Commenting on the performances of his group during the first nine months of 2018, Ade Ayeyemi, CEO of Ecobank Transnational Incorporated (ETI) declared: "the risk profile of our credit portfolio is improving, our cost structure is lessening and is becoming more profitable… We are still excited by the perspectives of our diversified pan-African banking model as well as by outlooks in our operational regions.”

But, despite its performance and the top management’s confidence, Ecobank would have to multiply efforts in the last quarter to meet the performance targets promised to investors for the end of 2018.  

Result, efficiency and profitability targets still to be met

The first thing the group still has to tend to is its result. Indeed, the group targeted a 5% rise in deposits but, at the end of September 2018, the $15.5 billion deposits represent a 10% growth on a year to year basis and 2% rise this year. In addition, taking bank assets into account, total deposits by the end of September 2018 has registered a 2.3% decrease.

The group also expects a 2% rise in its loans to clients by the end of 2018 but, in practice, the volume of loans it granted has dropped by 7% on a year to year basis and by 8% compared to the volume in December 2017.  

In those conditions, it is understandable that the group had not met its efficiency goals. Considered in US dollars, the group’s operating income has risen by 1% only, for a yearly target of 3%. Despite huge efforts to reduce charges, its operating ratio is 61.5% for a 60% target.

In the same wake, despite the respect of its commitments in terms of returns on assets, the group’s pre-tax earnings grew by 39% only against a forecast adjusted to 50%.

The notable good point is the quality of its assets. The ever-present problem of bad debts is still affecting Ecobank. Despite efforts initiated, the ratio of bad debts is 10.4 %; a level slightly over the 8%-10% target.

A new hidden risk related to activities in Nigeria

These performances can quickly get worse. A noticeable point is that the group has been consolidating its results in US dollars. In a note to investors, Ecobank explained that in its subsidiary in Nigeria, it uses the official exchange rate (NGN306 for $1) for the performances of this market.  

After an analysis of the accounts of the other banks and firms which convert their performances in dollar, it appears that Ecobank is the only largest bank to use the base rate instead of the interbank or the market rates which better mirror the weight of finance charges in reference to exchange transactions.

Ecobank acknowledged that by taking the last two parameters into account, the contribution of its Nigerian subsidiary to the pre-tax gain would decrease by $12.8 million and its equity by $171.5 million.

Ecobank provided no reason for the choice of the official base rate but some whistleblowers within the company elaborated hypothesis and do not exclude the possibility for the bank optimizing its result and this since 2016.  

On the various financial markets where the group is listed, investors reacted differently to the announcement that it borrowed $200 million from Deutsche Bank, refundable within twelve months. Its share rose by 1.59% in Nigeria, lost 5% on BRVM (Abidjan) and remained stable in Ghana.

But in the last six months, ETI’s market capitalization has been on the decline in each of the markets with an average of 24% on the Nigerian Stock Exchange.

Idriss Linge