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On the contrary, it has been decreasing by 25.63% from 29.03% in 2011 to 21.59% in 2012 before slightly improved by 7.63% in 2013. The reason in declining of NPM ratio was an increase in provision for loan and advances to total operating income ratio, which was under estimated in the previous period 2011, by 44.99% from 1.84% in 2011 to 2.67 in 2012. Similarly non-interest expense ratio was increased by 12.26% from 39.87% in 2011 to 44.76% in 2012. Here a high value of both expense ratios produces a decrease in the bank’s profit; it may be an indication of a problem situation in the bank.26
The ratios in Figure 3.5 implies that, amount of net income after tax from 100 Birr of operating income was Br. 23.95 in 2010, Br. 29.03 in 2011 and Br. 21.59 in 2012 before slightly improved to Br. 23.24 in 2013.The opinion of the management regarding the outcomes of profitability performance ratios shows that the reason for increasing trend in 2011 is due to the reality of being after establishment whereas, the reason for declining in profitability in 2012 is due to taking the higher return in the study period, 2011, as a base year for comparison purpose.27
3.2 Liquidity performanceNorms for liquidity ratios of business firms are possible because their liabilities are predictable due to their fixed maturities. For banks, there are no universally recognized liquidity ratios as a large percentage of their liabilities (e.g. deposits) are due on demand. Nevertheless the following ratios can be used as partial indicators. The liquidity of OIB is measured based on liquid asset to average total asset ratio (LAATA), liquid asset to deposit and short term borrowing (LADST), loan to deposit and short term borrowing ratio (NLDST)3.2.1 Liquid Asset to average total asset ratioLiquid asset to total asset ratio is a direct method of assessing the liquidity of bank in terms of the overall total asset.The ratio as per the attached annex has been generally falling for the period under study indicating declining in liquidity of the bank. The ratio decreases by 36.59% from 87.02%in 2010 to 55.18% in 2011, by 15.49% from 55.18% in 2011 to 46.63% in 2012 & by 23.07% from 46.63% in 2012 to 35.87% in 2013. The reason in declining of liquidity ratio was parallel with the decline in growth rate of liquid asset compared with previous periods by 13.9% from 35.18% in 2011 to 30.29% in 2012 and by 71.93% from 30.29% in 2012 to 8.5% in 2013 as a result of more funds become invested in other company share and long term assets .28
It can be easily interpreted as for each 100 Birr of total asset the proportion of liquid asset was,Br. 87 In 2010, Br. 55.17 In 2011 Br. 46.62 In 2012 and Br. 35.87 in 2013 indicating reduction in proportion of liquid assets from the overall total assets which leads to declining in liquidity position of OIB within the study period.3.2.2 Liquid asset to deposit and short-term borrowingLADST is additional direct method of assessing the liquidity of a bank which indicates the percentage of short term obligations that could be met with the bank’s liquid assets in the case of sudden withdrawals.