing on key 1.8% below pre-pandemic projections
performances of our Bank for the financial year ended June 30, compared to recoveries from previous
2021. global recessions.
Page 9
The third five-year strategic plan of the Bank has been prepared current budget year. The construction of our
in such a way that it is properly aligned with the country’s ten four-storey building in Adama City has been
year perspective plan and Digital Ethiopia 2025 strategy. The completed; our Adama District office has
strategy has also taken into account the opportunities that the already been relocated to the new building,
Annual Report 2020/21
establishment of the capital market will offer to the Banking and the remaining offices are being rented
industry. out to various businesses.
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regard, the newly elected board has crafted its own three-year Finally, I would like to extend my heartfelt
board agenda focusing on key areas of OB’s transformation and vote of thanks to our honorable shareholders
reached a consensus with the senior management team of our for their confidence in us and unfailingly
Bank. continued support; esteemed customers for
As much are there are challenges in the industry, there are also
enormous opportunities ahead of us. Let us all put our energies
together in order to convert the challenges into opportunities and
make careful use of them.
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Senior
Managment Members
Obbo Alemayehu Demisse Obbo Wolde Bulto Obbo Geleta Bekuma Obbo Jote Kenate
V/P, Corporate Support V/P, Branch Banking V/P, Information Technology V/P, Strategy and Change
Mangement
Obbo Faysel Yassin Obbo Ketema Mengesha Obbo Berhanu Edae Obbo Dagnachew Negash
V/P, Credit and Int’l Banking Chief, Risk Management and Chief, Internal Audit Director, Legal Services
Compliance
Obbo Teshite Suleyman Obbo Worku Lema Obbo Gelana Leta Obbo Endale Foye
Director, Interest-free Banking Advisor to the President Director, Human Resource Director, Operation and District
Management Support
Obbo Tesfaye Deressa Obbo Belay Bayisa Obbo Mikiyas Bogale Obbo Fati Haji
Director, Credit Management Director, Strategic Mgt & Business Director, Accounting and Treasury Director, IT Modernization
Development
Obbo Tatek Negassa Obbo Merga Dugassa Obbo Zeleke Begna Obbo Gadissa Gurmu
Director, Electronic Banking A/Director, Procurement and Director, IT Systems Operation Director, Int’l Banking Services
Facility Mgt
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policy changes are crucial to overcome challenges such as 316 after opening additional 16 branches
unemployment, inflation, food insecurity and climate change. during the year. The customer base in
terms of number of deposit accounts
Similarly, the Ethiopian economic performance was challenged
grew by 45% and reached 2.49million.
by COVID-19 pandemic and the year-long conflict and instability
The Ethiopian banking industry has been healthy and modestly OB’s financial profitability performance
growing during the year. Number of commercial banks in the during the year has demonstrated a pretty
industry summed up to 19 comprising 17 private and 2 public encouraging growth trend. Accordingly,
banks. But, there were more banks under formation including revenue grew by 18% from the last year
full-fledged interest free banks. Bank branch network coverage same period and reached Birr 4.52billion.
reached 7,344 while the total capital of the banking system At the same time, the total expense of the
reached Birr 153.7 Billion (NBE report, Fourth Quarter 2020/21). year reached Birr 3.38billion, which depicts
Total banking industry deposit reached Birr 1.4trillion showing 30.3 a growth of 22% compared to last year
% average yearly increment. At the same time, total outstanding same period. As a result, profit before tax of
bank lending and financing was Birr 1.3trillion showing 24.3% Birr 1.13billion is achieved, after deduction
annual growth. of yearly employees incentive(bonus),
indicating a year-on-year growth of 6%
There had been major regulatory interventions during the year compared to the previous year same period.
such as currency change (redemption), limit on customer deposit This being the case, our average dividend
withdrawal and an increase on paid up capital requirement of payout per share has shown tremendous
banks to Birr 5Billion. growth of 24% compared to the previous
year.
Honourable Shareholders;
The reporting year was peculiar in terms
Amid challenges including continued adverse impact of COVID-19
of execution of a number of parallel
pandemic, political instability, increasing competition and
construction and other projects. The
regulatory requirements, OB has scored another year of success.
Headquarters construction project at ‘Goma
The results of operational performances depict the continuation Kuteba’ site, which was eagerly awaited
of growth trajectory of our bank. The branch network reached by stakeholders has already begun during
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the fiscal year being contracted to a well experienced Chinese Full implementation of the designed functional
Company and it is in a very good progress; the foundation work strategies and IT assisted performance
is undergoing well. The construction of G+4 building at Adama management system will help to boost the
was completed recently and ready for use. It will be used for the success of our bank in the years to come.
Annual Report 2020/21
Adama District Office, branch office as well as for generating The just introduced corporate brand identity
rental income. The fence work at the Gelan Future Training and represented by standing and forward looking
Convention Center is also completed and we are on the process horse embedded in a globe with new
of hiring design consulting company to craft design of the trade name Oromia Bank and rebranded
state-of-the-art multipurpose Training and Convention Center. Headquarters and Branch offices is a
Moreover, the follow up on securing the second Headquarters launching pad for our bank to leap forward
building plot around ‘Sengatera’ area is going on and promising. and competitive enough in the industry
There are other promising efforts to acquire land at different reaching upward with promise, outward in
major towns for future construction of branch and district friendship and forward in confidence.
offices.
Finally, I would like to thank all our respected
The other noticeable project during the period was the customers for choosing us to serve them
development of our bank’s 3rd strategic plan, functional and being a reason for OB’s successive
strategies, process redesign and implementation of IT growth for a period of more than one decade.
based performance management system, which is done by Our shareholders also deserve thanks for
internationally renowned consultant, German-based Frankfurt continuously investing in and supporting
School of Finance and Management. Most of the study works continuous improvement and growth of our
were performed during the reporting period and implementation bank. Our board of directors is also a key for
has been started during the current year. The modernization of the successful achievements of OB in the
our bank’s state-of-the art IT data center with fully integrated financial year by giving competent strategic
security operation system was another milestone achievement. directions for which I shall also say thank you
Moreover, building and full operation of the disaster recovery with more to come. Moreover, management
center (DR) has been completed. members and employees of OB deserve
thanks for their commitment and dedication
Our corporate rebranding project of our bank with in-
to make our bank the bank of first choice
depth professional work, which took more than 20 months
as per its vision. I also want to extend my
has resulted in comprehensive development of our brand
thanks to the NBE, both regional and federal
identity including development of trade name, logo, related
governments for their unwavering continuous
standardization and office ergonomics in which our branches
guidance and support as always.
and offices are renovated in a user friendly appearance.
Honourable shareholders, members
Honourable Shareholders;
of the board of directors, members of
The year 2021 is a year of transformation for our Bank in a bid management, employees and invited guests
to comfortably respond the future state of banking business once again thank you and welcome to our
that is requiring well thought competent strategies to overcome colourful general assembly and I wish fruitful
challenges including intensifying competition as a result of discussions and resolutions.
increasing number of banks, ever increasing customer taste, on
Indeed we are serving to empower you…
top of increasing regulatory requirements, continuing impacts
of COVID- 19 and political instability. Accordingly, following I thank you!
development of the 3rd Corporate Strategic Plan in collaboration
with the Frankfurt School of Finance and Management, our
bank has embarked on implementing the strategy with utmost
determination to bring radical change on all aspects of its key
performance indicators despite all the environmental hurdles. Teferi Mekonnen Yadete
The transformation effort has a goal of creating superior
President
customer experience in our Bank.
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Annual Report 2020/21
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Board of Directors’ Report
The Board of Directors of Oromia Bank competition and political instability in the domestic market on
hereby presents the Annual Performance the other hand, our Bank registered commendable results
Annual Report 2020/21
Report of our Bank for the year ended 30 in almost all Key Performance Indicators in the financial year
June 2021 to the 12th Annual General ended on 30 June 2021.
Meeting of Shareholders as follows;
1.1 Deposits
1. Operational Performance
The corporate total deposit of our Bank surged to Birr 34.35
Despite the adverse impact of international billion, which is a 23.85% growth compared with that of the
trade like higher price for crude oil, and base previous year similar period.
metal on one hand, and industry’s fierce
21.31B
Saving Deposits
9.28B Demand Deposits
Total deposit 27.73B Fixed Time Deposits
3.75B
16.68B
7.12B
3.93B
2019/20 2020/21
The total outstanding loans and advances plus IFB financing has reached Birr
25.77 billion as at June 30, 2021, exhibiting a growth of 27% over the position
attained at the end of the preceding year.
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Table 2: Loans and Advances plus IFB financing by Economic Sector composition (in millions)
2. Financial Performance
2.1 Income
By the end of the financial year 2020/21, our Bank earned an aggregate
income of Birr 4.52 billion showing an increment of 18 % relative to the
balance achieved in 2019/2020 fiscal year.
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Figure 2. Income Composition by type as at June 30, 2021
7.2%
2.5
20
Annual Report 2020/21
5.2%
20
4 .1
20
/2
%
1
1
13.
Interest income from Loans and advances
9/
7%
20
13.
6%
Fee and commission income
2.2 Expense
In 2020/2021 budget year, the total expenses of our Bank increased to Birr 3.39
billion, exhibiting 22% upsurge over the previous year’s level of Birr 2.77 billion. This
increasing expense is mainly attributed to operating expense which constituted
36.48% followed by amortization of right use assets expenses 33.35 % and
Personnel expenses 28.33 % during the financial year under review.
2.3 Profit
Profit before tax hit yet another record-high and reached Birr 1.13 billion,
showing a growth of 6% compared with that of last year same period of
Birr 1.07 billion. Our Bank has managed to generate a net profit of Birr
872 million after holding provision of Birr 257 million for income tax of the
fiscal year.
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2.4 Return on Asset and Capital * If prudential provision is greater than IFRS
provision; the excess provision resulting should
Return on asset (ROA), expressed as the ratio of profit before be transferred from the retained earnings
tax to average assets, of our Bank is 3.0% for the financial year account to regulatory risk reserve.
2020/21, while return on Equity (ROE), expressed as the ratio
the time-based provisioning prescribed by the National Bank of Thus, the Board of Directors requests
Ethiopia (NB’s) Directives. This is at variance with the expected the Annual General Meeting to approve
credit loss model required by International Financial Reporting the distribution of Birr 735.5 million to
Standards (IFRS) under IFRS-9. When the difference occurs the shareholders after holding the above-
between the two approaches, the IFRS provision should be mentioned reserves and deducting the
compared with provisions determined under the NBE Directives Directors’ share of the profit and prior year
and the difference is treated as follows; (over)/under provision.
Table: 5 Retained Earnings of 2020/21
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3.2 Information Technology and Digital Banking 4. Interest- Free Banking (IFB)
Services Performance
In order to fulfill the current and future needs of our customers, Oromia Bank is a pioneer in implementing
implementation of advanced technology plays paramount role
Annual Report 2020/21
3.3 Branches and Service outlet Expansion At the end of the reporting year, our Bank has
mobilized Birr 4.88 billion from Interest- Free
Our Bank has continued getting closer to its esteemed Banking wing, showing increment by 23.6%
customers through its extensive branch network, electronic and compared with that of last year same period
digital channels. During the just ended financial year, the total achievement. During the reporting period,
number of our Bank branches reached 316. Our Bank opened IFB deposit by category reveals that Wadi’ah
16 new branches across the country with the view of becoming deposit accounted for 75.6% and Amana
accessible to the public at large. As a result, the number of our deposit took 24.2%. On the other hand, the
Bank service outlets reached 743 including ATM and Agency IFB deposit of our Bank constituted 14 % of the
Banking. total corporate deposit portfolio which is similar
with share of last year’s.
3.4 Construction of Own Buildings
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4.2 IFB Financing a wide range of sectors of the economy.
Among these, construction and services took
At the close of the reporting period, the total IFB Financing the lion’s share followed by Domestic Trade
availed to different economic sectors reached over Birr 3.54 Services. The IFB financing outstanding
billion, up by Birr 638.86 million (22%) from that of last year
At the end of the financial year under review, the IFB wing
generated a total foreign currency of USD 15.30 million. During
2020/21, IFB’s foreign currency generation has contributed 8%
of aggregate corporate total foreign currency generation.
The IFB wing has generated a total income of Birr 416 million
during the financial year 2020/21. Out of the total corporate
income of our Bank, IFB income constitutes 6%.
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Table 9: IFB Expense by Type
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5.3 The Functions of the Board Board Subcommittee consists of five Directors.
The committee supervises the proper
The BOD has ultimate responsibility for the development and implementation of the Interest Free Banking,
implementation of our Bank’s appropriate business strategy Credit, and International Banking Services
and financial soundness, decision on key personnel, internal
In order to reinforce the achievements of our Bank and talent and experience, is effectively directing
ensure its sustainable growth over the years to come, the and supporting the management to effectively
Board crafted a three year agenda for its effective functioning implement the aforementioned three functional
Bank beyond the legacy structures, systems, and culture into Audit-Sub Committee:
a truly innovative player in the market. Accordingly, the Board
identified priority and focus areas that guide its corporate Chaired by Mr. Mulugeta Tujuba, the Audit
strategic oversight both in the immediate and mid-term. Board Subcommittee consists of three
Directors. The committee supervises the proper
5.4 Role of the Subcommittees of the Board of performance of the audit activities of our Bank
Directors with the view of ensuring that effective internal
Branch Transformation, IT, and Marketing Affairs control system and process are put in place
which are part of the third strategic plan of our Bank. The Chaired by Mr. Ajema Gondel, Risk
committee, whose members have diverse knowledge, talent Management and Compliance Board
and experience, is effectively directing and supporting the Subcommittee consists of three Directors. The
management to effectively implement the aforementioned three committee supervises the proper performance
functional strategies. of the Risk Management and Compliance
HR, Projects, and Investment Sub-Committee: activities of our Bank with the view of monitoring
our Bank’s risk exposure and risk management
Chaired by Dr. Assefe Seme, the Human Resource, Projects, and ensure compliance of our Bank’s overall
and Investment Affairs Board Subcommittee consists operation with various pertinent laws of the
of five Directors. The committee supervises the proper land and own policies and procedure. The
implementation of the Human Resource functional strategy, committee, whose members have diverse
which is part of the third strategic plan of our Bank, as well knowledge, talent and experience, is effectively
as the proper management of the projects and investments supervising the Risk Management and
our Bank undertakes. The committee, whose members Compliance functions of our Bank
have diverse knowledge, talent and experience, is effectively
directing and supporting the management to effectively carry 5.5 Directors’ Allowance
on the aforementioned major duties. The directors are entitled to monthly allowance
IFB, Credit, and IBS Affairs Subcommittee: of Birr 10,000.00 as well as a maximum of
annual remuneration of Birr 150,000.00 each,
Chaired by Mr. Samuel Tesfa (a member of the Board which are effected in accordance with the
representing Oromia Insurance (S. Co.), the Interest Free pertinent provisions of NBE’s directive No
Banking, Credit, and International Banking Services Affairs SBB/63/2016.
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5.6 Internal Audit, Risk Management and Human resource development is among our
Compliance Bank’s primary endeavors. Thus, our Bank will
continue to emphasize on its staff development
OIB has well organized and properly resourced Internal Audit, and capacity building at all levels through
and Risk Management and Compliance units functionally
Annual Report 2020/21
5.7 The President and Senior Management competition in the banking sector.
Our Bank’s day to day operations are run by the President Our Bank is on the final stage to implement
and members of Senior Management nominated by the BOD competency framework and performance
and approved by the NBE in accordance with the pertinent management platform supported by IT system
NBE’s directives. The President has established various to enhance efficiency and productivity through
committees which are assisting him to successfully discharge a modern IT architecture and a rigorous
his responsibilities in effective and efficient manner. performance management system. Such a
venture helps to enable and develop a culture
6. External Auditors that accelerates the business growth through
extended relationships with our customers in
Degefa & Tewodros Audit Service Partnership is OIB’s external
view to set new standards of excellence for the
auditor nominated by the General Assembly of Shareholders
banking industry in Ethiopia.
and Approved by NBE.
During the fiscal year under review, our Bank
7. Future Plans
was in the forefront in discharging its corporate
Our Bank will further strengthen and continue investing and social responsibility by donating about Birr
implementing technology-based banking with the view of 19 million in support of social, humanitarian
providing superior customer experience to its esteemed issues and in response to calls for national
customers across all the touch-points on top of offering a development initiatives and environmental
wide-range of products and services in ways to meet its protection endeavors. Our Bank will scale
current needs and anticipating the future trends through robust up its response to the society’s concerns
digital offerings. In the years to come, our Bank will focus on and continue discharging its corporate social
improving operational efficiency by deploying cost –effective responsibility in multiple ways.
operating model to deliver value to our customers while
Our Bank will finalize the design selection for
also improving shareholder value. This involves improving
commencing construction of multi-purpose
processes, systems and operations in all the customer touch
buildings on the land secured from Gelan
points while putting in place the right talent.
Town, which includes the future training and
In the current fiscal year, our Bank has planned to open convention center, at the end of the current
additional conventional and Interest-Free Banking branches fiscal year. We are also exerting relentless
at different outlets in a bid to enhance the customer base of effort to finalize securing land from Finfinne
our Bank and to create a financial accessibility to our society City Administration at prime site at Senga
at large. Moreover, Visa, Master card, and Point of Sales (POS) Tera (Future ‘Financial Hub’), for its Future
terminal projects will be completed and implemented in the Headquarters Park. Moreover, our Bank is
coming months. Furthermore, OMNI-channel, call center and working hard to secure plot of land in different
customer on boarding projects will be commenced in the major towns in oromia and other regional states
current fiscal year in a bid to leapfrog in terms of offering digital for enhancing asset base and smoothing of
services to our customers. banking operations of our Bank.
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8. Overview of the 3rd Five-Year Strategic Themes have been identified, supported
Corporate and Functional Strategies by specific objectives and a broad range of strategic
tactics all of which are clearly described, their
The 3rd five-year strategic plan of our Bank defines the performance measurement defined and their respective
Page 27
Projects Financed
Annual Report 2020/21
Lame Diary
Warka Trading
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Events of our Bank held during the year
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Page 30
Annual Report 2020/21
Oromia Bank
Sharia Advisory Committee (SAC)
Statement for the Fiscal Year Ended June 30, 2021
Page 31
f) The shari’a board has been provided adequate resources enabling it to discharge its d
sibilities.
We hope and anticipate that IFB services will Finally, the Sharia Advisory Committee takes this
continue to contribute more by
Weupholding
hope andsimilar
anticipate thatopportunity
IFB servicestowill
express its gratitude
continue to the Board
to contribute more of
by upholding simila
Sharia compliance dedication, implementations
pliance and
dedication, Directors, and
implementations the Bank’s Management
applications and
without the entire staff
undermining the ever-ending
applications without undermining the ever-ending quest
of OB for their co-operation and their keenness in
tomers and by addressing banking needs of the unbanked community, serving the missing m
Annual Report 2020/21
of customers and by addressing banking needs of the understanding and adherence to the rules of the noble
commodating all those who are far from Banks due to their value system.
unbanked community, serving the missing middle and Sharia Principles.
accommodating all those who are farthe
Finally, fromSharia
BanksAdvisory
due Committee takes this opportunity to express its gratitude to the
to their value system. rectors, the Bank’s management and staffs for their co-operation and their keenness in unders
adherence to the rules of theThank
nobleyou!
Sharia Principles.
Thank you!
Sheik HajiHajji
Sheik Ibrahim Tufa Tufa
Ebrahim Dr Jeilan Geleta Mami
SAC Chairperson V/Chair person
SAC Chairperson
Sheik
SheikHajji Ebrahim
Haji Ibrahim TufaTufa
SAC
SACChairperson
Chairperson Dr. Jeilan Geleta Mami
V/Chairperson
Independent Auditor
Corporate office
P.O.Box 27530/1000
Bole Road
Oromia International Bank Building
Addis Ababa
Ethiopia
Company secretary
Solomon Geda
P.O.Box 27530/1000
Bole Road
Oromia International Bank Building
Bole Road, Kirkos
Addis Ababa, Ethiopia
Page 34
Oromia International Bank S.C.
Report of the directors
For the year ended 30 June 2021
Incorporation
Oromia International Bank share company has been established in Addis Ababa as per the Commercial Code of Ethiopia
2021, and it was licensed by the National Bank of Ethiopia in September 2008 with the objective to engage in banking service
in accordance with the Banking Business Proclamation number 592/2008 . The Bank started operation in October 2008.
Principal activities
Oromia International Bank S.C (OIB) engages in full-fledged banking business as per Banking Business Proclamation of
Ethiopia number 592/2008. Accordingly, it accepts deposits in the form of current (demand) deposits, saving deposits and
fixed time deposits. To address the need of certain types of its customers some features are added on those deposit types such
as diaspora deposit accounts. It also extends different types of credit products based on the need of its customers. Some of its
credit products have terms ranging from short term to long term while others have revolving nature such as over draft and pre-
shipment facilities. International trade facilitation through letter of credit and other means of payment is the other major
business of the Bank. The Bank also undertakes both local and international money remittance services. Moreover, it has
specialized services such as interest free banking services, card banking services, mobile banking and agent banking services.
Results
The Bank's results for the year ended 30 June 2021 are set out below. The profit for the year has been transferred to retained
earnings. The summarised results are presented below.
Directors
The directors who held office during the year and to the date of this report are set out on page 1.
Solomon Geda
Company Secretary
Addis Ababa, Ethiopia
Page 35
Oromia International Bank S.C.
Statement of directors’ responsibilities
For the year ended 30 June 2021
Annual Report 2020/21
In accordance with the Banking Business Proclamation No. 592/2008, the National Bank of Ethiopia (NBE)
may direct the Bank to prepare financial statements in accordance with international financial reporting
standards, whether their designation changes or they are replaced, from time to time.
The Directors are responsible for the preparation and fair presentation of these financial statements in
conformity with reporting requirements in Ethiopia and in the manner required by the Commercial Code of
Ethiopia of 2021, and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
The Bank is required to keep such records as are necessary to:
c) enable the National Bank to determine whether the Bank had complied with the provisions of the
Banking Business Proclamation and regulations and directives issued for the implementation of the
aforementioned Proclamation.
The Directors accepts responsibility for the annual financial statements, which have been prepared using
appropriate accounting policies supported by reasonable and prudent judgements and estimates, in
conformity with International Financial Reporting Standards, Banking Business Proclamation, Commercial
code of 2021 and the relevant Directives issued by the National Bank of Ethiopia.
The Directors are of the opinion that the financial statements give a true and fair view of the state of the
financial affairs of the company and of its profit or loss.
The Directors further accept responsibility for the maintenance of accounting records that may be relied
upon in the preparation of financial statements, as well as adequate systems of internal financial control.
Nothing has come to the attention of the Directors to indicate that the Bank will not remain a going concern
for at least twelve months from the date of this statement.
Page 36
ደገፋ እና ቴዎድሮስ የኦዲት Degefa and Tewodros Audit Services
አገልግሎት Partnership
P.O.Box 8118
የኀብረት ሽርክና ማህበር
E-mail: [email protected]
OPINION
In our opinion, the financial statements give a true and fair view of the financial position of
OROMIA INTERNATIONAL BANK SHARE COMPANY as at 30 June 2021 and of its
financial performance and cash flows for the year then ended in accordance with
International Financial Reporting Standards as issued by IASB.
As required by the commercial code of Ethiopia, based on our audit we report as follows:
i) Pursuant to Article 349 (1) of the Commercial Code of Ethiopia 2021 and based on
our reviews of the board of directors’ report, we have not noted any matter that we
may wish to bring to your attention.
ii) Pursuant to article 349 (2) of the commercial code of Ethiopia 2021, We
recommend the financial statements be approved.
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities
for the Audit of the Financial Statements section of our report. We are independent of the
company in accordance with the International Ethics Standards Board for Accountants’ code
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Page 37
of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements
that are relevant to our audit of the financial statements in Ethiopia, and we have fulfilled
our other ethical responsibilities in accordance with these requirements and the IESBA
Annual Report 2020/21
Code. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the financial statements of the current period. These
matters were addressed in the context of our audit of the financial statements as a
whole and in forming our opinion thereon; we do not provide a separate opinion on
these matters. We have determined that there is no key audit matter to be
communicated in our report.
Management is responsible for the preparation and fair presentation of the financial
statements in accordance with the accounting policies of the company and for such internal
controls as management determines is necessary to enable the preparation of financial
statements that are free from material misstatements whether due to fraud or error.
Those charged with governance are responsible for overseeing the company’s financial
reporting process.
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but is not a guarantee that an audit conducted in accordance with ISAs will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
Addis Ababa
December 12, 2021
Page 6
Page 39
Oromia International Bank S.C.
Statement of profit or loss and other comprehensive income
For the year ended 30 June 2021
Annual Report 2020/21
Page 40
Oromia International Bank S.C.
Statement of financial position
As at 30 June 2021
LIABILITIES
EQUITY
The financial statements were approved and authorised for issue by the board of directors on 06 December 2021
and were signed on its behalf by:
Page 41
Oromia International Bank S.C.
Statement of changes in equity
For the year ended 30 June 2021
Annual Report 2020/21
Page 42
Oromia International Bank S.C.
Statement of cash flow
For the year ended 30 June 2021
Page 43
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
1 General information
Oromia International Bank S.C. (" the Bank") is a private commercial Bank domiciled in Ethiopia. The Bank was established on September
18,2008 in accordance with the provisions of the Commercial Code of Ethiopia of 1960 and the Licensing and Supervision of Banking
Business Proclamation No. 84/1994. The Bank registered office is at:
P.O.Box 27530/1000
Bole Road
Oromia International Bank Building
Addis Ababa
Ethiopia
The Bank is principally engaged in the provision of diverse range of financial products and services to a wholesale, retail and small and
medium enterprise clients based in Ethiopian Market.
2 Basis of preparation
a) Statement of compliance
The financial statements for the period ended 30 June 2021 have been prepared in accordance with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). Additional information required by national
regulations is included where appropriate.
The financial statements comprise the statement of profit or loss and other comprehensive income, the statement of financial position, the
statement of changes in equity, the statement of cash flows and the notes to the financial statements.
b) Basis of measurement
The financial statements have been prepared in accordance with the going concern principle under the historical cost concept, except for
the following;
• Assets held for sale – measured at fair value less cost of disposal, and
• The present value of the defined benefit obligation less the net total plan assets, plus unrecognized actuarial gains less unrecognized
past service cost and unrecognized actuarial losses.
• Financial assets at FVTOCI are measured at fair value
(i) New standards, amendments and interpretations and effective adopted during the year
A number of new standards or amendements are effective from 1 July 2020 but they do not have a material effect on the Bank’s financial
statements.
*Definition of Material – amendments to IAS 1 and IAS 8
*Definition of a Business – amendments to IFRS 3
*Interest Rate Benchmark Reform – amendments to IFRS 9, IAS 39 and IFRS 7
*Revised Conceptual Framework for Financial Reporting
*Annual Improvements to IFRS Standards 2018-2020 Cycle
*COVID-19-Related Rent Concessions – amendments to IFRS 16
Page 44
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
The bank does not plan to adopt these standards early. These are summarised below;
IAS 16, Property plant and IAS 16 "Property, Plant and Effective for interim and The Bank opted to adopt the
equipment Equipment" outlines the accounting annual financial statements amendments when due. But no
treatment for most types of relating to fiscal years significant change is expected.
property, plant and equipment. beginning on or after January
Property, plant and equipment is 1, 2011, earlier application is
initially measured at its cost, permitted. The amendments
subsequently measured either using are effective for annual
a cost or revaluation model, and periods beginning on or after
depreciated so that its depreciable January 1, 2022. Early
amount is allocated on a systematic application is permitted.
basis over its useful life.
IAS 17, Provision, IAS 37 "Provisions, Contingent Effective for interim and The Bank opted to apply the
contingent liabilities and Liabilities and Contingent Assets" annual financial statements amendments when due.
contingent assets outlines the accounting for relating to fiscal years
provisions (liabilities of uncertain beginning on or after January
timing or amount), together with 1, 2011, earlier application is
contingent assets (possible assets) permitted. The amendments
and contingent liabilities (possible are effective for annual
obligations and present obligations periods beginning on or after
that are not probable or not reliably January 1, 2022. Early
measurable). application is permitted.
IFRS 3, Business IFRS 3 "Business Combinations" Effective for interim and The standard is not relevant for the
combination outlines the accounting when an annual financial statements Bank’s reporting purpose as of now.
acquirer obtains control of a relating to fiscal years The amendments shall be considered
business (e.g. an acquisition or beginning on or after January when the Bank gets involved in a
merger). Such business 1, 2011, earlier application is transaction that involve business
combinations are accounted for permitted. The amendments combination
using the 'acquisition method', are effective for annual
which generally requires assets periods beginning on or after
acquired and liabilities assumed to January 1, 2022. Early
be measured at their fair values at application is permitted if an
the acquisition date. entity also applies all other
updated references
(published together with the
updated Conceptual
Framework) at the same time
or earlier.
Page 45
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
IFRS 9, Financial The final version of IFRS 9 Effective for interim and The Bank shall apply the amendments
Instruments "Financial Instruments" issued in annual financial statements when due. The amendments are
July 2014 is the IASB's replacement relating to fiscal years expected to have an impact on the
of IAS 39 "Financial Instruments: beginning on or after January Bank’s financial statements.
Recognition and Measurement". 1, 2011, earlier application is
The Standard includes permitted. The amendments
requirements for recognition and are effective for annual
measurement, impairment, periods beginning on or after
derecognition and general hedge January 1, 2022. Early
accounting. application is permitted.
Annual Improvements to IFRS 9 – The amendment clarifies The improvements are The bank shall apply the improvements
IFRS Standards 2018–2020 which fees an entity includes when effective for annual reporting when due. The improvements are not
it applies the ‘10 per cent’ test in periods beginning on or after expected to have an significant impact
paragraph B3.3.6 of IFRS 9 in 1 January 2022. Early on the bank’s financial statements.
assessing whether to derecognise a application is permitted.
financial liability. An entity includes
only fees paid or received between
the entity (the borrower) and the
lender, including fees paid or
received by either the entity or the
lender on the other’s behalf.
Definition of Accounting The amendments replace the Effective for annual reporting The bank shall apply the amendment
Estimates (Amendments to definition of a change in accounting periods beginning on or after when due. The amendments are not
IAS 8) estimates with a definition of 1 January 2023. expected to have an impact on the
accounting estimates. Under the bank’s financial statements.
new definition, accounting
estimates are “monetary amounts in
financial statements that are subject
to measurement uncertainty”.
Entities develop accounting
estimates if accounting policies
require items in financial
statements to be measured in a way
that involves measurement
uncertainty. The amendments
clarify that a change in accounting
estimate that results from new
information or new developments is
not the correction of an error.
Disclosure of Accounting The amendments require that an Effective for annual reporting The bank shall apply the amendment
Policies (Amendments to entity discloses its material periods beginning on or after when due. The amendments are
IAS 1 and IFRS Practice accounting policies, instead of its 1 January 2023. expected to have an impact on the
Statement 2) significant accounting policies. bank’s financial statements.
Further amendments explain how
an entity can identify a material
accounting policy. Examples of
when an accounting policy is likely
to be material are added. To
support the amendment, the Board
has also developed guidance and
examples to explain and
demonstrate the application of the
‘four-step materiality process’
described in IFRS Practice
Statement 2.
Page 46
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Items included in the financial statements are measured using the currency of the primary economic environment in which the Bank
operates ('the functional currency'). The functional currency and presentation currency of the Bank is the Ethiopian Birr (Birr).
Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between
translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the
security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying
amount are recognised in other comprehensive income.
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are
recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets measure at fair
value, such as equities classified as available for sale, are included in other comprehensive income.
3.2 Recognition of income and expense
estimates future cash flows considering all contractual terms of the financial instrument, but not ECL. For purchased or originated credit-
impaired financial assets, a credit-adjusted effective interest rate is calculated using estimated future cash flows including ECL.
The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the
effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial
asset or financial liability.
The ‘amortised cost’ of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on
initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any
difference between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance .
The ‘gross carrying amount of a financial asset’ is the amortised cost of a financial asset before adjusting for any expected credit loss
allowance.
The effective interest rate of a financial asset or financial liability is calculated on initial recognition of a financial asset or a financial
liability. In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when
the asset is not credit-impaired) or to the amortised cost of the liability. The effective interest rate is revised as a result of periodic re-
estimation of cash flows of floating rate instruments to reflect movements in market rates of interest. The effective interest rate is also
revised for fair value hedge adjustments at the date amortisation of the hedge adjustment begins.
However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by
applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer creditimpaired, then the calculation
of interest income reverts to the gross basis.
For financial assets that were credit-impaired on initial recognition, interest income is calculated by applying the credit-adjusted effective
interest rate to the amortised cost of the asset. The calculation of interest income does not revert to a gross basis, even if the credit risk of
the asset improves.
For information on when financial assets are credit-impaired, see Note 3.3
Interest income calculated using the effective interest method presented in the statement of profit or loss and OCI includes:
• interest on financial assets and financial liabilities measured at amortised cost;
• interest on debt instruments measured at FVTOCI;
• the effective portion of fair value changes in qualifying hedging derivatives designated in cash flow hedges of variability in interest cash
flows, in the same period as the hedged cash flows affect interest income/expense; and
• the effective portion of fair value changes in qualifying hedging derivatives designated in fair value hedges of interest rate risk.
• Other interest income presented in the statement of profit or loss and OCI includes interest income on finance leases
• Interest expense presented in the statement of profit or loss and OCI includes:
• financial liabilities measured at amortised cost; and
• the effective portion of fair value changes in qualifying hedging derivatives designated in cash flow hedges of variability in interest cash
flows, in the same period as the hedged cash flows affect interest income/expense.
Page 47
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Interest income and expense on all trading assets and liabilities are considered incidental to the Bank’s trading operations and are
presented together with all other changes in the fair value of trading assets and liabilities in net trading income.
Interest income and expense on other financial assets and financial liabilities at FVTPL are presented in net income from other financial
instruments at FVTPL.
The monetary assets and liabilities include financial assets within the foreign currencies deposits received and held on behalf of third
parties etc.
Depending on their classification financial instruments are carried at fair value or amortized cost as described below.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The best evidence of fair value is the price in an active market. An active market is one in which
transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or
liability and the number of instruments held by the entity. This is the case even if a market’s normal daily trading volume is not sufficient
to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price.
Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or consideration of
financial data of the investees are used to measure fair value of certain financial instruments for which external market pricing
information is not available.
Fair value measurements are analyzed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices
(unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material
inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is , derived from prices), and (iii) level
three measurements are valuations not based on solely observable market data (that is, the measurement requires significant
unobservable inputs).
Transaction costs
Incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one
that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents
(including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchange and
transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or
holding costs.
Amortized cost
Is the amount at which the financial instrument was recognized at initial recognition less any principal repayments, plus accrued interest,
and for financial assets less any write – down for incurred impairment losses. Accrued interest includes amortization of transaction costs
deferred at initial recognition and of any premium or discount to the maturity amount using the effective interest method. Accrued
interest income and accrued interest expense, including both accrued coupon and amortized discount or premium (including fees
deferred at origination, if any), are not presented separately and are included in the carrying values of the related items in the statement
of financial position.
Page 48
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added
to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognised immediately in profit or loss.
If the transaction price differs from fair value at initial recognition, the Bank will account for such difference as follows:
After initial recognition, the deferred gain or loss will be released to profit or loss on a rational basis, only to the extent that it arises from
a change in a factor (including time) that market participants would take into account when pricing the asset or liability.
(ii) Classification and measurement of financial instruments Financial assets
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract
whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured
at fair value, plus transaction costs, except for those financial assets classified as at FVTPL. Transaction costs directly attributable to the
acquisition of financial assets classified as at FVTPL are recognised immediately in profit or loss.
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract
whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured
at fair value, plus transaction costs, except for those financial assets classified as at FVTPL. Transaction costs directly attributable to the
acquisition of financial assets classified as at FVTPL are recognised immediately in profit or loss. For all financial assets the amount
presented on the statement of financial position represent all amounts receivable including interest accruals.
All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amortised cost or fair
value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the
financial assets. The standard eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale.
Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated.
Instead, the whole hybrid instrument is assessed for classification.
IFRS 9 specifically requires:
• debt instruments that are held within a business model whose objective is to collect the contractual cash flows, and that have
contractual cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI), are subsequently
measured at amortised cost;
• debt instruments that are held within a business model whose objective is both to collect the contractual cash flows and to sell the debt
instruments, and that have contractual cash flows that are SPPI, are subsequently measured at Fair Value Through Other Comprehensive
Income (FVTOCI);
• all other debt instruments (e.g. debt instruments managed on a fair value basis, or held for sale) and equity investments are
subsequently measured at FVTPL.
• However, the Bank may make the following irrevocable election /designation at initial recognition of a financial asset on an asset- by
asset basis:
(i) the Bank may irrevocably elect to present subsequent changes in fair value of an equity investment that is neither held for trading nor
contingent consideration recognised by an acquirer in a business combination to which IFRS 3 applies, in OCI; and
(ii) the Bank may irrevocably designate a debt instrument that meets the amortised cost or FVTOCI criteria as measured at FVTPL if
doing so eliminates or significantly reduces an accounting mismatch (referred to as the fair value option).
Page 49
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
The Bank considers all relevant information available when making the business model assessment. However this assessment is not
performed on the basis of scenarios that the Bank does not reasonably expect to occur, such as so-called ‘worst case’ or ‘stress case’
scenarios. The Bank takes into account all relevant evidence available such as:
• how the performance of the business model and the financial assets held within that business model are evaluated and reported to the
entity’s key management personnel;
• the risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular,
the way in which those risks are managed; and
• how managers of the business are compensated (e.g. whether the compensation is based on the fair value of the assets managed or on
the contractual cash flows collected).
At initial recognition of a financial asset, the Bank determines whether newly recognised financial assets are part of an existing business
model or whether they reflect the commencement of a new business model. The Bank reassess its business models each reporting period
to determine whether the business models have changed since the preceding period. For the current and prior reporting period the Bank
has not identified a change in its business models.
When a debt instrument measured at FVTOCI is derecognised, the cumulative gain/loss previously recognised in OCI is reclassified from
equity to profit or loss. In contrast, for an equity investment designated as measured at FVTOCI, the cumulative gain/loss previously
recognised in OCI is not subsequently reclassified to profit or loss but transferred within equity.
Debt instruments that are subsequently measured at amortised cost or at FVTOCI are subject to impairment explanation below,
Non-recourse loans
In some cases, loans made by the Bank that are secured by collateral of the borrower limit the Bank’s claim to cash flows of the
underlying collateral (nonrecourse loans). The Bank applies judgment in assessing whether the nonrecourse loans meet the SPPI
criterion. The Bank typically considers the following information when making this judgement:
• whether the contractual arrangement specifically defines the amounts and dates of the cash payments of the loan;
• the fair value of the collateral relative to the amount of the secured financial asset;
• the ability and willingness of the borrower to make contractual payments, notwithstanding a decline in the value of collateral;
• whether the borrower is an individual or a substantive operating entity or is a special-purpose entity;
• the Bank’s risk of loss on the asset relative to a full-recourse loan;
• the extent to which the collateral represents all or a substantial portion of the borrower’s assets; and
• whether the Bank will benefit from any upside from the underlying assets.
Reclassifications
If the business model under which the Bank holds financial assets changes, the financial assets affected are reclassified. The classification
and measurement requirements related to the new category apply prospectively from the first day of the first reporting period following
the change in business model that results in reclassifying the Bank’s financial assets. During the current financial year and previous
accounting period there was no change in the business model under which the Bank holds financial assets and therefore no
reclassifications were made. Changes in contractual cash flows are considered under the accounting policy on Modification and
derecognition of financial assets described below.
Collateral Valuation
The Bank seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as
cash via Bank guarantees and real estate. The fair value of collateral is generally assessed, at a minimum, at inception and based on the
Bank's reporting schedule.
To the extent possible, the Bank uses active market data for valuing financial assets, held as collateral. Other financial assets which do
not have a readily determinable market value are valued using models. The Bank revalues its property at least after every 3 years and
revalues motor vehicles at least once in every 2 years.
Renegotiated loans
Where possible, the Bank seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment
arrangements and the agreement of new loan conditions. Once the terms have been renegotiated any impairment is measured using the
original EIR as calculated before the modification of terms and the loan is no longer considered past due. Management continually
reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be
subject to ECL.
In line with IFRS 9, the Bank assesses the under listed financial instruments for impairment using Expected Credit Loss (ECL) approach:
Page 50
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
The Bank follows a three-stage approach for impairment assesment based on changes in credit quality since initial
recognition.
• Stage 1 – Where there has not been a significant increase in credit risk (SICR) since initial recognition of a financial instrument, an
amount equal to 12 months expected credit loss is recorded. The expected credit loss is computed using a probability of default occurring
over the next 12 months. For those instruments with a remaining maturity of less than 12 months, a probability of default corresponding
to remaining term to maturity is used.
• Stage 2 – When a financial instrument experiences a SICR subsequent to origination but is not considered to be in default, it is
included in Stage 2. This requires the computation of expected credit loss based on the probability of default over the remaining
estimated life of the financial instrument.
• Stage 3 – Financial instruments that are considered to be in default are included in this stage. Similar to Stage 2, the allowance for
credit losses captures the lifetime expected credit losses.
The guiding principle for ECL model is to reflect the general pattern of deterioration or improvement in the credit quality of financial
instruments since initial recognition. The ECL allowance is based on credit losses expected to arise over the life of the asset (life time
expected credit loss), unless there has been no significant increase in credit risk since origination.
modelled based on macroeconomic variables that are most closely related with credit losses in the relevant portfolio.
Details of these statistical parameters/inputs are as follows:
PD – The probability of default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a
certain time over the remaining estimated life, if the facility has not been previously derecognized and is still in the portfolio.
• 12-month PDs – This is the estimated probability of default occurring within the next 12 months (or over the remaining life of the
financial instrument if that is less than 12 months). This is used to calculate 12-month ECLs. The Bank obtains the constant and relevant
coefficients for the various independent variables and computes the outcome by incorporating forward looking macroeconomic variables
and computing the forward probability of default.
• Lifetime PDs – This is the estimated probability of default occurring over the remaining life of the financial instrument. This is used
to calculate lifetime ECLs for ‘stage 2’ and ‘stage 3’ exposures. PDs are limited to the maximum period of exposure required by IFRS 9.
The Bank obtains 3 years forecast for the relevant macroeconomic variables and adopts exponentiation method to compute cumulative
PD for future time periods for each obligor.
• EAD – The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the
exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected
drawdowns on committed facilities, and accrued interest from missed payments.
• LGD – The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the
difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any
collateral. It is usually expressed as a percentage of the EAD.
To estimate expected credit loss for off balance sheet exposures, credit conversion factor (CCF) is usually computed. CCF is a modelled
assumption which represents the proportion of any undrawn exposure that is expected to be drawn prior to a default event occurring.
It is a factor that converts an off balance sheet exposure to its credit exposure equivalent. In modelling CCF, the Bank considers its
account monitoring and payment processing policies including its ability to prevent further drawings during periods of increased credit
risk. CCF is applied on the off balance sheet exposures to determine the EAD and the ECL impairment model for financial assets is
applied on the EAD to determine the ECL on the off balance sheet exposures.
Forward-looking information
The measurement of expected credit losses for each stage and the assessment of significant increases in credit risk considers information
about past events and current conditions as well as reasonable and supportable forecasts of future events and economic conditions. The
estimation and application of forward-looking information requires significant judgement.
The measurement of expected credit losses for each stage and the assessment of significant increases in credit risk considers information
about past events and current conditions as well as reasonable and supportable forecasts of future events and economic conditions. The
estimation and application of forward-looking information requires that:
The Bank uses internal subject matter consultant to consider a range of relevant forward looking data, including macro-economic
forecasts and assumptions, for the determination of unbiased general economic adjustments in order to support the calculation of ECLs.
Macro-economic variables taken into consideration include, but are not limited to, inflation,Exchange rate, Gross Domestic Product,debt,
stratification and requires an evaluation of both the current and forecast direction of the macroeconomic cycle.
Macro-economic variables considered have strong statistical relationships with the risk parameters (LGD, EAD, CCF and PD) used in the
estimation of the ECLs, and are capable of predicting future conditions that are not captured within the base ECL calculations.
Page 51
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Forward looking adjustments for both general macro-economic adjustments and more targeted at portfolio / industry levels. The
methodologies and assumptions, including any forecasts of future economic conditions, are reviewed regularly.
Macroeconomic factors
The Bank relies on a broad range of forward looking information as economic inputs, such as: GDP growth, debt, household spending ,
consumer price index, inflation rates and foreign exchange rates. The inputs and models used for calculating expected credit losses may
not always capture all characteristics of the market at the date of the financial statements. To reflect this, qualitative adjustments or
overlays may be made as temporary adjustments using expert credit judgement.
The macroeconomic variables and economic forecasts as well as other key inputs are reviewed and approved by management before
incorporated in the ECL model. Any subsequent changes to the forward looking information are also approved before such are inputted
in the ECL model.
The macro economic variables are obtained for 5 years in the future and are reassessed every 6 months to ensure that they reflect
case scenario or a bestcase scenario. The Bank’s ECL methodology considers weighted average of multiple economic scenarios for the risk
parameters (basically the forecast macroeconomic variables) in arriving at impairment figure for a particular reporting period. The
model is structured in a manner that the final outcome, which is a probability cannot be negative.
SICR is assessed once there is an objective indicator of a deterioration in credit risk of customer. In addition, the Bank as part of its
routine credit processes perform an assessment on a quarterly basis to identify instances of SICR.
internal and external sources of information in order to achieve an unbiased measure of the scenarios used. The Bank prepares the
scenarios using forecasts generated by credible sources such as Business Monitor International (BMI), International Monetary Fund
(IMF), Ministry of Finance (MF), World Bank (WB),and Ethiopian Central statistical Agency (ECSA).
The Bank estimates three scenarios for each risk parameter (LGD, EAD, CCF and PD) – Base, Upside and Downside, which in turn is
used in the estimation of the multiple scenario ECLs. The ‘ Base case’ represents the most likely outcome and is aligned with information
used by the Bank for other purposes such as strategic planning and budgeting. The other scenarios represent more optimistic and more
pessimistic outcomes. The Bank has identified and documented key drivers of credit risk and credit losses for each portfolio of financial
instruments and, using an analysis of historical data, has estimated relationships between macro-economic variables, credit risk and
credit losses.
Assessment of significant increase in credit risk (SICR)
At each reporting date, the Bank assesses whether there has been a significant increase in credit risk for exposures since initial
recognition by comparing the risk of default occurring over the remaining expected life from the reporting date and the date of initial
recognition. The assessment considers borrower-specific quantitative and qualitative information without consideration of collateral, and
the impact of forward-looking macroeconomic factors.The common assessments for SICR on retail and non-retail portfolios include
macroeconomic outlook, management judgement, and delinquency and monitoring. Forward looking macroeconomic factors are a key
component of the macroeconomic outlook. The importance and relevance of each specific macroeconomic factor depends on the type of
product, characteristics of the financial instruments and the borrower and the geographical region.
The Bank adopts a multi factor approach in assessing changes in credit risk. This approach considers: Quantitative (primary), Qualitative
(secondary) and Back stop indicators which are critical in allocating financial assets into stages.
The quantitative models considers deterioration in the credit rating of obligor/counterparty based on the Bank’s internal rating system or
External Credit Assessment Institutions (ECAI) while qualitative factors considers information such as expected forbearance,
restructuring, exposure classification by licensed credit bureau, etc.
A backstop is typically used to ensure that in the (unlikely) event that the primary (quantitative) indicators do not change and there is no
trigger from the secondary (qualitative) indicators, an account that has breached the 30 days past due criteria for SICR and 90 days past
due criteria for default is transferred to stage 2 or stage 3 as the case may be except there is a reasonable and supportable evidence
available without undue cost to rebut the presumption.
Definition of Default and Credit Impaired Financial Assets
At each reporting date, the Bank assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI
are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future
cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
Page 52
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Page 53
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
The Bank derecognises a financial asset only when the contractual rights to the asset’s cash flows expire (including expiry arising from a
modification with substantially different terms), or when the financial asset and substantially all the risks and rewards of ownership of
the asset are transferred to another entity. If the Bank neither transfers nor retains substantially all the risks and rewards of ownership
and continues to control the transferred asset, the Bank recognises its retained interest in the asset and an associated liability for
amounts it may have to pay. If the Bank retains substantially all the risks and rewards of ownership of a transferred financial asset, the
Bank continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration
received and receivable and the cumulative gain/loss that had been recognised in OCI and accumulated in equity is recognised in profit
or loss, with the exception of equity investment designated as measured at FVTOCI, where the cumulative gain/loss previously
recognised in OCI is not subsequently reclassified to profit or loss.
On derecognition of a financial asset other than in its entirety (e.g. when the Bank retains an option to repurchase part of a transferred
asset), the Bank allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing
involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The
difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for
the part no longer recognised and any cumulative gain/loss allocated to it that had been recognised in OCI is recognised in profit or loss.
A cumulative gain/loss that had been recognised in OCI is allocated between the part that continues to be recognised and the part that is
no longer recognised on the basis of the relative fair values of those parts. This does not apply for equity investments designated as
measured at FVTOCI, as the cumulative gain/loss previously recognised in OCI is not subsequently reclassified to profit or loss.
Collateral Repossessed
Repossessed collateral represents financial and non-financial assets acquired by the Bank in settlement of overdue loans. The Bank’s
policy is to determine whether a repossessed asset is best used for its internal operations or should be sold. Assets determined to be used
for internal operations are initially recognised at the lower of their repossessed value or the carrying value of the original secured asset
and included in the relevant assets depending on the nature and the Bank’s intention in respect of recovery of these assets, and are
subsequently remeasured and accounted for in accordance with the accounting policies for these categories of assets. Assets that are
determined better to be sold are immediately transferred to assets held for sale at their fair value at the repossession date in line with the
Bank’s policy.
Write off
Loans and debt securities are written off when the Bank has no reasonable expectations of recovering the financial asset (either in its
entirety or a portion of it). This is the case when the Bank determines that the borrower does not have assets or sources of income that
could generate sufficient cash flows to repay the amounts subject to the write-off. A write-off constitutes a derecognition event. The Bank
may apply enforcement activities to financial assets written off. Recoveries resulting from the Bank’s enforcement activities will result in
impairment gains, which will be presented in ‘net impairment loss on financial assets’ in the statement of profit or loss.
Presentation of allowance for ECL in the statement of financial position
Loss allowances for ECL are presented in the statement of financial position as follows:
• for financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;
• for debt instruments measured at FVTOCI: no loss allowance is recognised in the statement of financial position as the carrying amount
is at fair value. However, the loss allowance is included as part of the revaluation amount in the investments revaluation reserve.
• for loan commitments and financial guarantee contracts: as a provision; and
• where a financial instrument includes both a drawn and an undrawn component, and the Bank cannot identify the ECL on the loan
commitment component separately from those on the drawn component: the Bank presents a combined loss allowance for both
components. The combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any excess of
the loss allowance over the gross amount of the drawn component is presented as a provision.
Financial Liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. However, although under IAS 39
all fair value changes of liabilities designated under the fair value option were recognised in profit or loss, under IFRS 9 fair value
changes are generally presented as follows:
• the amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and
• the remaining amount of change in the fair value is presented in profit or loss
For an explanation of how the Bank classifies financial liabilities under IFRS 9, see below:
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’. For all financial liabilities the
amount presented on the statement of financial position represent all amounts payable including interest accruals.
Page 54
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
The Bank derecognises financial liabilities when, and only when, the Bank’s obligations are discharged, cancelled or have expired. The
difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in
profit or loss.
When the Bank exchanges with the existing lender one debt instrument into another one with substantially different terms, such
exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly,
the Bank accounts for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial
liability and the recognition of a new liability. To determine if the modified terms of a liability are substantially different to the original
terms a similar process with modification of financial assets is followed. The modification is assessed at first on a qualitative basis,
factors such as a change in currency or the introduction of a non-closely related embedded derivative that significantly modifies the cash
flows are regarded as substantially different. If it is not clear from the qualitative assessment that a modification has resulted in a
substantial change in a financial liability, a quantitative assessment is applied. It is assumed that the terms of the financial liability are
substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees
received and discounted using the original effective rate is at least 10 per cent different from the discounted present value of the
remaining cash flows of the original financial liability.
If the modification is not substantial, the Bank recalculates the amortised cost of the modified financial liability by discounting the
modified contractual cash flows using the original effective interest rate. The Bank recognises any adjustment to the amortised cost of the
financial liability in profit or loss as income or expense at the date of the modification. The financial liability modification gain/loss is not
significant for the Bank Modification gains are presented in ‘other income’ and modification losses are presented in ‘other expenses’ in
the profit or loss account.
Page 55
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
With regard to Interest free banking products, the ECL policy of interest free financing products are similar with the policy stated
above.
Murabaha
An agreement whereby the bank sells to a customer a commodity or a property which the bank has purchased and acquired based on a
promise received from the customer to buy the item purchased according to specific terms and conditions. The selling price comprises of
the cost of the commodity and an agreed profit margin.
Istisna
An agreement between the bank and a customer, whereby the bank develops and sells a property to the customer according to the
specifications agreed upon. The bank may develop the property on its own or through a subcontractor, and then hand it over to the
customer on a pre-agreed date and against fixed price.
Ijarah
An agreement whereby the bank (lesser) leases an asset to a customer (lessee), for a specific period against certain rent installments.
Ijarah could end in transferring the ownership of the asset to the lessee at the end of the lease period. Also, the bank transfers
substantially all the risks and returns related to the ownership of the leased asset to the lessee.
Salam
A contract whereby the bank purchases a fixed quantity of a specified commodity and pays the full Salam price of the commodity in
advance, whereas the customer delivers the quantity of the commodities in accordance with an agreed delivery schedule. The bank makes
profit on Salam transactions, when the Salam commodities are received from the Salam customer and subsequently sold to a third party
at profit.
Interest Free Export Financing Facility
A non-profit bearing financing enables the borrower to use the borrowed amounts for a specific period of time, at the end of which the
same borrowed amounts would be repaid free of any charges or profits.
Mudaraba
A contract between the bank and a customer, whereby one party provides the funds (Rab Al Mal) and the other party (the Mudarib)
invests the funds in a project or a particular activity and any generated profits are distributed between the parties according to the profit
shares that were pre-agreed upon in the contract. The Mudarib is responsible of all losses caused by his misconduct, negligence or
violation of the terms and conditions of the Mudaraba; otherwise, losses are borne by Rab Al Mal.
Musharaka
A contract between the bank and a customer to enter into a partnership in an existing project (or to be established), or in the ownership
of a specific asset, either ongoing basis or for a limited time, during which the bank enters in particular arrangements with the customer
to sell to him/her its share in this partnership until he/she becomes the sole owner of it (diminishing musharaka). Profits are distributed
according to the mutual agreement of the parties as stipulated in the contract; however, losses are borne according to the exact shares in
the Musharaka capital on a pro-rata basis.
Page 56
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
a) Murabaha financing
Murabaha financing receivables are deferred sale agreements whereby the Bank sells to a customer a commodity or an asset, which the
Bank has purchased and acquired based on a promise received from the customer to buy. The selling price comprises the cost plus an
agreed profit margin. Amounts receivable from Murabaha financing receivables are initially stated in the Statement of Financial Position
at selling price. And Subsequently, they shall be stated at selling price less unearned income and provision for impairment at the
reporting date.
b) Istisna
Istisna is an agreement between the Bank and a customer whereby the Bank sells to the customer an asset which is either constructed or
manufactured by the purchaser on behalf of the Bank according with agreed-upon specifications, for an agreed-upon price.
Istisna'a assets in progress represent disbursements made as well as the accrued income as of the date of the statement of financial
position against assets being either constructed or manufactured.
After completion of the project, the Istisna asset is transferred to the Istisna receivable account and carried at the value of amounts
disbursed, plus income accumulated over the manufacturing period, less ECL.
c) Ijarah assets
Ijarah assets are initially stated in the Financial Statement of the Bank at cost.Subsequently, they shall be stated at cost less accumulated
depreciation and impairment losses, if any. Depreciation is charged from the date of recognition of ijarah assets on a straight line basis
over the period of Ijarah. Impairment of Ijarah assets is determined on the same basis as that of operating fixed assets.
d) Salam Financing
Salam financings are reflected in the Financial Position of the Bank as receivables at the invoiced amount. Profit not due for payment is
deferred and is recognized on a time proportion basis.
f) Mudaraba Investment
Mudaraba investment is based on the profit-sharing and loss-bearing Mudaraba contract where profits are shared between the parties
based on the terms of the Mudaraba agreement. Initially Mudaraba contracts are stated in the statement of financial Position of the bank
at fair value of the consideration given (amount of disbursement) and Subsequently, they shall be stated at fair value of the
consideration given, less ECL.
g) Musharaka
In Musharaka based financing, the Bank enters into a Musharaka based on partnership for financing an agreed share of fixed asset (e.g.
house, land, plant or machinery) with its customers and enters into periodic rental payment agreement for the utilization of the Bank’s
Musharaka share by the customer. Initially Musharaka and Diminishing Musharaka Financing are stated in the statement of financial
Position of the bank at fair value of the consideration given (amount of disbursement) and Subsequently, they shall be stated in the
financial Position of the Bank at disbursement amount less ECL.
Allowance for impairment is made against Interest Free financing and investment products when their recovery is in doubt taking into
consideration IFRS requirements (as explained in Note 3.3 ). Interest Free financing and investment products are written off only when
all possible courses of action to achieve recovery have proved unsuccessful.
(iii) Revenue recognition policy
Income from the following financing and investing receivables is recognized on the as follows policy:
(i) Murabaha
Murabaha income is recognized on a time apportioned basis over the period of the contract based on the outstanding principal amounts.
(ii) Istisna
Istisna revenue and the associated profit margin (difference between the cash price to the customer and the bank’s total Istisna cost) are
accounted for on a time proportion basis.
(iii) Ijara
Ijara income is recognized on a time apportioned basis over the lease term.
(V) Salam
Salam profit is internally accounted for on a time-apportioned basis over the period of the Salam contract based on the value of the
outstanding Salam commodities.
(vi )Mudaraba
Income or losses on Mudaraba financing are recognized on an accrual basis if they can be reliably estimated. Otherwise, income is
recognized on distribution by the Mudarib, whereas the losses are charged to the Bank’s Statement of profit and loss on their declaration
by the Mudarib.
(vi) Musharaka
Income is accounted for on the basis of the reducing balance of Musharaka on a time apportioned basis that reflects the effective yield on
the asset.
Page 57
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Interest Free Banking customers’ deposits such as Amana, Wadiaha and Mudaraba and other deposits are initially measured at fair value
which is normally consideration received net of directly attributable transaction costs incurred, and subsequently measured at their
carrying value.
b) Profit distribution
Profits or losses of Mudaraba based depositors’ accounts are calculated and distributed in accordance with the Banking Service
Agreement between the Bank and the investment account holders.
'The Bank commences depreciation when the asset is available for use.
Capital work-in-progress is not depreciated as these assets are not yet available for use. They are disclosed when reclassified during the
year.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future
economic benefits are expected from its use disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset) is included in income statement when the asset is derecognised.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end
and adjusted prospectively, if appropriate.
Page 58
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the
useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at
least at each financial year-end. Changes in the expected useful life, or the expected pattern of consumption of future economic benefits
embodied in the asset, are accounted for by changing the amortisation period or methodology, as appropriate, which are then treated as
changes in accounting estimates. The amortisation expenses on intangible assets with finite lives is presented as a separate line item in
the income statement.
Amortisation is calculated using the straight–line method to write down the cost of intangible assets to their residual values over their
estimated useful lives, as follows:
3.9 Leases
At inception of a contract, the Bank assesses whether a contract is,or contains, a lease. A contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset for a period in exchange for consideration. To assess whether a contract conveys
the right to control the use of an identified asset, the Bank uses the definition of a lease in IFRS16.
(i) As a lessee
At commencement or on modification of a contract that contains a lease component, the Bank allocates consideration in the contract to
each lease component on the basis of its relative stand-alone price. However, for leases of branches and office premises the Bank has
elected not to separate non-lease components and accounts for the lease and non-lease components as a single lease component.
The Bank recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured
at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove any improvements made to branches or
office premises.
The right-of-use asset is subsequently depreciated using the straightline method from the commencement date to the end of the lease
term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of
the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Bank’s incremental borrowing rate. Generally,
the Bank uses its incremental borrowing rate as the discount rate.
The Bank determines its incremental borrowing rate by analysing its cost of fund incurred for mobilizing deposits as there is no
experince of borrowings from different external sources.
Lease payments included in the measurement of the lease liability comprise the following:
* fixed payments, including in-substance fixed payments;
*variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
*amounts expected to be payable under a residual value guarantee; and
* the exercise price under a purchase option that the Bank is reasonably certain to exercise, lease payments in an optional renewal period
if the Bank is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Bank is
reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future
lease payments arising from a change in an index or rate, if there is a change in the Bank’s estimate of the amount expected to be payable
under a residual value guarantee, if the Bank changes its assessment of whether it will exercise a purchase, extension or termination
option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset,
or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Bank presents right-of-use assets and lease liabilities in the statement of financial position separately.
(ii). As a lessor
At inception or on modification of a contract that contains a lease component, the Bank allocates the consideration in the contract to
each lease component on the basis of their relative stand-alone selling prices.
When the Bank acts as a lessor, it determines at lease inception whether the lease is a finance lease or an operating lease.
To classify each lease, the Bank makes an overall assessment of whether the lease transfers substantially all of the risks and rewards
incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As
part of this assessment, the Bank considers certain indicators such as whether the lease is for the major part of the economic life of the
asset.
Page 59
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Recognition of investment properties takes place only when it is probable that the future economic benefits that are associated with the
investment property will flow to the Bank and the cost can be reliably measured. This is usually when all risks are transferred.
Investment properties are measured initially at cost, including transaction costs. The Bank has opted to subsequently carry investment
property at cost and disclose fair value. Fair value is based on active market prices, adjusted if necessary, for any difference in the nature,
location or condition of the specific asset. If this information is not available, the Bank uses alternative valuation methods, such as recent
prices on less active markets or discounted cash flow projections. Valuations are performed as of the reporting date by professional
valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the
investment property being valued. These valuations form the basis for the carrying amounts in the financial statements.
The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental
income from future leases in the light of current market conditions.
The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not
reflect the related future benefits from this future expenditure other than those a rational market participant would take into account
when determining the value of the property.
Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits associated
with the expenditure will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance costs are
expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.
3.11 Non current assets held for sale or disposal and discontinued operation
Non-current assets (or disposal Banks) are classified as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying
amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial
assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically
exempt from this requirement.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal Bank) to fair value less costs to sell. A
gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal Bank), but not in excess of any
cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current
asset (or disposal Bank) is recognised at the date of derecognition.
Non-current assets (including those that are part of a disposal Bank) are not depreciated or amortised while they are classified as held for
sale. Interest and other expenses attributable to the liabilities of a disposal Bank classified as held for sale continue to be recognised.
Non-current assets classified as held for sale and the assets of a disposal Bank classified as held for sale are presented separately from the
other assets in the balance sheet. The liabilities of a disposal Bank classified as held for sale are presented separately from other liabilities
in the balance sheet.
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a
separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of
business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are
presented separately in the statement of profit or loss.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal,
recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.
These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair
value indicators.
Page 60
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously
recognised impairment losses no longer exist or have decreased. If such indication exists, the Bank estimates the asset’s or CGU’s
recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to
determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying
amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement.
(a) Prepayment
Prepayments are payments made in advance for services to be enjoyed in future. The amount is initially capitalized in the reporting
period in which the payment is made and subsequently amortised over the period in which the service is to be enjoyed.
(b) Other receivables
Other receivables are recognised upon the occurrence of event or transaction as they arise and cancelled when payment is received.The
Bank's other receivables are rent receivables and other receivables from debtors.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or
transfer the liability takes place either:
The principal or the most advantageous market must be accessible to by the Bank.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or
liability, assuming that market participants act in their economic best interest.
The Bank uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair
value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly
observable.
• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Bank determines whether transfers have
occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair
value measurement as a whole) at the end of each reporting period.
The Bank’s management determines the policies and procedures for both recurring fair value measurement, such as available-for-sale
financial assets.
For the purpose of fair value disclosures, the Bank has determined classes of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Page 61
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
i) pension scheme in line with the provisions of Ethiopian pension of private organisation employees proclamation 715/2011. Funding
under the scheme is 7% and 11% by employees and the Bank respectively;
ii) provident fund contribution, funding under this scheme is 5% and 15% by employees and the Bank respectively;
Both schemes are based on the employees' salary. Employer's contributions to this scheme are charged to profit or loss and other
comprehensive income in the period in which they relate.
The current service cost of the defined benefit plan, recognised in the income statement in employee benefit expense, except where
included in the cost of an asset, reflects the increase in the defined benefit obligation resulting from employee service in the current year,
benefit changes curtailments and settlements.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in
other comprehensive income in the period in which they arise.
( c ) Termination benefits
Termination benefits are payable to executive directors when employment is terminated by the Bank before the normal retirement date,
or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Bank recognises termination benefits when it
is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without
possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
3.16 Provisions
Provisions are recognised when the Bank has a present obligation (legal or constructive) as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the
amount of the obligation. When the Bank expects some or all of a provision to be reimbursed, for example, under an insurance contract,
the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a
provision is presented in income statement net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate,
the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as other
operating expenses.
3.17 Contingent liabilities
Letters of credit, acceptances, guarantees, Approved Loan and Financing but not disbursed and performance bonds are disclosed as
contingent liabilities. Estimates of the outcome and the financial effect of contingent liabilities is made by management based on the
information available up to the date that the financial statements are approved for issue by the Directors.
expenses, including revenues and expenses that relate to transactions with any of the Bank’s other components, whose operating results
are reviewed regularly by the Bank’s Management Committee (being the chief operating decision maker) to make decisions about
resources allocated to each segment and assess its performance, and for which discrete financial information is available.
3.20 Share capital
Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a
deduction, net of tax, from the proceeds.
Page 62
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
When the Bank receives grants of non-monetary assets, the asset and the grant are recorded at nominal amounts and released to income
statement over the expected useful life in a pattern of consumption of the benefit of the underlying asset by equal annual instalments.
3.23 Income taxation
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting
period in Ethiopia. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities.
Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the
same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Deferred tax assets and liabilities are only offset when they arise in the same tax reporting Bank and where there is both the legal right
and the intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Business model assessment: Classification and measurement of financial assets depends on the results of the SPPI and the business
model test (please see financial assets sections of note 3.3). The Bank determines the business model at a level that reflects how Groups of
financial assets are managed together to achieve a particular business objective. This assessment includes judgement reflecting all
relevant evidence including how the performance of the assets is evaluated and their performance is measured, the risks that affect the
performance of the assets and how these are managed and how the managers of the assets are compensated. The Bank monitors financial
assets measured at amortised cost or fair value through other comprehensive income that are derecognised prior to their maturity to
understand the reason for their disposal and whether the reasons are consistent with the objective of the business for which the asset was
held. Monitoring is part of the Bank’s continuous assessment of whether the business model for which the remaining financial assets are
held continues to be appropriate and if it is not appropriate whether there has been a change in business model and so a prospective
change to the classification of those assets.
Page 63
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Significant increase of credit risk: As explained in note 3.3, ECL are measured as an allowance equal to 12-month ECL for stage 1 assets,
or lifetime ECL for stage 2 or stage 3 assets. An asset moves to stage 2 when its credit risk has increased significantly since initial
recognition. IFRS 9 does not define what constitutes a significant increase in credit risk. In assessing whether the credit risk of an asset
has significantly increased the Bank takes into account qualitative and quantitative reasonable and supportable forward-looking
information. Refer to note 3.3 for more details.
Establishing Groups of assets with similar credit risk characteristics: When ECLs are measured on a collective basis, the financial
instruments are ranked on the basis of shared risk characteristics. Refer to note 3.3 for details of the characteristics considered in this
judgment. The Bank monitors the appropriateness of the credit risk characteristics on an ongoing basis to assess whether they continue
to be similar. This is required in order to ensure that should credit risk characteristics change there is appropriate re-segmentation of the
assets. This may result in new portfolios being created or assets moving to an existing portfolio that better reflects the similar credit risk
characteristics of that Bank of assets. Re-segmentation of portfolios and movement between portfolios is more common when there is a
significant increase in credit risk (or when that significant increase reverses) and so assets move from 12-month to lifetime ECLs, or vice
versa, but it can also occur within portfolios that continue to be measured on the same basis of 12-month or lifetime ECLs but the amount
of ECL changes because the credit risk of the portfolios differ.
Models and assumptions used: The Bank uses various models and assumptions in measuring fair value of financial assets as well as in
estimating ECL. Judgement is applied in identifying the most appropriate model for each type of asset, as well as for determining the
assumptions used in these models, including assumptions that relate to key drivers of credit risk. See note 1 and note 3.3 for more details
on ECL and note 5.14 for more details on fair value measurement.
Page 64
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its
fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from
binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing
of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the budget for the next five years and
do not include restructuring activities that the Bank is not yet committed to or significant future investments that will enhance the asset’s
performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the discounted cash flow model as
well as the expected future cash-inflows and the growth rate used for extrapolation purposes.
Taxes
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of
future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing
contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions,
could necessitate future adjustments to tax income and expense already recorded. The amount of such provisions is based on various
factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible
tax authority.
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which
the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be
recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
Development cost
The Bank capitalises development costs for a project in accordance with the accounting policy. Initial capitalisation of costs is based on
management’s judgement that technological and economic feasibility is confirmed, usually when a product development project has
reached a defined milestone according to an established project management model. In determining the amounts to be capitalised,
management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the
expected period of benefits. The development costs that were capitalised by the Bank relates to those arising from the development of
computer software.
Page 65
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
5.1 Introduction
Risk is inherent in the Bank’s activities, but is managed through a process of ongoing identification, measurement and
monitoring, subject to risk limits and other controls. This process of risk management is critical to the Bank’s continuing
profitability and each individual within the Bank is accountable for the risk exposures relating to his or her responsibilities.
The Bank is exposed to credit risk, liquidity risk and market risk. It is also subject to country risk and various operating risks.
The Board of Directors Risk Management and Compliance Committee (BDRMCC) has the overall responsibility for the
development of risk strategy and implementing principles, framework, polices and limit. This subcommittee is also
responsible for managing risk decisions and monitoring risk levels and report on monthly and quarterly basis to regulatory
organ and the management.
The Risk Management and Compliance unit is responsible for implementing and maintaining risk related procedures to
ensure an independent control process is maintained. This unit closely works with BDRMCC to ensure that procedures are
complaint with overall framework.
The risk management function is a carried out in respect of financial risks (credit, market, and liquidity risks) and operational
risks. The primary objectives of the financial risk management function are to establish risk limits, and then ensure that
exposure to risks stays within these limits. The Risk Management and Compliance Department is also responsible for
ensuring that appropriate balance is established between risk and return, whilst minimizing any potential adverse effects on
the Bank’s financial performance. The operational and legal risk management functions are intended to ensure proper
functioning of internal policies and procedures to minimize operational and legal risks.
The Bank’s risk management methodology polices and assessment procedures are designed to identify, analyze, mitigate and
manage the risk faced by the Bank. This is accomplished through setting of appropriate risk limits and controls, whilst
ensuring suitable monitoring of risk levels and compliance with the limits and procedures on an ongoing basis. The risk
management policies and procedures are reviewed regularly to reflect changes in market conditions, and new products and
services offered, this is to ensure that “best practices” are implemented in the Bank.
Risk management policies and processes around the assessment, approval, monitoring and control of risks are performed by a
number of specialized bodies within the Bank, including committees and departments to comply with the requirement of the
pertinent laws and industry best practices.
The Board of Directors has overall responsibility for the oversight of the risk management framework. This includes the
management of key risks, along with the review and approval of risk management polices and key risk limits such as large
exposures, economic and product sector limits. It also delegates certain risk supervision authority levels to the Management,
the Risk Management Committee, the Credit Committee, the Audit Committee and the Asset and Liability Committee
(“ALCO”).
The Risk Management and Compliance sub Committee is appointed by and reports directly to the Board of Directors.
5.2.1 Risk measurement and reporting systems
The Bank’s risks are measured using a method that reflects both the expected loss likely to arise in normal circumstances and
unexpected losses, which are an estimate of the ultimate actual loss based on statistical models. The models make use of
probabilities derived from historical experience, adjusted to reflect the economic environment. The Bank also runs worst-case
scenarios that would arise in the event that extreme events which are unlikely to occur do, in fact, occur.
Monitoring and controlling risks is primarily performed based on limits established by the Bank. These limits reflect the
business strategy and market environment of the Bank as well as the level of risk that the Bank is willing to accept, with
additional emphasis on selected regions. In addition, the Bank’s policy is to measure and monitor the overall risk bearing
capacity in relation to the aggregate risk exposure across all risk types and activities.
The bank uses board approved risk tolerance limit as a risk limit control. This risk tolerance limit composed of risk limit by
economic sector, by credit product, by maturity, by geography and risk grade. There also limitation imposed by the regulatory
organ such as single borrower limit, related party limit, off balance sheet exposure limit and connected counterparties limit to
which all banks should comply.
As the credit risk mitigation, the bank established an appropriate risk environment, sound credit strategies, policies and
procedures. In addition, there is active portfolio management, appropriate credit administration and monitoring and effective
loan review function.
The other credit risk mitigation measures are obtaining sufficient collateral securities and guarantees for loans and advances
as the second way out in case of default.
Page 66
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
The Bank's classification of its financial assets is summarised in the table below:
FVTOCI Amortized Total
30 June 2021 Notes Birr'000 Birr'000 Birr'000
Cash and cash equivalents 16 - 7,061,051 7,061,051
Loans and advances to customers 17 - 21,959,098 21,959,098
Interest Free Financing 18 - 2,985,313 2,985,313
Investment securities:
- Financial assets at fair value
through OCI 19(a) 165,695 - 165,695
-Financial assets at amortized cost 19(b) - 6,322,332 6,322,332
Other assets 20 - 845,845 845,845
Total financial assets 165,695 39,173,639 39,339,334
The bank manages and controls credit risk by setting limits on the amount of risk it is willing to take or accept for individuals
counterparties and for economic sector ,product and maturity concentration and by monitoring exposures in relation to such
limits.
The Bank’s maximum exposure to credit risk is reflected in the carrying amounts of financial assets on the statement of
financial position. For guarantees and commitments to extend credit, the maximum exposure to credit risk is the amount of
the commitment.
The principal credit risk management methods used is described in the formal Credit Policy adopted and implemented by the
Bank, These include the setting of limits and the diversification of the credit portfolio based upon defined criterion (such as
industry, duration, related persons, region, etc). Credits will also be classified at initiation and throughout the life of the loan
based upon a risk level determined using best practice rating and scoring systems. Such tools will also be used to establish
appropriate provisions for potential losses as necessary. All restrictions and norms issued by the National Bank of Ethiopia
(NBE), related to lending operations, have also been carefully considered and embedded into the Bank’s credit policy.
The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one
borrowers, or groups of borrowers, and to geographical and industry segments. Limits on the level of credit risk by product
and industry sector are approved regularly by management. Such risks are monitored on a revolving basis and are subject to
an annual, or more frequent reviews.
The Bank established control over authorization of the loans issued. The credit Committee reviews and approves all loans
exceeding certain amount and or having exceptional terms.
Page 67
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Loan applications originated by the relevant client relationship managers are passed on to the relevant credit committee for
approval of the credit limit. Exposure to credit risk is also managed, kin part, by obtaining collateral and corporate and
personal guarantees. In order to monitor credit risk exposures, regular reports are produced by the Credit Monitoring and
Loan Recovery, Credit management,Interest free banking and compliance and risk management department’s. Based on a
structured analysis, deteriorating creditworthiness is reported to, and reviewed by, the Management and Board of Directors.
The Bank does not use formalized internal credit ratings for retail loans to monitor exposure to credit risk. Management
monitors and follows up on past due balances on monthly basis.
The Bank’s credit monitoring and Loan recovery office reviews the ageing analysis of outstanding loans and follows up on
past due balances on monthly basis. Management therefore, considers it appropriate to provide ageing and other information
about credit risk.
Credit risk for off-balance sheet financial instruments is defined as the possibility of sustaining a loss as the result of another
party to a financial instrument failing to perform in accordance with the terms of the loan contract. The Bank uses the same
credit policies in assuming conditional obligations as it does for on-balance sheet financial instruments, through established
credit approvals, risk control limits and monitoring procedures.
Page 68
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Details of financial and non-financial assets obtained by the Bank during the year by taking possession of collaterals held as
security against loans and receivables at the year end are shown below.
30 June 2021 30 June 2020
Birr'000 Birr'000
Motor vehicles - -
Total 35,038 28,722
The Bank's policy is to pursue timely realisation of the collateral in a timely manner. The Bank does not generally use the non-
cash collateral for its own operations.
Page 69
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
(iii) Gross loans and recivables to customers per National Bank of Ethiopia impairement guidelines is
analyzed as follows;
30 June 2021 30 June 2020
Birr'000 Birr'000
(iv) Interest Free Financing per National Bank of Ethiopia's impairement guidelines is analyised as follows;
The following table sets out information about the credit quality of financial assets measured at amortised cost, FVTOCI debt
investments . Unless specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts.
For loan commitments and financial guarantee contracts, the amounts in the table represent the amounts committed or
guaranteed, respectively
Explanation of the terms ‘Stage 1’, ‘Stage 2’ and ‘Stage 3’ is included in Note 3.3
Page 70
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
(v) Credit Quality Analysis Disclosures for On Balance Sheet facilities as at 30 June 2021 (continued)
Lifetime ECL not Lifetime ECL
Title 12 month ECL credit impaired credit impaired Total
Pass 22,748,690 - - 22,748,690
(vi)Credit Quality Analysis Disclosures for Off Balance Sheet facilities as at 30 June 2021 (continued)
Non-Performing - - - -
Page 71
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
(vii) Credit Quality Analysis Disclosures for On Balance Sheet facilities as at 30 June 2020 (continued)
Lifetime ECL not Lifetime ECL
Title 12 month ECL credit impaired credit impaired Total
Pass 17,460,428,513 - - 17,460,428,513
(viii)Credit Quality Analysis Disclosures for Off Balance Sheet facilities as at 30 June 2020 (continued)
Lifetime ECL not Lifetime ECL
Title 12 month ECL credit impaired credit impaired Total
Pass 1,998,946,223 - - 1,998,946,223
Non-Performing - - - -
Transfer to Lifetime ECL not credit impaired (1,798) 1,959 (1,125) (964)
Page 72
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Page 73
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Page 74
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Page 75
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
As at 30 June 2021, the Bank had no exposure to credit risk of the investment securities designated at FVTPL
When determining whether the risk of default on a financial instrument has increased significantly since initial recognition,
the Bank considers reasonable and supportable information that is relevant and available without undue cost or effort. This
includes both quantitative and qualitative information and analysis, based on the Bank’s historical experience and expert
credit assessment and including forward-looking information.
The objective of the assessment is to identify whether a significant increase in credit risk has occurred for an exposure by
comparing:
• the remaining lifetime probability of default (PD) as at the reporting date; with
• the remaining lifetime PD for this point in time that was estimated at the time of initial recognition of the exposure (adjusted
where relevant for changes in prepayment expectations).
• the Bank uses three criteria for determining whether there has been a significant increase in credit risk:
• quantitative test based on movement in PD;
• qualitative indicators; and
• a backstop of 30 days past due,
• Information obtained during periodic review of customer files – e.g. audited financial statements, management accounts,
budgets and projections. Examples of areas of particular focus are: gross profit margins, financial leverage ratios, debt service
coverage, compliance
•Data from credit reference agencies, press articles, changes in external credit ratings
•Actual and expected significant changes in the political, regulatory and technological environment of the borrower or in its
business activities
•Internally collected data on customer behaviour – e.g. utilisation of credit card facilities
•Affordability metrics
b. Overdraft exposures
• Payment record – this includes overdue status as well as a range of variables about payment ratios
• Utilisation of the granted limit
• Requests for and granting of forbearance
• Existing and forecast changes in business, financial and economic conditions
iv) Generating the term structure of PD
Credit risk grades are a primary input into the determination of the term structure of PD for exposures. The Bank collects
performance and default information about its credit risk exposures analyzed by type of product and borrower as well as by
credit risk grading. The Bank employs statistical models to analyse the data collected and generate estimates of the remaining
lifetime PD of exposures and how these are expected to change as a result of the passage of time.
Page 76
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
The Bank assesses whether credit risk has increased significantly since initial recognition at each reporting date. Determining
whether an increase in credit risk is significant depends on the characteristics of the financial instrument and the borrower.
The credit risk may also be deemed to have increased significantly since initial recognition based on qualitative factors linked
to the Bank’s credit risk management processes that may not otherwise be fully reflected in its quantitative analysis on a
timely basis. This will be the case for exposures that meet certain heightened risk criteria, such as placement on a watch list.
Such qualitative factors are based on its expert judgment and relevant historical experiences.
The credit risk may also be deemed to have increased significantly since initial recognition based on qualitative factors linked
to the Bank’s credit risk management processes that may not otherwise be fully reflected in its quantitative analysis on a
timely basis. This will be the case for exposures that meet certain heightened risk criteria, such as placement on a watch list.
Such qualitative factors are based on its expert judgment and relevant historical experiences.
As a backstop, the Bank considers that a significant increase in credit risk occurs no later than when an asset is more than 30
days past due. Days past due are determined by counting the number of days since the earliest elapsed due date in respect of
which full payment has not been received. Due dates are determined without considering any grace period that might be
available to the borrower.
If there is evidence that there is no longer a significant increase in credit risk relative to initial recognition, then the loss
allowance on an instrument returns to being measured as 12-month ECL. Some qualitative indicators of an increase in credit
risk, such as delinquency or forbearance, may be indicative of an increased risk of default that persists after the indicator itself
has ceased to exist. In these cases, the Bank determines a probation period during which the financial asset is required to
demonstrate good behaviour to provide evidence that its credit risk has declined sufficiently. When contractual terms of a loan
have been modified, evidence that the criteria for recognising lifetime ECL are no longer met includes a history of up-to-date
payment performance against the modified contractual terms.
The Bank monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews to
confirm that:
• the criteria are capable of identifying significant increases in credit risk before an exposure is in default;
• the criteria do not align with the point in time when an asset becomes 30 days past due;
• the average time between the identification of a significant increase in credit risk and default appears reasonable;
• exposures are not generally transferred directly from 12-month ECL measurement to credit- impaired; and
• there is no unwarranted volatility in loss allowance from transfers between 12-month PD (Stage 1) and lifetime PD (Stage 2).
The definition of default largely aligns with that applied by the Bank for regulatory capital purposes
vii) Incorporation of forward-looking information
The Bank incorporates forward-looking information into both the assessment of whether the credit risk of an instrument has
increased significantly since its initial recognition and the measurement of ECL.
For each segment, the Bank formulates three economic scenarios: a base case, which is the median scenario, and two less
likely scenarios, one upside and one downside. For each sector, the base case is aligned with the macroeconomic model’s
information value output, a measure of the predictive power of the model, as well as base macroeconomic projections for
identified macroeconomic variables for each sector. The upside and downside scenarios are based on a combination of a
percentage error factor of each sector model as well as simulated optimistic and pessimistic macroeconomic projections based
on a measure of historical macroeconomic volatilities.
In line with the expected, as well as experienced, Expected Credit Loss forward - looking volatility arising from the economic
impact of the Covid 19 global crisis, the Bank has conducted, and overlaid, additional scenario analysis on the macroeconomic
overlay model. This includes application of higher probability weights on the downside scenario, lower probability weights on
the upside scenario, as well as stress tests on macroeconomic projections. The Bank continues to monitor the economic
impact of Covid 19 on it's credit risk profile as well as forward - looking Expected Credit Loss estimates and shall update the
same on it's IFRS 9 forward - looking estimates as and when significant changes in the overall macroeconomic environment
are experienced.
Page 77
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
External information considered includes economic data and forecasts published by Business Monitor International, an
external and independent macroeconmic date body, This is in addition to industry-level, semi annual NPL trends across
statically comparable sectors.
Periodically, the Bank carries out stress testing of more extreme shocks to calibrate its determination of the upside and
downside representative scenarios. A comprehensive review is performed at least annually on the design of the scenarios by a
panel of experts that advises the Bank’s senior management.
The Bank has identified and documented key drivers of credit risk and credit losses foreach portfolio of financial instruments
and, using an analysis of historical data, has estimated relationships between macro-economic variables and credit risk and
credit losses.
The key drivers for credit risk for each of the Bank's economic sectors is summarized below:
Agriculture, Personal loans and Staff INFLATION: EXCHANGE GDP DEBT: STRATIFICATIO
loans Consumer price RATE: ETB/USD, EXPENDITURE: Government N: Household
index, 2010 = ave Exports of goods domestic debt, Spending, ETBbn
100, ave and services, USD ETBbn
per capita
Domestic Trade & Services GDP: GDP per GDP INFLATION: EXCHANGE FISCAL: Total
capita, USD EXPENDITURE: Consumer price RATE: ETB/USD, revenue, USDbn
Imports of goods index, 2010 = ave
and services, 100, eop
USDbn
Building & Construction and GDP FISCAL: Current DEBT: - -
Manufacturing & Production EXPENDITURE: expenditure, Government
Exports of goods USDbn domestic debt,
and services, USD ETBbn
per capita
Export and Import GDP GDP EXCHANGE GDP DEBT: Total
EXPENDITURE: EXPENDITURE: RATE: Real EXPENDITURE: government debt,
Exports of goods Imports of goods effective exchange Private final USDbn
and services, and services, rate, index consumption,
ETBbn ETBbn USDbn
The economic scenarios used as at 30 June 2021 included the following key indicators for Ethiopia for the years 2021to 2023:
Predicted relationships between the key indicators and default rates on various portfolios of financial assets have been
developed based on analysing semi – annual historical data over the past 5 years.
Page 78
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer
retention and other factors not related to a current or potential credit deterioration of the customer. An existing loan whose
terms have been modified may be derecognised and the renegotiated loan recognised as a new loan at fair value in accordance
with the accounting policy set out.
When the terms of a financial asset are modified and the modification does not result in derecognition, the determination of
whether the asset’s credit risk has increased significantly reflects comparison of: its remaining lifetime PD at the reporting
date based on the modified terms; withthe remaining lifetime PD estimated based on data on initial recognition and the
original contractual terms.
When modification results in derecognition, a new loan is recognised and allocated to Stage 1 (assuming it is not credit-
impaired at that time).
The Bank renegotiates loans to customers in financial difficulties (referred to as ‘forbearance activities’) to maximise
collection opportunities and minimise the risk of default. Under the Bank’s forbearance policy, loan forbearance is granted on
a selective basis if the debtor is currently in default on its debt or if there is a high risk of default, there is evidence that the
debtor made all reasonable efforts to pay under the original contractual terms and the debtor is expected to be able to meet
the revised terms.
The revised terms usually include extending the maturity, changing the timing of interest payments and amending the terms
of loan covenants. Both retail and corporate loans are subject to the forbearance policy. The Bank Credit Committee regularly
reviews reports on forbearance activities.
For financial assets modified as part of the Bank’s forbearance policy, the estimate of PD reflects whether the modification has
improved or restored the Bank’s ability to collect interest and principal and the Bank’s previous experience of similar
forbearance action. As part of this process, the Bank evaluates the borrower’s payment performance against the modified
contractual terms and considers various behavioural indicators.
Generally, forbearance is a qualitative indicator of a significant increase in credit risk and an expectation of forbearance may
constitute evidence that an exposure is credit-impaired. A customer needs to demonstrate consistently good payment
behaviour over a period of time before the exposure is no longer considered to be credit-impaired/in default or the PD is
considered to have decreased such that the loss allowance reverts to being measured at an amount equal to Stage 1.
The methodology of estimating PDs is discussed above under the heading ‘Generating the term structure of PD’.
LGD is the magnitude of the likely loss if there is a default. The Bank estimates LGD parameters based on the history of
recovery rates of claims against defaulted counterparties. The LGD models consider the structure, collateral, seniority of the
claim, counterparty industry and recoverycosts of any collateral that is integral to the financial asset.
EAD represents the expected exposure in the event of a default. The Bank derives the EAD from the current exposure to the
counterparty and potential changes to the current amount allowed under the contract and arising from amortisation. The EAD
of a financial asset is its gross carrying amount at the time of default. For lending commitments, the EADs are potential future
amounts that may be drawn under the contract, which are estimated based on historical observationsand forward-looking
forecasts. For financial guarantees, the EAD represents the amount of the guaranteed exposure when the financial guarantee
becomes payable. For some financial assets, EAD is determined by modelling the range of possible exposure outcomes at
various points in time using scenario and statistical techniques.
As described above, and subject to using a maximum of a 12-month PD for Stage 1 financial assets, the Bank measures ECL
considering the risk of default over the maximum contractual period (including any borrower’s extension options) over which
it is exposed to credit risk, even if, for credit risk management purposes, the Bank considers a longer period.
The maximum contractual period extends to the date at which the Bank has the right to require repayment of an advance or
terminate a loan commitment or guarantee.
However, for overdrafts that include both a loan and an undrawn commitment component, the Bank measures ECL over a
period longer than the maximum contractual period if the Bank’s contractual ability to demand repayment and cancel the
undrawn commitment does not limit the Bank’s exposure to credit losses to the contractual notice period. These facilities do
not have a fixed term or repayment structure and are managed on a collective basis. The Bank can cancel them with
immediate effect but this contractual right is not enforced in the normal day-to-day management, but only when the Bank
becomes aware of an increasein credit risk at the facility level. This longer period is estimated taking into account the credit
risk management actions that the Bank expects to take, and that serve to mitigate ECL. These include a reduction in limits,
cancellation of the facility and/or turning the outstanding balance into a loan with fixed repayment terms.
Page 79
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Where modelling of a parameter is carried out on a collective basis, the financial instruments are grouped on the basis of
shared risk characteristics that include:
• instrument type;
• credit risk grading;
• collateral type;
• LTV ratio for retail mortgages;
• date of initial recognition;
• remaining term to maturity;
• industry; and
• geographic location of the borrower.
The groupings are subject to regular review to ensure that exposures within a particular group remain appropriately
homogeneous.
The credit quality of cash and cash equivalents and short-term investments that were neither past due nor impaired at as 30
June 2020 and 30 June 2019 and are held in Ethiopian banks have been classified as non-rated as there are no credit rating
agencies in Ethiopia. However, cash and cash equivalents that held in foreign banks can be assessed by reference to credit
rating agency designation as shown in the table below;
30 June 2021 30 June 2020
Birr'000 Birr'000
AAA+ - -
AA - -
B - -
BBB 1,445,221 810,150
Not rated 5,615,830 4,509,069
Provisions under prudential guidelines are determined using the time based provisioning prescribed by the National Bank of
Ethiopia (NBE) Directives. This is at variance with the forward looking model required by IFRS-9. As a result of the
differences in the methodology/provision, there will be variances in the impairments allowances required under the two
methodologies.
The proclamation ‘Financial Reporting Proclamation No.847/2014 stipulates that Banks would be required to make
provisions for loans as prescribed in the relevant IFRS Standards when IFRS is adopted.
(a) Provisions for loans recognised in the income statement should be determined based on the requirements of IFRS.
However, the IFRS provision should be compared with provisions determined under the NBE Directives and the expected
impact/changes in other reserves should be treated as follows:
• Prudential provisions is greater than IFRS provisions; the excess provision resulting should be transferred from the general
reserve (retained earnings) account to a “regulatory risk reserve”.
• Prudential provisions is less than IFRS provisions; IFRS determined provision is charged to the statement of comprehensive
income. The cumulative balance in the regulatory risk reserve is thereafter reversed to the general reserve( retained earnings)
account.
During the period ended 30 June 2021, the Bank transferred an amount of Birr 124,879 million to the regulatory risk
reserve. This amount represents the difference between the provisions for credit and other known losses as determined under
the NBE Directives, and the impairment reserve as determined in line with IFRS -9 as at year end.
In line with the same directive of the NBE, the Bank compared the provision based on the Directive with impairment under
IFRS-9 for comparative periods and hence the bank transfered an amount of Birr 124.88 million from retained earnings to the
regulatory risk reserve as the impairment balance under IFRS was lower for the year 30 June 2020.
Page 80
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
In line with the directive of the NBE, the Bank compared the provision for other assets based on the Directive with
impairment for other assets under IFRS-9 for same period and hence the bank transfered an amount of Birr 34.86 million
from retained earnings to the regulatory risk reserve as the impairment balance under IFRS was lower for the year ended 30
June 2020.
30 June 2021 30 June 2020
Birr'000 Birr'000
As per the requirements of IFRS , banks should recognize interest income on the written down amount of the loan after the
impairment loss, on an accrual basis, using the EIR. However, As per the requirement of National Bank of Ethiopia, banks
should derecognized interest income on impaired exposures, special attention should be paid to impaired exposures with a
higher number of days past due (e.g. more than 90 days past due).
The Bank monitors concentrations of credit risk by economic sector. An analysis of concentrations of credit risk at 30 June
2021 and 30 June 2020. The Bank concentrates all its financial assets in Ethiopia.
Housing and
Domestic and Trade Services Export construction Others
30 June 2021 Birr'000 Birr'000 Birr'000 Birr'000
Housing and
Domestic and Trade Services
Export construction Others
30 June 2020 Birr'000 Birr'000 Birr'000 Birr'000
Page 81
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Secured
against real
estate Cash Machinery Vehicles Others
30 June 2021 Birr'000 Birr'000 Birr'000 Birr'000 Birr'000
Secured
against real
estate Cash Machinery Vehicles Others
30 June 2020 Birr'000 Birr'000 Birr'000 Birr'000 Birr'000
Page 82
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Secured
against real
estate Cash Machinery Vehicles Others
30 June 2021 Birr'000 Birr'000 Birr'000 Birr'000 Birr'000
Secured
against real
estate Cash Machinery Vehicles Others
30 June 2020 Birr'000 Birr'000 Birr'000 Birr'000 Birr'000
The general creditworthiness of a customer tends to be the most relevant indicator of credit quality of a loan extended to it.
However, collateral provides additional security and the Bank generally requests that corporate borrowers provide it. Staff
loans are secured to the extent of the employee's continued employment in the Bank.
The Bank may take collateral in the form of a first charge over real estate, liens and guarantees. The Bank does not sell or
repledge the collateral in the absence of default by the owner of the collateral. In addition to the Bank's focus on
creditworthiness, the Bank aligns with its credit policy guide to periodically update the validation of collaterals held against all
loans to customers.
For impaired loans, the Bank obtains appraisals of collateral because the fair value of the collateral is an input to the
impairment measurement.
The fair value of the collaterals are based on the last revaluations carried out by the Bank's in-house engineers. The valuation
technique adopted for properties is in line with the Bank's valuation manual and the revalued amount is similar to fair values
of properties with similar size and location.
The fair value of collaterals other than properties such as share certificates, cash, NBE bills etc. as disclosed at the carrying
amount as management is of the opinion that the cost of the process of establishing the fair value of the collateral exceeds
benefits accruable from the exercise.
The Bank writes off Loans and Advance balance, and any related allowances for impairment losses, when Bank determines
that the Loans and advances or security is uncollectible and after approval is obtained. This determination is made after
considering information such as the occurrence of significant changes in the borrower’s / issuer’s financial position such that
the borrower / issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the
entire exposure. For smaller balance standardized loans and advances, write-off decisions generally are based on a product-
specific past due status. There was no amount write off during the year.
Page 83
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Liquidity risk is the risk that the Bank cannot meet its maturing obligations when they become due, at reasonable cost and in
a timely manner. Liquidity risk arises because of the possibility that the Bank might be unable to meet its payment obligations
when they fall due as a result of mismatches in the timing of the cash flows under both normal and stress circumstances. Such
scenarios could occur when funding needed for illiquid asset positions is not available to the Bank on acceptable terms.
Liquidity risk management in the Bank is solely determined by Assets and Liabilities Committee, which bears the overall
responsibility for liquidity risk. The main objective of the Bank's liquidity risk framework is to maintain sufficient liquidity in
order to ensure that we meet our maturing obligations.
The day-to-day liquidity management is performed by the Accounting and Treasury Department with in a comprehensive
framework set by the Assets and Liabilities Committee, and monitored independently by the Risk Management and
Compliance Department. The Bank monitors and reports liquidity risk daily, paying particular attention to ensuring that there
are optimal levels of cash and cash equivalent instruments to fund increases in assets, unexpected decreases in liabilities, as
well as meeting legal requirements, while optimizing the cost of carrying any excess liquidity.
To manage liquidity risk, the Bank performs daily monitoring of future expected cash flows on clients’ and banking
operations’ which forms part of the asset and liability management process. The Bank also has to comply with minimum levels
of liquidity required by the National Bank of Ethiopia (NBE). This ratio is calculated as the ratio of highly-liquid assets to
liabilities payable on demand. The ratio was 21.14% as at 30 June 2021 whereas the minimum percentage required by the
NBE is 15%.
The Bank seeks to maintain a stable funding base primarily consisting of amounts due to other banks, corporate and retail
customer deposits. The Bank invests the funds in diversified portfolios of liquid assets, in order to be able to respond quickly
and smoothly to unforeseen liquidity requirements. The liquidity management of the Bank requires consideration of the level
of liquid assets necessary to settle obligations as they fall due, maintaining access to a range of funding sources, maintaining
funding contingency plans, and monitoring liquidity ratios against regulatory requirements including minimum levels of
liquidity required by the NBE.
The Accounting and Treasury Department receives information about the liquidity profile of the financial assets and liabilities.
The Accounting and Treasury Department then provides for an adequate portfolio of short-term liquid assets, made up of
short-term deposits with banks to ensure that sufficient liquidity is maintained within the Bank as a whole.
The table below analyses the Bank’s financial liabilities into relevant maturity groupings based on the remaining period at the
statement of financial position date to the contractual maturity date. The cash flows presented are the undiscounted amounts
to be settled in future.
Page 84
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Market risk is defined as the risk of loss risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market risk factors such as interest rates, foreign exchange rates, equity prices, credit spreads and their
volatilities. Market risk can arise in conjunction with trading and non-trading activities of a financial institutions.
The bank manages and control market risk exposures within acceptable limits, while optimizing the return on risk. The Risk
Management and Compliance Department is in charge of managing market risk, regularly, to identify any adverse movement
in interest rate and foreign currency exchange rate.
Interest rate risk is the potential loss on the bank arising from mismatch between positions, which are subject to interest rate
adjustment within a specified period, or in any other interest rate relationship. The Bank’s lending, funding and investment
activities give rise to interest rate risk. The bank conduct thorough and stress testing on unexpected changes in the general
level of interest rate, market interest rate, key assumptions and parameters, and monitor interest rate risk factor on ongoing
basis.
The table below sets out information on the exposures to fixed and variable interest instruments.
Non-interest
30 June 2021 Fixed Floating bearing Total
Birr'000 Birr'000 Birr'000 Birr'000
Assets
Cash and balances with banks 2,169,151 - 4,891,900 7,061,051
Loans and advances to customers 21,959,098 - - 21,959,098
Interest Free Financing - - 2,985,313 2,985,313
Investment securities 6,322,332 - - 6,322,332
Total 30,450,581 - 7,877,213 38,327,794
Liabilities
Deposits from customers 29,467,589 - - 29,467,589
Interest Free customers' deposits - - 4,877,923 4,877,923
Debt securities issued - - - -
Borrowings 127,669 - - 127,669
Lease liabilities 281,893.86 - - 281,894
Other liabilities - - 903,271 903,271
Total 29,877,152 - 5,781,194 35,658,346
Liabilities
Deposits from customers 23,783,114 - - 23,783,114
Interest Free customers' deposits - - 3,947,742 3,947,742
Borrowings 24,403.00 - - 24,403
Lease liabilities 247,714.59 - - 247,715
Other liabilities - - 821,436 821,436
Total 24,055,232 - 4,769,178 28,824,410
The sensitivity of the income statement is the effect of the assumed changes in interest rates on the profit or loss for a year,
based on the floating rate non–trading financial assets and financial liabilities held at 30 June 2021 and 30 June 2020. The
total sensitivity of equity is based on the assumption that there are parallel shifts in the yield curve.
Page 85
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Increase
(decrease)
in basis Sensitivity of Sensitivity of
points profit or loss equity
30 June 2021 Birr'000 Birr'000 Birr'000
10% 7 7
-10% (7) (7)
Increase
(decrease)
in basis Sensitivity of Sensitivity of
points profit or loss equity
30 June 2020 Birr'000 Birr'000 Birr'000
Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to the
changes in foreign exchange rates.
The Bank is exposed to exchange rate risks to the extent of balances and transactions denominated in a currency other than
the Ethiopian Birr. The Bank’s foreign currency bank accounts act as a natural hedge for these transactions. Management has
set up a policy to manage the Bank's foreign exchange risk against its functional currency.
The table below summarises the impact of increases/decreases of 10% on equity and profit or loss arising from the Bank's
foreign denominated deposits and cash and bank balances.
The total foreign currency denominated assets and liabilities exposed to risk as at 30 June 2021 was Birr 1,445.00 million and
Birr 840.9 million respectively.
Financial liabilities
30 June 2020
USD EURO GBP Total
Birr'000 Birr'000 Birr'000 Birr'000
Financial assets
Financial liabilities
Page 86
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
The sensitivity analysis for currency rate risk shows how changes in the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market rates at the reporting date.
The sensitivity of the Bank's earnings to fluctuations in exchange rates is reflected by varying the exchange rates at 10% and its
impact on Profit and Loss as shown below:
30 June 2021 30 June 2020
Birr'000 Birr'000
Capital
Capital contribution 3,472,037 3,008,377
Retained earnings 735,467 457,618
Legal reserves 1,074,925 856,928
Regulatory Risk Reserve 165,621 253,883
Total 5,448,049 4,576,806
Page 87
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
The primary responsibility for the development and implementation of controls to address operational risk is assigned to
senior management within each business unit. This responsibility is supported by the development of overall bank standards
for the management of operational risk in the following areas:
a) Requirements for appropriate segregation of duties, including the independent authorization of transactions
b) Requirements for the reconciliation and monitoring of transactions,
c) Compliance with regulatory and other legal requirements ,
d) Documentation of controls and procedures ,
e) Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to
address the risks identified,
f) Requirements for the reporting of operational losses and proposed remedial action,
g) Development of contingency plans,
h) Training and professional development,
i) Ethical and business standards ,
j) Risk mitigation, including insurance where this is effective.
Compliance with bank standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results
of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries
submitted to the Audit Committee and senior management of the bank.
IFRS 13 requires an entity to classify measured or disclosed fair values according to a hierarchy that reflects the significance of
observable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair
value hierarchy, which comprises of three levels as described below, based on the lowest level input that is significant to the
fair value measurement as a whole.
Page 88
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
IFRS 13 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are
observable or unobservable. Observable input reflect market data obtained from independent sources; unobservable inputs
reflect the Bank's market assumptions.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair
value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a
whole.
● Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical assets or liabilities.
●Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices) .This category includes instruments valued using: quoted market prices
in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered
less than active, or other valuation technique in which all significant inputs are directly or indirectly observable from market
data.
In conclusion, this category is for valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable.
● Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs). This category
includes all assets and liabilities for which the valuation technique includes inputs not based on observable data and the
unobservable inputs have a significant effect on the asset or liability's valuation. This category includes instruments that are
valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are
5.14.2 Financial instruments not measured at fair value - Fair value hierarchy
The following table summarises the carrying amounts of financial assets and liabilities at the reporting date by the level in the
fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in
the statement of financial position.
Carrying
amount Level 1 Level 2 Level 3 Total
30 June 2021 Birr'000 Birr'000 Birr'000 Birr'000 Birr'000
Financial assets
Cash and balances with banks 7,061,051 7,061,051 - - 7,061,051
Loans and advances to customers 21,959,098 - - 21,959,098 21,959,098
Interest Free Financing 2,985,313 - - 2,985,313 2,985,313
Investment securities 6,488,027 - - 6,488,027 6,488,027
Total 38,493,489 7,061,051 - 31,432,438 38,493,489
Financial liabilities
Deposits from customers 29,467,589 - - 29,467,589 29,467,589
Interest Free customers' deposits 4,877,923 - - 4,877,923 4,877,923
Lease Liabilities 281,243 - - 281,243 281,243
Other liabilities 1,030,940 - - 1,030,940 1,030,940
Total 35,657,695 - - 35,657,695 35,657,695
Carrying
amount Level 1 Level 2 Level 3 Total
30 June 2020 Birr'000 Birr'000 Birr'000 Birr'000 Birr'000
Financial assets
Cash and balances with banks 5,319,219 5,319,219 - - 5,319,219
Loans and advances to customers 17,162,613 - - 17,162,613 17,162,613
Interest Free Financing 2,421,043 - - 2,421,043 2,421,043
Investment securities 6,191,230 - - 6,191,230 6,191,230
Total 31,094,105 5,319,219 - 25,774,886 31,094,105
5.14.3 Financial instruments not measured at fair value - Fair value hierarchy
Financial liabilities
Deposits from customers 23,783,114 - - 23,783,114 23,783,114
Interest Free customers' deposits 3,947,742 - - 3,947,742 3,947,742
Other liabilities 845,839 - - 845,839 845,839
Total 28,576,695 - - 28,576,695 28,576,695
Page 89
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
The Bank has no financial asset measured at fair value on subsequent recognition.
During the three reporting periods covered by these annual financial statements, there were no movements between levels as
a result of significant inputs to the fair valuation process becoming observable or unobservable.
There are no offsetting arrangements. Financial assets and liabilities are settled and disclosed on a gross basis.
Page 90
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Included within various line items under interest income for the year ended 30 June 2021 is a total of Birr 6,801.99 million (30 June 2020: Birr 29,743 million) relating to impaired
financial assets.
30 June 2021 30 June 2020
Birr'000 Birr'000
8 Interest expense
Page 91
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Loans and receivables - charge for the year (Conventional Banking) 40,602 -
Interest Free Financing - charge for the year (Interest Free Banking) 6,843 -
Loans and receivables - reversal of provision (note 15a) - -
Total 47,445 -
Other assets - charge for the year (note 17) -1,401 4,110
Interest free financing-charge for the year - -
Other assets - reversal of impairment losses (note 17) - -
Page 92
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
The tax on the Bank’s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows:
Less :
Depreciation for tax purpose 123,137 100,509
Provision for loans and advances for tax as per NBE (80%) 26,348 83,976
Dividend income taxed at source 6,074 5,546
Interest income taxed at source-NBE Bills 248,532 262,504
Interest income taxed at source-Local Deposit 84,680 52,318
Office Rent As per GAAP 199,051 -
Loss on disposal of PPE for Tax purpose -
Write back suspended Interest Taxed previous year - -
687,821 504,853
Page 93
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilised.
30 June 2021 30 June 2020
Birr'000 Birr'000
Cash and cash equivalents in the statement of cash flows are the same as on the statement of financial position as the Bank had no bank overdrafts at the
end of each reporting period.
30 June 2021 30 June 2020
Birr'000 Birr'000
17 Loans and advances to customers
Agriculture 290,130 230,470
Industry 2,429,502 2,072,599
Domestic trade and services 7,101,806 5,454,549
Export 4,684,710 3,429,277
Import 1,839,061 1,383,460
Construction 1,752,911 1,528,406
Transport and communication 320,102 163,404
Hotel and tourism 1,415,178 1,283,920
Mining, power and water resources 40,018 -
Microfinance institution 52,255 56,443
Mortgage loan staff 936,160 814,533
Mortgage Loan Customer 848,443 615,258
Personal Loan Staff 126,555 117,894
Emergency staff loans 237,893 169,377
Consumer loans 134,808 74,615
Consumer loans staff 21,760 -
Gross amount 22,231,292 17,394,205
Page 94
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
A reconciliation of the allowance for impairment losses for loans and receivables as at 30 June 2021 is as folllows:
A reconciliation of the allowance for impairment losses for loans and receivables by class as at 30 June 2020 is as follows:
Page 95
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
A reconciliation of the allowance for impairment losses for Interest free financing as at 30 June 2021 is as folllows:
A reconciliation of the allowance for impairment losses for Interest free financing as at 30 June 2020 is as folllows:
The primary valuation technique adopted by the bank in undertaking the valuation of the investee companies is the market approach. This is because the
financial information available on the investee companies consists of historical audited financial statements.
As at 30 June 2021
Net changes
Number of in equity
Balance of FVOCI
shares '000 investments Percentage
Investment at FVOCI shareholding ( at FV )
Oromia Insurance S.C 25,000 9,474 34,474 20.8%
Gutu Oromia Business S.C 3,250 - 3,250 2.0%
Elemtu Integrated Dairy Industry S.C 10,000 18,565 28,565 17.2%
Elemo Kiltu House Buliding 500 597 1,097 0.7%
OIB ODA Real Estate PLC 10,000 (2,072) 7,928 4.8%
Ethio Switch S.C 12,002 21,709 33,711 20.3%
TPO Printing and Publishing S.C 15,000 - 15,000 9.1%
Tsehay Industry S.C 20,000 19,421 39,421 23.8%
Sheger Micro Finance S.C 3,200 (1,201) 1,999 1.2%
Sheger Smart City S.C 250.00 - 250 0.2%
Grand Total 99,202 66,493 165,695 100%
Page 96
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
FV day 1
Number of Percentage
Investment adjustment Balance of FVOCI
shares '000 shareholding ( at FV )
gain/(loss)
Oromia Insurance S.C 25,000 23,495 48,495 35.9%
Gutu Oromia Business S.C 3,250 - 3,250 2.4%
Elemtu Integrated Dairy Industry S.C 10,000 (10,000) - 0.0%
Elemo Kiltu House Buliding 500 597 1,097 0.8%
OIB ODA Real Estate PLC 10,000 (3,476) 6,524 4.8%
Ethio Switch S.C 12,002 18,208 30,210 22.4%
TPO Printing and Publishing S.C 15,000 - 15,000 11.1%
Tsehay Industry S.C 17,572 10,355 27,927 20.7%
Sheger Micro Finance 3,200 (877) 2,323 1.7%
Sheger Smart City S.C 250 - 250 0.2%
Investment 30 June
2020 Addition for the year 30 June 2021
Oromia Insurance S.C 25,000 - 25,000
Gutu Oromia Business S.C 3,250 - 3,250
Elemtu Integrated Dairy Industry S.C 10,000 - 10,000
Elemo Kiltu House Buliding 500 - 500
OIB ODA Real Estate PLC 10,000 - 10,000
Ethio Switch S.C 12,002 - 12,002
TPO Printing and Publishing S.C 15,000 - 15,000
Tsehay Industry S.C 17,572 2,428 20,000
Sheger Micro Finance 3,200 - 3,200
Sheger Smart City S.C 250 - 250
Grand Total 96,774 2,428 99,202
As at 30 June 2020
Investment Number of shares '000 Percentage shareholding
Oromia Insurance S.C 25,000 26%
Gutu Oromia Business S.C 3,250 3%
Elemtu Integrated Dairy Industry S.C 10,000 10%
Elemo Kiltu House Buliding 500 1%
OIB ODA Real Estate PLC 10,000 10%
Ethio Switch S.C 12,002 12%
TPO Printing and Publishing S.C 15,000 16%
Tsehay Industry S.C 17,572 18%
Sheger Micro Finance 3,200 0
Sheger Smart City S.C 250 0
Page 97
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Financial assets
Non-financial assets
A reconciliation of the allowance for impairment losses for other assets is as follows:
20(b) Inventory
A breakdown of the items included within inventory is as follows:
31,765 30,944
Page 98
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
30 June 2021
BIRR '000'
Building lease Land Lease Total
COST
At 1 July 577,894 48,316 626,210
Deperciation
Charge for the year 179,827 710 180,538
As at 30 June 2021 179,827 710 180,538
Computer
Motor Furniture Office Construction
Property, plant and Buildings and Total
vehicles and fittings equipment in progress
23 equipment accessories
Birr'000 Birr'000 Birr'000 Birr'000 Birr'000
Cost:
Accumulated depreciation
Page 99
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Oromia International Bank S.C. took over collateral of some customers and these were recorded in the books as Assets classified as
Page 100
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Financial liabilities
TT payable 9,790 9,963
CPO & Certified Cheques issued 120,986 136,292
Account Payable Miscellaneous 128,616 222,004
Income tax payable 10,237 5,553
Tax payable on interest 6,092 3,659
Pension payable 4,987 2,937
Tax on capital gain 153 102
VAT payable 70 134
Witholding tax payable 1,736 1,242
Stamp duty charges 4,317 2,696
Exchange payable to NBE 6,325 869
Accrued Interest On Fixed Time Deposit - -
Audit fee 460 493
Dividend Payable 65,380 76,341
Letter of credit margin payables 529,034 344,994
Hamish Jiddya Payable - 3,578
Charity Fund Payable 14,991 9,036
Uncleared effects- Foreign - -
Uncleared effects-Local - -
Deferred Murabaha profit - -
Cost Sharing Payable 97 25
Borrowings- Short Term 127,669 24,403
Directors Share on Profit - 1,518
1,030,940 845,839
Non-financial liabilities
1,243,352 1,001,418
Page 101
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
The income statement charge included within personnel expenses includes current service cost, interest cost, past service costs on the
defined benefit schemes.
72,362 49,578
Severance pay
The Bank operates an unfunded severance pay plan for its employees who have served the Bank for 5 years and above and are below
the retirement age (i.e. has not met the requirement to access the pension fund). The final pay-out is determined by reference to
current benefit’s level (monthly salary) and number of years in service and is calculated as 1 month salary for the first year in
employment plus 1/3 of monthly salary for each subsequent in employment to a maximum of 12 months final monthly salary.
Below are the details of movements and amounts recognised in the financial statements:
14,048 11,152
30 June 2021 30 June 2020
C Amount recognised in other comprehensive income: Birr'000 Birr'000
Remeasurement (gains)/losses arising from changes in
demographic assumptions - -
Remeasurement (gains)/losses arising from changes in the
economic assumptions (1,552) (8,952)
Remeasurement (gains)/losses arising from experience 14,018 7,846
Tax credit /(charge)
12,466 (1,106)
The movement in the defined benefit obligation over the years is as follows:
Page 102
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Authorised:
Ordinary shares of Birr 1000 each 6,000,000 3,000,000
Basic earnings per share (EPS) is calculated by dividing the profit after taxation by the weighted average number of ordinary shares in
issue during the year.
30 June 2021 30 June 2020
Birr'000 Birr'000
32 Legal reserve
The NBE Directive No. SBB/4/95 requires the Bank to transfer annually 25% of its annual net profit to its legal reserve account until
such account equals its capital. When the legal reserve account equals the capital of the Bank, the amount to be transferred to the legal
reserve account will be 10% (ten percent) of the annual net profit.
Page 103
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
Where the loan loss impairment determined using the National Bank of Ethiopia (NBE) guidelines is higher than the loan loss
impairment determined using the expected credit loss model under IFRS, the difference is transferred to regulatory risk reserve and it
is non-distributable to the owners of the Bank.
Where the loan loss impairment determined using the National Bank of Ethiopia (NBE) guidelines is less than the loan loss
impairment determined using expected credit loss model under IFRS, the difference is transferred from regulatory risk reserve to the
retained earning to the extent of the non-distributable reserve previously recognised.
30 June 2021 30 June 2020
Notes Birr'000 Birr'000
34 Cash generated from operating activities
Profit before tax 1,128,964 1,065,078
Adjustments for non-cash items:
Depreciation of property, plant and equipment 23 94,257 81,119
Amortisation of intangible assets 21 12,239 9,178
Gain/(Loss) on disposal of property, plant and equipment (710) -
Impairment on loans and advances 17 40,602 (40,665)
Impairment on interest free financing 16 6,843 (16,397)
Impairment losses on other assets 20 (1,401) 4,109
Retirement benefit obligations 28 1,106
Adjustment on De-Recognised Property, Plant and equipment 1,884 1,232
Adjustment
Fair Valueof Property, Plant and
adjustment for equipment
equity - -
investment 18 (24,802)
Adjustment of Provision for Legal - 2,205
Amortization of right of use assets - -
Interest on leased assets 14 28,695 23,923
Prior Period Adjustment - -
Changes in working capital:
-Decrease/ (Increase) in loans and advances to customers 17 (4,837,087) (1,798,115)
-Decrease/ (Increase) in interest free financing 18 (571,113) (513,908)
-Decrease/ (Increase) in other assets 20 (271,618) 240,031
-Decrease/ (Increase) in Right of Use Assets 22 (50,701) (626,210)
-Decrease/ (Increase) in non current assets held for sale 20 (6,750) (279)
-Increase/ (Decrease) in deposits from customers 23 5,684,475 1,348,931
-Increase/ (Decrease) in Interest Free customers' deposits 24 930,181 (207,201)
-Increase/ (Decrease) in Other liabilities 22 252,895 (166,104)
-Increase/ (Decrease) in Retirement benefit obligations 24 14,048 8,644
-Decrease/ (Increase) in Restricted Deposit 15 (320,000) (30,000)
-Decrease/ (Increase) in lease liabilities 15 4,833 247,715
2,140,537 (390,409)
In the statement of cash flows, profit on sale of property, plant and equipment (PPE) comprise:
30 June 2021 30 June 2020
Birr'000 Birr'000
Proceeds on disposal - -
Net book value of property, plant and
equipment disposed (Note 19) - -
Gain/(loss) on sale of property, plant and equipment - -
Page 104
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Compensation of the Bank's key management personnel includes salaries, non-cash benefits and contributions to the post-employment defined benefits plans.
36 Contingent liabilities
36(a) Claims and litigation
The Bank is a party to numerous legal actions brought by different organizations and individuals arising from its normal business operations. The maximum
exposure of the Bank to these legal cases as at 30 June 2021 is Birr 134,015,063.41 . Provision of birr 4.51 million has been made in the financial statements as the
Directors believe that it is probable that the economic benefits would flow out of the Bank in respect of these legal actions.
Page 105
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
Annual Report 2020/21
In the opinion of the Directors, there were no significant post balance sheet events which could have a material effect on the state of affairs of the Bank as at 30 June
2021 and on the profit for the period ended on that date, which have not been adequately provided for or disclosed.
40 Comparative figures
Some of the previous year figures have been reclassified to make them comparable with current year presentation. Besides, remeasurement differences on employees
benefit obligations and fair value differences on equity investments through FVOCI have been recognized on gross basis though these items should be recognized net
of deferred tax. Hence, the deferred tax effect of these items on figures reported in the year ended 30 June 2020 has been summaried as follows;
41 Segment reporting
A segment is a distinguishable component of the Bank that is engaged in providing products or services within a particular economic environment which is subject to
risks and rewards that are different from those of other segments . Operating segments are reported in a manner consistent with the internal reporting provided to
the chief operating decision maker.
The chief operating decision maker is the person or Bank that allocates resources to and assesses the performance of the operating segments of an entity.
The Bank has determined the Board of Directors as its chief operating decision maker. All transactions between business segments are conducted on commercial
terms basis with intra-segment revenue and costs being eliminated at Bank level.
Segment information
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Bank that are regularly reviewed by the Board of
Directors in order to allocate resources to the segment and to assess its performance.
Information reported to the Bank’s Board of Directors for the purposes of resource allocation and assessment of segment performance is focused on products and
services.
The accounting policies of the reportable segments are the same as the Bank’s accounting policies described in note 2.
For management purposes, the Bank has been organised into two operating segments based on products and services, as follows:
1. Interest Free Banking- All Islamic banking products offered to customers are included under the Islamic Banking segment. These products inlcude Wadiah
deposits, Amanah deposits and mudarabah investments.
2. Conventional Banking- The conventional banking segment comprises of corporate and commercial banking customers in various sectors which include agriculture,
manufacturing, domestic trade, construction, hotel and tourism, microfinance institutions, mortgage loans and personal loans
The Executive Management Committee monitors the operating results of its business units separately for the purpose of making decisions about resource allocation
and performance assessment. Segment performance is evaluated based on operating profits or losses and is measured consistently with operating profits or losses in
the consolidated financial statements. However, income taxes are managed on a group basis and are not allocated to operating segments.
Transfer prices between operating segments are based on the Bank’s internal pricing framework.
No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Bank's total revenue in 2020 or 2021.
Page 106
Oromia International Bank S.C.
Notes to the financial statements
For the year ended 30 June 2021
As at 30 June 2021
Conventional Interest Free Segment
Bank
Banking Banking adjustments
- -
Interest income 3,462,577 3,462,577
Income from Interest free financing and
investment products - 326,051 - 326,051
Interest expense 1,397,375 1,397,375
Distribution to depositors- Interest Free Banking
Products 788 788
Net interest income and income from Interest Free
Banking products net of distribution to depositors 2,065,202 325,263 - 2,390,465
Assets
Additions to property and
equipment 191,859 - 191,859
Additions to other
intangible assets 46,232 - 46,232
Total assets 36,541,186 5,149,854 41,691,040
Total liabilities 31,286,754 4,934,392 36,221,146
41 Segment reporting (continued)
As at 30 June 2020
Conventional Interest Free Segment
Bank
Banking Banking adjustments
Birr "000 Birr "000 Birr "000 Birr "000
Page 107
Our Bank’s Managment and the 3rd five-year Strategic Plan Team with Frankfurt
School of Finace & Managment Consultants
Note
KAAMPAANII INSHURAANSII OROMIYAA W.A.
ኦሮሚያ ኢንሹራንስ ኩባንያ አ.ማ.
OROMIA INSURANCE COMPANY S.C.