Ecobank Transnational Corporation is good in generating returns on the investment it received from its shareholders as the return on equity exceeds the cost of capital even amid challenging operating environments across the continent.
Management’s goal is to create value for the shareholders, the owners of the firm, by generating a return on the shareholders’ investment that exceeds the cost of equity —the return the shareholders could have earned if they invested their funds in an equally risky alternative investment.
The 2021 full-year financial statement of the pan African lender showed the return on equity increased to 15.84 percent from 4.15 percent the previous year.
Return on equity (ROE) is the measure of a company’s net income divided by its shareholders’ equity.
Interestingly, net income or profit surged by 324.12 percent to N143.10 billion in December 2021 from N33.74 billion the previous year.
The strong profitability growth was largely driven by uptick in revenue and cost efficiency despite inflationary pressures and currency volatility in African countries.
Net interest income 9.15 percent to N378.96 billion as at December 2021, driven by an increase in investment securities balances, modest loan growth, partially offset by a c.10 basis points decline in the net interest margin.
The pan African lender has been diversifying its revenue streams in order to maintain profit growth needed to pay bumper dividends to shareholders across the continent and retain investor confidence.
Its non-interest revenue (NIR) was up 13.12 percent to N333.97 billion in the period under review as against N295.14 billion as at December 2021.
The NIR primarily benefited from an uptick in client activity, which drove payment volumes across households and businesses, FX volumes, and Trade finance across its regions.
Ecobank, the lender with a unique footprint in 33 countries, uses digital technology to lower operating costs.
The impressive performance was enhanced by momentum in consumer and business activities as the relaxation of social distancing rules and roll-0ut of vaccines pave the way for customers to return to their business, hence giving them the impetus to pay back interest on money borrowed.
It is interesting that the lender’s liquidity and capital adequacy profiles remain resilient, providing comfortable room to support planned loan growth.
ETI’s June 2021 issuance of a $350m 10-year Subordinated (Tier 2 capital) Sustainability Eurobond also contributed to the improvement in overall CAR.