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CEO Ade Ayeyemi keeps Ecobank on a cost-cutting diet

By Joël Té-Léssia Assoko, in Kigali
Posted on Wednesday, 1 May 2019 10:00, updated on Thursday, 2 May 2019 16:19

Ecobank CEO Ade Ayeyemi at the Africa CEO Forum in Kigali, Rwanda in March 2019. Himbaza Pacifique/ACF 2019

Convinced that it is still necessary to improve the financial ratios of his group in order to continue its development, Ecobank's boss is asking shareholders to be patient.

Money is expensive. A banker for thirty-one years, including three and a half years at the head of Ecobank Transnational Incorporated (ETI), Nigeria’s Ade Ayeyemi knows this better than most. And even if he were sometimes tempted to forget this, the markets will never fail to remind him of this.

In mid-April, for its first foray into the international bond market, ETI had to accept an annual interest rate of 9.5% to borrow $450m over five years. A “successful” and “oversubscribed” first, says Greg Davis, ETI’s chief financial officer, who noted the strong enthusiasm of international investors.

“Predominantly, subscriptions come from Europe, the United Kingdom and the United States,” added Mireille Bokpe-Anoumou, head of communications at the pan-African Bank.

No dividend, high profit

At the same time, from Abidjan to Lagos, Accra, Lomé and Johannesburg, thousands of ETI shareholders will have to tighten their belts again. For the third consecutive year, ETI’s management and board of directors recommended that the bank not pay a dividend.

Except for the 2012 financial year, the group’s owners have only been rewarded for the capital they have contributed once in recent years: in 2015, with $69m paid. Withholding dividends is all the more difficult as the group posted a profit of $329m last year, a remarkable increase of 44%. This is the highest profit level reached in this decade, with the exception of 2014 (about $338m).

Above all, it is the first time that ETI has recorded two consecutive profitable financial years since Ayeyemi took over the reins in September 2015. “Given our company’s improved results in 2018, we are aware that shareholders expect to receive dividends,” said Emmanuel Ikazoboh, chairman of the board, in the annual report published in early April.

Ecobank’s difficult decisions

The “difficult” decision to waive the payment of dividends is explained, according to the Nigerian manager, by “the new regulatory capital requirements to which the group is subject and by the need to build a liquidity cushion for the holding company”.

In addition, added the Deloitte veteran who was appointed chairman of Ecobank in 2014, “to realise our planned growth initiatives and ensure our victory in key countries such as Nigeria and Kenya, we must increase capitalisation levels in the short term by combining new capital injections with profit reinvestment.”

“Overall, our performance is in line with our projections and expectations,” Ayeyemi said on the sidelines of the Africa CEO Forum in Kigali, a few weeks before the official figures were published.

Coming from the US bank Citi, whose activities he managed in sub-Saharan Africa and where he acquired a reputation as a cost-killer, Ayeyemi has deployed a certain zeal to strengthen the criteria for granting loans across the 30 countries where Ecobank is present.

Also, despite an 18% increase in deposits between 2016 and 2018, outstanding loans and advances to customers fell last year to $9.2bn, their lowest level since 2012. As a result, revenue declined to $1.8bn, the lowest level in six years.

Costly provisioning

Ayeyemi has also opted for an accelerated application of the new IFRS9 and Basel II and Basel III regulations, which require in particular a strengthening of provisioning. This has been costly for the group, which has had to increase its bad-debt provisioning from 52.4% in 2017 to 67.6% in 2018.

According to Moody’s, this represents a cost of more than $225m for ETI, which had three years to implement the reform. As a result, the cost of risk fell sharply to 2.4% and the share of delinquent loans in its portfolio also fell to 9.6%. Delinquent loans average more than 12% in Nigeria and 22% in Ghana, Ecobank’s top two markets, according to a Moody’s study.

Despite these constraints, pre-tax earnings increased by half last year. At $436m, this is only slightly lower than the $519.5m recorded five years ago, when ETI’s revenue reached an historic high of $2.3bn. Ecobank has managed to make more profits by being more cautious than ever in its lending policy.

Staffing and other strategies

Ayeyemi also shaken up the workforce – with more than 2,000 positions eliminated since his arrival – and top management, with the departure of several executives linked to the controversies at the beginning of the decade. The Nigerian boss has gradually surrounded himself with a management team that is considered more compatible with his management style and able to implement his “roadmap for leadership”, a five-year strategy that is entering its second phase this year.

This executive committee combines Ecobank veterans – such as Patrick Akinwuntan, Samuel Ashitey Adjei and Joséphine Anan-Ankomah, appointed in recent years to head the teams in Nigeria, Central, Eastern and Southern Africa and the commercial banking division – and international managers recruited with “competitive” salaries, such as chief financial officer Greg Davis (formerly of Standard Bank Group), corporate secretary Madibinet Cissé (Africa Finance Corporation) and business and investment banking manager Amin Manekia (Citi).

With a sound credit policy, a prudential framework that is more in line with international standards and a reconfigured management structure, ETI now says it can benefit from the efforts made in recent years and from the improvement of macroeconomic frameworks in its countries where it operates.

This started with an increase in commissions and fees from non-credit activities such as cash management, investments in securities and credit card fees. This segment grew by 5% in 2018. It represented 50.4% of ETI’s revenue in the last quarter of 2018, compared with 43.6% a year earlier. By focusing on these capital-efficient activities, Ecobank hopes to protect its profitability.

Digital dividends

The other part of this strategy is digital. Ayeyemi maintains the target of 100 million customers for Ecobank’s digital banking services by the end of 2020. According to the pan-African group, its focus on digital has enabled it to grow to 19 million retail banking customers by the end of 2018, an increase of one-third year-on-year.

At the same time, the value of transactions carried out with its Ecobank Mobile application tripled to $1.5bn. “We are counting on exponential growth in the benefits of digitisation,” explains Ayeyemi. He says the bank is already seeing, positive effects. Through the digital platforms of Ecobank Pay (individuals), Ecobank Omni (SMEs) and Bank Collect (payment and transaction tracking), customer deposits increased by $2bn (controlling for exchange rate fluctuations) in 2018.

Shifting the regional focus

Finally, the geographical rebalancing of the group’s revenue, which for too long depended on the large Nigerian market, are also bearing fruit. Already the main source of Ecobank’s profits in recent years, the Union Economique et Monétaire Ouest Africaine region, led by Côte d’Ivoire, is now the largest contributor to the group’s revenue, with $511m, and net income of $143m.

The task entrusted to Paul-Harry Aithnard, appointed at the end of 2018 to head this zone and the Ivorian subsidiary, is to put an end to the leadership of Société Générale, the number one in Abidjan. Nigeria now contributes only $444m to the group’s revenue (compared to more than $800m in 2013). Non-French-speaking West Africa, led by Ghana, also consolidated its position with more than $390m in revenue recorded.

While the Central, East and Southern Africa zone ($450m), which suffers from an overrepresentation of the group’s smallest subsidiaries (Mozambique, Uganda, Kenya, São Tomé e Príncipe…) “is performing better than [the group’s] expectations,” says Ayeyemi, with a net margin of $68m.

For 2019, Ecobank expects to relaunch dividend distributions, with pre-tax profit expected to increase by 6% to 8%, slightly below the projected increase in deposits and loans. But, as promised, the group’s cost-to-income ratio should remain stable. After all, with or without dividends, Ayeyemi has a reputation as a cost-killer to preserve.

This article was first published in Jeune Afrique.

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