Published On: Sun, Jul 15th, 2018

Ecobank risk assets deteriorate as Kie bows out

By FELIX OLOYEDE

Charles Kie, Ecobank Bank, immediate past MD

The exit of Ecobank Nigeria’s erstwhile Managing Director, Charles Kie, has raised a groundswell of speculation in the financial community as sector analysts believe that his exit was abrupt, untimely and suspicious. Over a period of two years, Kie had succeeded in reversing the banks bedraggled balance sheet and profit and loss account as he pulled the bank from the brink of serial losses. Nevertheless, a sore point for the MD who got a stiff boot by the bank’s board recently, is that he appeared to have left the bank’s loan book worse than he met it.

Kie’s resignation was announced by the bank on July 9, 2018 after 30 months as Managing Director, having succeeded Jibril Aku in January 2016. The management of Ecobank failed to give reasons for Kie’s resignation, but there are speculations that he had challenges coping with the domestic operating environment.

The bank’s profit after tax (PAT), which was N21.25 billion in 2015, shot up by a whopping 229 per cent to N69.99 billion in 2017, buoyed by Nigeria’s recovery from 18 months recession, which it exited in June 2017. Ecobank struggled immensely during the meltdown, which was triggered by as oil prices that stumbled significantly from $108 per barrel in July 2014 to below $29 in January 2017. The bank recorded -68 per cent drop in its post-tax profit at the end of 2015, and it actually went downhill when Kie took charge at Ecobank Nigeria in 2016 as it posted N52.6 billion loss, on the back of harsh operating environment and its decision to adoption of a full impairment charge on its legacy loan portfolio.

The quality of the bank’s risk assets continued to deteriorated in the two and a half years that kie held sway, with its non-performing loans increased from 8.2 per cent in  2015 to 10.7 per cent in 2017 as the bank tries to ramp up its profitability. It, however, dropped to 10 per cent in the first three months of 2018, which was the last performance he was in involved as Managing Director of its Nigerian operations.   The bank is targeting a NPL ratio of 8-10 per cent at the end of this financial year.

The challenge of high NPL is not peculiar to Ecobank, several other banks in the country have been grappling with increasing toxic assets, which sent the average banking industry NPL ratio to 13 per cent at the end of March 2018 against the five per cent threshold set by the Central Bank.

The profitability of a bank is often foremost in the minds of investors than the quality of its risk assets, claims Moses Ojo, Head, Research and Business Development, PanAfrican Capital Plc. He maintained that Ecobank shareholders would be pleased with Kie, because he helped in growing their return on investment before he resigned as managing director of bank’s Nigeria operations. .

Ojo attributed the high bank’s NPL to its aggressive drive to grow interest income in order to increase profit.

He, however, argued: “Non-performing loan is like a malignant tumour that gradually kills an organisation if not treated on time.” He cautioned that Ecobank would need to further strengthen its risk management and be more stringent in assessing its credit.

 

The lender in November last year engaged, Adebiyi Olagbemi as a new Chief Risk Officer to help address its rising NPL challenge. This seemed to have begin to yield some positive results with its NPL ratio going down from 10.7 per cent in December 2017 to 10 per cent in March 2018, supported by the country’s gradually economic uptick.

Ade Adeyemi, Group Managing Director, Ecobank believes Kie has laid a strong foundation at Ecobank Nigeria with his immense contributions to the growth of the bank. He added that Ecobank has a good succession structure which would see it announce his replacement soon.

When the Business Hallmark contacted Odidison Omankhanlen, Senior Media Officer, Ecobank to find out reasons for the Kie’s resignation and what the bank was doing to tackle its high NPL, he asked our correspondent to send the questions to him through his e-mail with a promise to forward them to the appropriate quarters and afterward revert to him. This was done and he acknowledged receipt. The following day, he said was yet to get response from those in position to provide answers to the enquiry.

The CBN earlier in the year stopped banks with NPL ratio above the five per cent regulatory benchmark, capital adequacy ratio (CaR) below 15 per cent for tier 1 lenders and 10 per cent for tier 2 lenders and liquidity ratio under 30 per cent, which is the regulatory requirement, from paying dividends to the shareholders.

Ecobank could not pay dividend in 2017 as it fell short of the minimum NPL requirement as its NPL ratio stood at 10.7 per cent, though its CaR at 28.8 per cent and liquidity ratio were above threshold.

The management explained that the bank was unable to pay dividend last year due to the need to create buffers and maintain a solid profit position.

The bank stock was down -0.97 per cent to close N20.35 on Friday, but has appreciated 25 per cent year-to-date on the back on improved investors’ sentiments in the Nigerian stock market.

Nedbank owns 21 per cent shareholding in the Pan-African bank, QNB 20 per cent; IFC 14.1 per cent, while PIC (GEPF) and others hold 14 per cent and 31 per cent equities respectively.

Actions taken by Ecobank Management to tackle its toxic assets in 2017 include

  • Hiring a new Chief Risk Officer with extensive experience
  • Implementing an enhanced credit operating model
  • Aggressive on loan asset recovery and collateral realisation
  • Strengthening of the banks Remedial function –in the process of hiring Group Head, Remedial Management
  • Building capacity through targeted training
  • Separating management of NPLs from PDOs
  • Engaging Third-party contractors to assist with recoveries of PDOs and NPLs

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