EXCLUSIVE RANKING: AFRICA'S TOP 200 BANKS
Pushed off balance, like the rest of the continental economy, by the Covid-19 crisis, Africa’s big banks have nevertheless shown adaptability during this period, and some are already bouncing back.
As one of the pioneering pan-African financial institutions, Ecobank should be enjoying its halcyon days with the region’s economies accelerating plans for integrating their markets and using new technologies to bring banking services to a fast-widening customer base.
Ecobank’s headquarters in Lomé, Togo, is a short drive from the newly built secretariat of the African Continental Free Trade Area in Accra, Ghana – the nerve centre of the continent’s single market. But history intervened.
First, in the shape of the legacy of management ructions a decade ago, which included some bad investment decisions. Then, weaker commodity prices hit the export economies of Ecobank’s key markets in 2016, to be followed by the shock of the Covid-19 pandemic.
Instead of hitting boom time, Ecobank has had to take tough decisions on costs, business direction and shareholder dividends.
The current management team, headed by group chief executive Ade Ayeyemi and chairman Alain Nkontchou, has fought back hard, winning a reputation in the markets for prudent liquidity management and contingency plans in a volatile era.
The outcome was, Ayeyemi tells The Africa Report, that the group’s results for the last financial year were better than many had expected, with revenues growing by 4%. “We had good growth of our customer deposits, by $2bn, and we were also able to use that period to increase the acceleration of digital adoption,” says Ayeyemi.
Building on its commercial navigation of the pandemic in 2020, the group launched two fundraising operations this year. Ecobank Transnational Incorporated (ETI), the bank’s holding company, floated $350m of sustainable bonds on the London capital market in June. And then, in September, Arise BV, which has a 14% stake in the Ecobank group, invested another $75m into its balance sheet.
In May, Fitch affirmed its rating for ETI at B- with a stable outlook, but added a proviso on its concerns about the group’s ‘double leverage’. The bank holding company has used a debt offering to buy a stake in a subsidiary bank.
Prudence, and no dividend
Fitch says the ratio is heading in the right direction: ‘We expect ETI’s double leverage to decrease to 140% by end-2022, in line with management guidance, supported by resumed dividends from subsidiaries, stronger performance and continued earnings retention at the bank holding company,’ the agency says. For shareholders, the prudence has a downside: they have not received a dividend for the past four years. That looks set to change next year, according to Fitch.
Last year, Ecobank’s corporate and investment activities grew by 34% but commercial bank activities fell by 54% and consumer bank operations were down by 37%. Those trends aren’t an indicator of the direction the bank is taking, argues Ayeyemi: “In economics, there is this thing that you guys call ‘discontinuity’ in the trend. You can’t use 2020 as a basis of a forecast because it’s a one-in-100-years event.”
So, rebalancing Ecobank’s operations last year may prove to be a temporary expedient: “We’ll find opportunities to enable our corporate and investment bank to also serve customers, serve governments and serve institutions in a way that allows us to add a cushion [to offset] the decline in some other businesses,” Ayeyemi says.
Households are the bedrock of Ecobank’s business, according to the CEO: “The household, in terms of financial leverage, is normally about half of the financial leverage of the overall economy […] whether in mortgages, car loans, auto loans, school loans, student loans – so we need to start being able to provide financing to the households.”
The bank is also striving to cut its cost-to-income ratio. That went down to 62.7% last year and the target is 55% by the end of next year.
“We’ve trimmed our structural costs, we’ve reduced our branch network from about 1,300 in 2015 to about 680 now […] and we’ve reduced our people from almost 20,000 to close at 14,000 people,” Ayeyemi says.
The other big story for Ecobank is Nigeria – its historical hits and future growth. Chief among the hits was Ecobank’s purchase of Oceanic Bank back in 2011. Some $159m of the one-off $164m goodwill charges on Ecobank’s 2020 accounts relates to its purchase of Oceanic.
Apart from Oceanic, there are Ecobank Nigeria’s non-performing loans. These stood at 19% last year, compared to 3.5% in the CFA franc zone and 8.9% in Central, Southern and Eastern Africa. “We’ve got a challenge in Nigeria,” concedes Ayeyemi, but he says it is more specific than it looks: “That 19% [of non-performing loans] is dominated by two names […]; those two names together are $200m out of the $484m of the non-performing loans.” One is an oil and gas project put on hold by the pandemic; the second is a pipeline that has been delayed by tax liabilities; and a third is to an oil company that has gone into restructuring.
More to Nigeria than oil
Take those away, says Ayeyemi, and the Nigerian loan book looks much more sustainable, given the size of the market and business potential. Neither, he insists, are the bad loans an existential threat to the bank or a reason to shift much of its focus away from Nigeria.
“Nigeria is a long-term strategic, important market for us. By 2050 Nigeria will be about 400 million people – that will be number four in the world. Second, if you take oil away, there are a lot of other things, whether technology, unicorns, startups of new technology business and fintech.”
The N64bn questions for Nigeria, says Ayeyemi, are about policy: “The problem of the country is lack of supply, not lack of demand […]. A supply problem is easier to solve with your own savings and foreign investment, whereas investment is looking for yield.”
Key to the supply of almost anything in Nigeria is access to energy. And again, for Ayeyemi, there are positive signs as the country’s energy transition takes shape – its new oil and gas laws bringing in more investments, specialising in gas-to-power projects but also more solar and wind-energy projects. For all those reasons, as well as having a market offering the fourth-largest country customer base in the world by 2050, Ecobank’s fortunes will be closely tied to those of Nigeria.
This article is part of our Top 200 African banks dossier, in the TAR117 print edition
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