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Ecobank Group: Record Profitability Through Sustained Positive Operating Leverage

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Ecobank Transnational Incorporation (ET) just released its 2021 audited financial statement that shows it recorded growth in earnings and key ratios despite the pandemic induced headwinds as it continues to stamp its footprint across the continent.

The pan African lender is consolidating on its digital banking strategy while at the same time shrinking the financial exclusion gap by taking banking services to farmers in the rural areas. And that ensures millions of people are brought into the financial architecture.

An efficient cost control mechanism coupled with income from electronic banking helped propel profit to an eight-year high.

Despite macroeconomic uncertainties, all regions across Africa contributed to Group earnings that paved the way for them to pay dividends to shareholders.

The lender’s capital metrics have improved since 2019 continuing to meet increasing requirements.

There has also been an improvement in Non-Performing Loans (NPLs) that validates management’s excellent risk management strategy and efficient portfolio allocations across sectors.

Gross earnings buoyed by growth in non-interest revenue

For the year ended December 2021, Ecobank interest income increased by 5 percent to $1.46 billion from $1.39 billion as at December 2020. The top line has been growing since 2018 despite stringent regulatory rules by the Central Bank of Nigeria (CBN) who seeks to stabilise the economies and spur lending to the real sectors.

Also, revenues have staged a comeback with an intense focus on Payments, Trade, and FICC. Recent favourable rate increases and strong loan growth in the 4Q21 have been supportive

Net interest income (NII) was up 2 percent to $925.50 million in the period under review from $907.22 million as at December 2020.

Fees from investment banking rose by 17.71 percent to $499.87 million in the period under review as against $424.58 million as at December 2020.

The focus of execution is delivering results as Ecobank Group delivered returns higher than the cost of capital, which means management has created value for shareholders.

For instance, the return on tangible equity (ROTE) increased to 18.80 percent in the period under review as against 13.30 percent the previous year.

The return on average equity followed the same growth trajectory as it rose to 17.10 percent in December 2021 from 11.30 percent the previous year.

A higher return means the lender is using the resources of shareholders in generating higher profit.

Profit after tax surged by 295.76 percent to $349.50 million in December 2021 from $88.31 million the previous year. Pre-tax profit spiked by 174.22 percent to $478 million in the period under review from $174.31 million as at December 2020.

Delivery positive operating leverage has kept PPOP stable and rising since 2019.

The Bank’s cost base has been reset through stringent cost management, operational discipline, and overall strategy of manufacture centrally and distribute locally.

Little wonder the cost to income ratio (CIR) fell to 58.70 percent in December 2021 from 62.70 percent the previous year.

The cost-to-income ratio is one of the efficiency ratios used to gauge an organization’s efficiency. It is used to compare the operating expenses of a bank vis-à-vis its income. The lower the cost to income ratio, the better the company’s performance.

Balance Sheet is Liquid

Ecobank Group has maintained a strong balance sheet and capital buffers that serves as shock absorber or bullet proof to macroeconomic headwinds.

The lender’s liquidity profile remains resilient, providing comfortable room to support planned loan growth.

Interestingly, deposit growth is well in excess of loan growth reflecting liability-led strategy in the current environment.

Total deposits were up 5.67 percent to $21.84 million in December 2021 from $20.67 million as at December 2020.

Customer deposits account for 72 percent of total liabilities & equity CASA deposits account 82 percent of customer deposits.

The loans to deposit (LDR) ratio stands at 52.5 percent, reflecting enhanced capacity for asset growth.

Ecobank Group saw non-performing loans (NPLs) reduce to 6.20 percent in December 2021 from 7.60 percent the previous year.

The stock of NPLs (Stage 3) has reduced to $638m. Having started with $749m as of 1 January 2021, we saw new migrations into Stage 3 of $291m and $403m of Recoveries, Upgrades, Collections and Write-offs.

“This resulted in our NPL ratio decreasing from 7.6% in 2020 to 6.2% in 2021,” according to the lender.

The cost-of-risk decreased to 1.52% from 1.85% year on year, largely due to our recovery performance in 2021. Accumulated impairment reserves were $659m as of 31 December 2021, a $101m increase compared to 2020, which sent our NPL coverage above 100%.

Loans and advances to customers were up 4.7 percent to $11.78 billion in the period under review from $11.25 billion as at December 2020.

The net increase of $762m in Stage 1 loans for 2021 was driven by new loans and upgrades amounting to $1,866m, partially offset by a decrease of $1,104m in paydowns, migrations, and FX impact.

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