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Published On: Mon, May 8th, 2017

Ecobank challenges highlight banking sector weakness

…difficult times still lay ahead

By OKEY ONYENWEAKU

Ecobank Transnational Incorporated (ETI), has not had the best of times, the bank’s QI 2017 books have shown a mix of the good and the bad. With Profit before tax at N18.68billion in first quarter 2017, representing an increase of 15 per cent over previous years N16.2billion, ordinary shareholders have still found it difficult to heave a sigh of relief.

This is a bit surprising since its gross earnings rose 36 per cent from N131.39 billion in Q1 2016 to N178.4billion in Q1 2017.

The bank in its unaudited results for the quarter stated that profit before tax gained 11 per cent from N20.6 billion in Q1 2016 to N22.9 billion in Q1 2017.

Gross Earnings equally rose by 36 per cent from N131.39 billion in Q1 2016 to N178.4 billion in Q1 2017 while operating profit before impairment losses gained 36 per cent from N33.89 billion to N46 billion in first quarter 2017.

Excited Group Chief Executive Officer, Ade Ayeyemi, noted in a statement on the result that, “Our [the bank’s] performance in the first quarter was encouraging despite continued macroeconomic headwinds.

“All of our businesses made meaningful progress in executing our strategy by continuing to focus on cost discipline, stringent credit risk practices, and digitisation of processes to enhance the customer experience’’.

“Pre-impairment income increased 10 per cent in constant dollars, reflecting positive operating leverage.’’

He pointed out that the banks cost-to-income ratio of 64.5 per cent was an improvement on the 66.1 per cent for 2016, reflecting strong efficiency gains. However, pre-tax profits decreased 17 per cent in constant dollars, mainly because impairments continued to remain a major concern of the business. On the posistive side the bank was still able to deliver a tangible return on average equity (ROaE) of 16 per cent.

ETI’s ceo went on to point out that the diversified business model and continental strategy was likely to prove to be an effective competitive advantage. It would allow the bank meet the trade finance, cash management, and online and mobile financial needs of its customers across different market segments.

The banks total assets rose by 36 per cent from N4.6 trillion in 2016 to N6.26 trillion as at March 2017, driven by a 28 per cent increase in loans and advances to customers to N2.8 trillion from N2.2 trillion recorded in 2016.

ETI also saw a 32 per cent increase in deposits from customers to N4.15 trillion as at March 2017 and 12 per cent increase in total equity from N505.5 billion in 2016 to N565.7 billion as at March 2017.

The reported figures look good but market observers are still cagey. The bank drifted into a red region in 2016 after recording a steep decline in earnings in 2015.

For instance; the bank ran into a loss before tax of $131million (or N33.7 billion) in 2016 financial year end as against profit before tax of $205million recorded in 2015.

ETI attributed the fall to higher loan impairment charges taken in the fourth quarter of 2016, Loan impairment charges rose by 110.7 per cent compared with N105.2 billion recorded in 2015. The banks profit before impairment charges tumbled 0.5% to $735.1 million or up 29% to N188 billion from N146 billion in 2015. Other performance measures equally looked sober.

For instance;its Total Assets declined 13% to $20.5billion(or up 33% to N6.255trillion, loans and advances to customers also plunged 17% to $9.3 billion (or up 27% to N2.824trillion, deposit from customers dropped 18% to $13.5 billion (or up 26% to 4.116 trillion. Similarly, total equity fell 30% to $1.8 billion (or up 7% to N 538billion).

The bank’s roller coast slide started in 2013 when it recorded a decline of 48 per cent. However, this sad drift was corrected in 2014 when it posted a solid performance as its profit before tax rose surprisingly by a solid 134% to $519.5milion or (up 144% to N86.4 billion) before the huge drop in 2015 leading to a subsequent loss in 2016.

The bank’s poor recent performance betrays the emerging weaknesses in the banking industry as a whole. The industry has been in a contained crisis over the last two years as the economy struggled to maintain a semblance of balance.

The nation’s Gross Domestic product (GDP) slipped into contraction by 0.36 per cent in the first quarter of 2016 and plunged deeper into recession by dipping -2.06 per cent in the second quarter before rolling into a third quarter decline of -2.24 per cent. Indeed the country’s full year GDP fell by -1.5 per cent.

Managing Director of HIGHCAP securities limited, Mr. David Adonri reckons that the macro-economic challenges do not seem to favour the banks adding that its internal problems including board room crisis and the unfriendly operating environment.

‘’ETI has had series of crisis ranging from board room problems to weak corporate governance’’, said Adonri

More disturbing is that its major subsidiary, Ecobank Nigeria which contributes about 70 per cent of ETI’s revenue posted a huge 33 per cent revenue decline stumbling from $136million, while after tax profit fell 71 per cent to $12million in first quarter 2017.

Shareholders of the bank have expressed worry over the weak performance of the bank which appears to be losing its bearing. The bank has already closed down 74 branches in Nigeria. This has sent jitters down the spines of workers as they contend with the prospects of job losses. Like other banks, Ecobank had down sized a few months back to reduce operating expenses.

With a non-national, Charles Kie, as Managing Director of Ecobank Nigeria, there is a growing fear that the subsidiary may find it difficult to meet its aspirations. First, because Nigeria is unfamiliar operational ground for the new ceo, and second it is believed that it will take some time for him to acclimatize to the environment and culture of the Nigeria. Besides, the harsh macro-economic environment has not been favourable to businesses including banks which have experienced very tight and stifling regulation.

ETI suffered severe operating setbacks that affected its image adversely five year ago. The 2012 and 2013 board room crisis that almost engulfed the bank is still haunting it.  It would be recalled that its former Chief Executive Officer, Thierry Tanoh relinquished a $1.14 million bonus he was supposed to get for the 2012 financial year, as part of efforts to rebuild confidence after Nigeria’s SEC said it was investigating corporate governance breaches in the bank.

Laurence Do Rego, the finance director who was relieved of his job had petitioned regulators claiming that Tanoh’s bonus was $935,967 and exceeded his entitlement. The bank was also investigated for alleged falsification of its statement of accounts.

This necessitated the high turnover of the highest office in the bank. For instance, in the past five years the bank has turned over three helmsmen including Thiery Tanoh, Mr. Albert Essien and Ade Ayeyemi.

“Our business philosophy was founded on international best practice in terms of accounting and asset quality’’, Ayeyemi insists.

Looking inwards Ecobank service delivery cannot compete favourably with that G T Bank and Zenith Bank. ‘’Each time you go the bank the staff are always complaining system failure and customers have always walked away in anger’’, Fred Nwaogazi is customer said.

This is more worrisome when its major subsidiary, Ecobank Nigeria, which contributes about 70 per cent of ETI’s revenue posted huge revenue decline by 33 per cent to $136million, while after tax profit fell 71 per cent to $12million in first quarter 2017.

Former National coordinator of Independent Shareholders Association of Nigeria believes that Ecobank was facing a trying time and urged shareholders not lose faith in the Pan African Bank.

Ecobank Nigeria was one of the first Nigerian banks to adopt the International Financial Reporting Standards (IFRS), which entails full disclosure and full provisioning.

However, its acquisition spree may have heaped more challenges on its head.

Over the years, after the banking consolidation, the bank embarked on expansion project and acquired five defunct financial institutions including Allstates Trust Bank, Hallmark Bank, AIB International Bank, Afex Bank and Gulf Bank and Oceanic International Bank.

Ecobank is Africa’s largest banking network with 7.8 million customers.  Prior to the acquisition of Oceanic Bank in Nigeria, it had 1,140 branches in 32 African countries, and a presence in Paris, Dubai and London.   The bank recently received regulatory approval to open in Equatorial Guinea, which will be the 33rd African country.

With signs that it has begun to steer a steadier course, ETI may yet regain the confidence of its various stakeholders, especially if it can keep the banking till chiming with fresh earnings.

 

 

 

 

 

 

 

 

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