Under the gaze of Ethiopia’s economic landscape, private banks have not merely survived, but thrived, over the past half-decade beginning 2018. A stirring narrative portrays one of growth, diversification, efficiency, and of an industry rising to the challenge of an increasingly complex environment.

With pageantry akin to the River Nile's consistent inflow, the assets of private banks have been on a steady upward climb, echoing the country's economic ambitions. A leap in assets was seen from 2019 to 2020, and then again from 2020 to 2021, akin to a gazelle’s graceful bound across the Ethiopian Savannah. This increase could be the offspring of magnified lending activities, among other influences.

There is a fascinating subplot to this broad-based growth. 

The growth story has been largely written by lending activities, with loans and advances also seeing consistent expansion. The plot thickened from 2018 to 2019, and again from 2019 to 2020, when lending soared like an Ethiopian vulture catching an updraft. Although the lending winds lost some strength in the subsequent years, the continuing growth indicates an active hand in customer lending.

Deposit growth, the bedrock of banking operations held the same rhythmic consistency of a drumbeat. Here too, significant jumps were noted from 2019 to 2020 and 2020 to 2021. This growth in deposits could be attributed to enhanced marketing efforts, and the increasing number of banks entering into the industry.

The banking landscape transformed subtly, almost imperceptibly. 

The loan-to-assets ratio of private banks has risen steadily over the years, suggestive of a growing appetite for lending. At the same time, a shadow looms. The capital-to-assets ratio has been ebbing away, triggering concerns about increased leverage.

Simultaneously, amidst the euphoria of growth, private banks have managed to pull more than one rabbit out of the proverbial hat. The net interest income has steadily increased, signaling growing income from lending activities. In a masterstroke of diversification, other income streams, beyond just lending, have also shown consistent growth.

Unsurprisingly, success begets efficiency. The cost ratio, excluding interest expenses, has been retreating over the years. This suggests an increasing degree of efficiency in banking operations. Profits before tax have been striding forward, signifying increasing profitability. All the while, return on assets (RoAA) and return on equity (RoAE) have maintained stability reminiscent of an Ethiopian highlander's balance, showing resilience in the face of operational challenges.

This orchestration of growth, profitability, and operational efficiencies has led to a symphony of successful performance by the private banks. 

Nonetheless, the gradual increase in leverage, indicated by the declining capital-to-assets ratio, may strike a discordant note. As private banks continue to navigate the uncertain waves of the economic seascape, careful risk management and the preservation of profitability will be key.

On the balance sheet, the continual increase in assets, likely fuelled by an increase in loans and advances, stood out like the peaks of the Semien Mountains. However, as the banks’ assets increasingly took the form of loans, the composition of their balance sheet began to tilt more heavily towards lending.

A tale of steadily increasing interest income unfolded. This was likely the result of an uptick in loans and advances. While interest expense also grew, it did so at a pace more leisurely than the income it sought to offset, leading to a net interest income that steadily inched upwards.

Saving the best for last, the narrative concludes with a triumphant crescendo of profit before tax. This melody of increasing profitability rang out, year after year, reaching a dramatic crescendo from 2020-21 to 2021-22. The composition of deposits painted an intriguing landscape with saving deposits forming the dominant feature. However, the flow of checking and time deposits grew year by year, like tributaries feeding into a larger river.

Exploring the theme of margins, a fascinating dynamics unfolded. The effective deposit rate dwindled subtly year over year, while the effective lending rate grew, leading to an increasing spread and a more robust net interest margin (NIM). In 2021-22, the NIM swelled to an impressive 8.3pc.

The RoAA and RoAE echoed the delicate song of an Ethiopian woodpecker - fluctuating with a subtle decline over the years, reaching 2.4pc and 17.7pc, respectively, in 2021-22. However, the earnings per share (EPS) was on a consistently rising trend, with a significant leap from 2020-21 to 2021-22.

Another exciting subplot unfolded in employee productivity. The efficiency of the banking workforce improved consistently, year after year, as evident in the steady increase in revenue per employee. Indeed, the banks' staff seemed to move to the rhythm of growth, with branches proliferating each year, matching the increase in the number of employees. 

The metric of deposit and revenue per branch showed a steady annual increase, creating a harmony with the rising revenue per employee.

In the face of these successes, however, there lies a note of caution. 

The capital-to-assets ratio fell from 14.1pc in 2017-18 to 13.5pc in 2021-22, suggesting that while the banks maintain a robust level of capitalization, they have become more leveraged over time. This is a trend that requires monitoring to ensure the banks maintain a healthy balance between growth and stability.

On the balance sheet of recommendations for these financial institutions, several measures could amplify their performance. An expansion of the deposit base could be achieved through better customer service, attractive interest rates, and targeted marketing campaigns. This would provide banks with additional capital to lend, leading to higher interest income.

Branch network expansion might also be a promising growth path. It would allow banks to reach a larger customer base, bolstering their deposit base and improving customer service. By refining their loan portfolios to target creditworthy businesses and individuals, banks could further enhance their profitability and reduce default risk.

A stronger focus on asset quality, including diligent monitoring and early intervention for bad loans, would help to lower the level of non-performing assets and improve banks' profitability. Investments in technology, including digital platforms for online banking and mobile banking, could boost operational efficiency and customer satisfaction.

Risk management practices need to be more robust to mitigate lending risks. This could include employing credit scoring models, undertaking regular stress testing, and routinely monitoring key risk indicators. 

Finally, strengthening corporate governance practices could enhance transparency and accountability, boosting the banks' reputation and standing with shareholders and the public.