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Cameroon: Ecobank rids itself of irksome UBC bank

By Omer Mbadi
Posted on Thursday, 22 April 2021 13:52

Ecobank branch in Yaoundé, Cameroon. 17:48] Freelance ICONOGRAPHY © Adrienne Surprenant/Bloomberg/Getty

By refusing to recapitalise its subsidiary UBC, which it has been trying to get rid of for a decade, the pan-African group Ecobank has forced Cameroon to bail it out. However, Ecobank will have to pay an exit fee.

Union Bank of Cameroon (UBC) and National Financial Credit Bank (NFC Bank) came close to disaster. Under increasing pressure as the 28 February deadline approached, after which the Commission Bancaire de l’Afrique Centrale (Cobac) threatened to put the two banks into liquidation, the Cameroonian state finally intervened.

On 18 February, Cameroon’s President Paul Biya agreed to take charge of their restructuring, to the tune of 17.681bn CFA francs (€26.9m) for the first and 29.126bn CFA francs (€44.4m) for the second.

It is a pattern seen before; Yaounde in similar fashion with the Commercial Bank of Cameroon (CBC), removing CEO Yves Michel Fotso.

A “lame duck”

With the help of a recapitalisation followed by a reduction in the share capital that put the shareholders to one side, the state took control of the bank, cleaned up its balance sheet and, among other things, sold a portion of the compromised but recoverable debts to the Société de Recouvrement des Créances (SRC) at a substantial discount. While the Cameroonian state reworks the bank, it will prepare its withdrawal by selling all or part of its shares so that it can exit in five years.

This scenario allows Ecobank, which holds 54% of the shares in UBC inherited at the time of the Nigerian Oceanic acquisition in 2012, to finally get rid of this “lame duck.” Unable to have two subsidiaries located in the same country and unwilling to recapitalise the institution, the pan-African group somehow convinced the state to take it over.

In fact, Ecobank tried – as early as 2013 – to sell it for a symbolic franc to the Cameroon Cooperative Credit Union League (Camccul), the country’s main microfinance network and the bank’s founder. But the project came up against Cobac. “In the mind of the banking regulator, by buying Oceanic, Ecobank had made a capital gain because of UBC’s negative situation. Therefore, it had to pay an exit fee,” says a source familiar with the case.

A turnaround in four years

Caught off guard by this stipulation, Ecobank had decided to manage the bank by appointing its executives to management positions and by reducing the bank’s size. Credits were reduced to their minimum and investments were frozen, which led to increased losses.

Oladedji Brejnev Charmel Ognin’s arrival in 2016 changed all that. “The bank started, like others, to take an interest in public security and gave loans to civil servants. This policy has allowed it to rebalance its operations and achieve profitable results in the last four years,” says a smallholder.

The 15th largest local bank’s total balance sheet grew by 7.8% between 2015 and 2019 and reached 90.4bn CFA Over the period, its deposits increased by 8.5%, while its loans dropped by 63%. From a loss of 2.7bn CFA in 2015, UBC managed to turn a profit of 2.8bn CFA four years later.

Local holders encouraged to stay

Ecobank is still determined to leave. But Cobac has been monitoring the situation and has imposed two conditions: an exit fee of 5bn CFA and a guarantee of the same amount on certain debts. Negotiations with Oragroup three years ago came to a halt, as the latter did not want to cover the losses that were discovered as a result of due diligence.

By leaving UBC, the pan-African group – which did not wish to answer questions on this issue – is nevertheless obliged to satisfy the two conditions listed above.

Yaoundé, for its part, is pushing for local shareholders, including Camccul, to hold onto their bank shares after the restructuring, despite the arrival of a new investor. These local shareholders, like those of NFC Bank, have already sent their dossiers to Cobac so that their situation may be studied.

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