Alain Nkontchou: ‘Ecobank ranks among the top 3 in 15 African countries’

A great connoisseur of African markets and an entrepreneur who wears many hats, Alain Nkontchou, 58, is one of the most important and most listened-to voices in African finance. His intervention in 2020 during the debate on the suspension of African debt payments, which he considered harmful, or more recently during a joint RFI/Jeune Afrique interview – during which he mentioned the continent’s climate issues as well as the ECOWAS sanctions against Mali and the surprising adoption of Bitcoin by Central African authorities – are proof of this.

But the Cameroonian financier is also the chairman of the board of the pan-African group Ecobank Transnational Incorporated (ETI), which has 33 banking subsidiaries in Africa and one in Paris, with revenues of $1.8bn and a net profit of $262m for the group at the end of 2021.

For half a dozen years, he has been alongside his near-contemporary, Nigeria’s Ade Ayeyemi, who since taking over as CEO in September 2015 has profoundly restructured the bank with 32 million customers and 13,000 employees across the continent. As Ayeyemi comes to the end of his term (he has reached the age limit of 60) this year, Nkontchou is overseeing the search for his replacement.

When we met him at the end of May in Abidjan, after the pan-African group’s annual meeting, Nkontchou went into detail on the challenges the bank is facing (competition, costs, risks …), as well as the opportunities it intends to exploit, especially in the field of technology and payments.

You have been a director of the Ecobank Group since 2014, but in December 2021 you completed your first full year as chairman of the board of directors. What are the differences between the two positions?

The position of chairman requires more work and involvement in the bank’s activities as well as in the execution of strategy. It requires a close relationship with the CEO and the supervisory authorities.

The last twelve months have seen several international banks (BNP Paribas and Standard Chartered, for example) announce the reduction of their operations in Africa. Several other foreign players had done the same before (Barclays, BPCE, Crédit Agricole, etc.). How do you interpret these departures?

They are justified by their desire to refocus on their domestic markets. After the 2008 crisis, there was a redefinition and re-evaluation of the cost of risk, of the ratio between the capital that needed to be set aside and the commitments. For these international institutions, the returns on capital deployed in Africa were lower due to the risk-weighted assets. There is also increased competition with local banks in both the retail and commercial banking sectors.

At ETI, we can make decisions on loans within 48 hours

In addition, due to the redefinition of AML [anti-money laundering] and compliance standards, these banks have a weaker capacity to cover local clients and provide permanent capital under a longer-term framework. In addition, there are new players from North Africa, China and Turkey, who often arrive with their own financing resources.

Finally, Africa’s rank in these groups’ assets is sometimes very low, as is the speed in which decisions, which are very centralised, can be made. At ETI, we can make decisions on loans within 48 hours for an individual client and within two weeks for a company. All of these factors played a role in the decision to withdraw.

On the subject of the cost of risk: many of your subsidiaries are considered to be systemically important banks, subject to additional regulatory constraints. Moreover, unlike many of its peers, ETI has also opted for the ‘day one’ application of the new IFRS 9 accounting and financial standards rather than a progressive implementation. Isn’t this ‘overloading the boat’?

We are a permanent provider of long-term capital and, in fifteen of our operating countries, we are among the three largest banks. With systemically important bank status comes a regulatory one per cent capital surcharge and the need to provide more capital. But at the end of 2021, the group’s regulatory capital was 14.8%, compared to a regulatory rate of 11.08%.

Similarly, the decision to apply IFRS 9 accounting standards “from day one” has an impact that had to be absorbed, but it is in line with history and an optimal assessment of risk, in line with international standards. This is also beneficial for raising capital on international markets.

In 2016-17, ETI set up a “resolution vehicle” to remove defaulted loans, with an estimated net book value of $267m, from the balance sheet of its Nigerian subsidiary. How has the recovery of these debts proceeded since then?

Recovery can be achieved through the release and recovery of collateral, the effectiveness and pace of which depends on the overall legal system and is accomplished on a case-by-case basis. Another option is to give oneself room to manoeuvre, to monitor and advise the borrower in the recovery of cash flow prospects, which may improve with the recovery of commodity prices. Given the quality of the loans in question and the length of time, they have been on the balance sheet, choosing this second option was a sensible decision.

Will fintechs become banks? If they do, their profitability will be affected

These outstanding receivables were putting pressure on the performance and capital deployment capacity of the Nigerian subsidiary. Transferring them to this hive-off vehicle has breathed life into Ecobank Nigeria. To date, almost 40% of these amounts have been recovered, including $32 million in 2021.

At the end of 2021, two of ETI’s major shareholders held a total of $400m of convertible debt, which matures this year. Will it be converted? If so, will this affect the group’s shareholder base?

These shareholder debts are not going to be converted into shares, given the evolution of the ETI share price. But the payment of these debts is assured. Therefore, they will not change the shareholder structure.

During your annual AGM in May 2022 here in Abidjan, the possibility of a spin-off of your payment activities was raised by a shareholder. Other companies, notably telecoms such as MTN and Airtel, are already working on this, in order to better “reveal the value” of these activities. Is this a possibility being considered by Ecobank officials?

In general, we believe that the ETI business is undervalued, partly due to the non-payment of dividends in the past years, in markets where investors expect to receive dividends. Now we have consolidated our structure and are in a growth phase with well-calibrated methods and markets.

To answer your question: we have technological know-how in payments and corporate financial services. It is clear that such companies are certainly more valuable when put together in a single block. You have to be pragmatic and opportunistic. We have all the options on the table.

ETI is one of the banks clearly committed to digitalisation strategy

African fintech has been experiencing an obvious craze for the past two years, with major capital injections from international players, while evolving in a regulatory framework that could be considered “lighter” than that of banks. Is this fair competition?

From a purely payment perspective, a bank is at a disadvantage because it has a higher cost of capital. The difference is regulation, with financial ratios to be respected. But banks also have their own range of products. Fintechs cannot offer – for the moment – loans, savings products and many other banking services.

Banks can create money, for example, and have the means to use this status to access markets and offer a wide range of services. Will fintechs become banks? If they do, their profitability will be affected, but they will then have the range of banking products that they do not have today. What is certain is that we cannot avoid a digitalisation strategy, which is effective and very lucrative, given the absorption capacity of the markets. ETI is one of the banks clearly committed to this niche.

The recent record valuations – with the emergence of a number of African “unicorns” – for some people evoke echoes of the internet bubble of the late 1990s. Do you think the risk of overvaluation is real?

Let’s say that these are technology products with a valuation method that tends to take into account future revenues, and the potential for growth, without taking into account actual revenues.

We are now in a phase of redefining standards with rising inflation and interest rates: the approach to valuation may indeed change.

Countries that share a common future should allow themselves the right to a say in the management of each other’s economies

Ecobank has a direct stake in the progress and the success of the African Continental Free Trade Area (AfCFTA). How do you respond to those who feel that these ambitions and timetables are excessive?

The AfCFTA marks a de facto recognition of the sub-optimal nature of national borders. Strategically, it makes a lot of sense. The cost of building a road is roughly the same in a country with a GDP per capita of $700 as it is in a country with a per capita GDP of $15,000. However, the ability to finance the needs and get a return in the form of an economic multiplier differs according to the size of the economies. For many countries, belonging to a larger group makes sense.

But there are barriers (taxes, exchange rates, free movement of goods and people). Regional integration cannot be optimal if it does not involve the subsidiarity principle of political power, without a more intrusive political involvement in the sovereignty of states. Countries that share a common future should allow themselves the right to a say in the management of each other’s economies…