BusinessDay

Ecobank Group grows full year pre-tax profit by 174% to $478mn

…Proposes dividend of 0.16 US cents per share

Ecobank Transnational Incorporated Plc has released the Group’s financial results for the full year ended December 31, 2021 which shows profit before tax (PBT) was $478 million, increasing by $304 million, or 174percent, from 2020.

However, if profit before tax is normalised to account for the one-off goodwill charge of $164 million in 2020, the increase in profit before tax is $140 million, or 41percent. Net revenue, (operating income) was $1.8 billion, increasing by $77 million, or 5percent, driven by a $37 million, or 4percent, increase in net interest income, and a $40 million, or 5percent, increase in non-interest revenue.

If the exchange rate impact is excluded net revenue increased $93 million, reflecting benefits of our diversified operating model and the continued investments in people, technology, and processes.

The results released to investors at the Nigerian Exchange Limited (NGX) show net interest income (NII) was $944 million, increasing $37 million, or 4percent. Interest income rose $83 million, or 6percent, mainly driven by interest income on investment securities balances and modest loan growth within Consumer and Commercial Banking portfolios, partially offset by net interest margin compression. Interest expense increased $46 million, or 10percent, driven by the net impact of higher funding costs.

As a result, the net interest margin declined marginally to 5.1percent from 5.3percent in 2020. The average interest rate paid on all funding sources improved to 2.3percent because of a better deposit mix compared to 2.4percent in 2020.

Non-interest revenue was $812 million, increasing $40 million, or 5percent. Net fees and commission income increased $62 million, or 16%, to $451 million, driven by higher cash management fees, higher debit and prepaid cards spend volumes, and credit-related fees, reflecting the rebound in economic activity across most of our markets.

Net trading income decreased $51 million, or 15percent, to $296 million, predominantly driven by a significant reduction in client-driven foreign currency trading fees. Other income of $65 million increased by $28 million, or 75percent, driven by the sale of non-core assets and dividend income associated with investee entities of some of our subsidiaries. As a result, the contribution of noninterest revenue to total net revenues (NIR ratio) improved slightly to 46.2percent versus 46percent in 2020.

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Expenses were $1billion, decreasing by $19 million, or 2percent, or in constant currency, by 2percent. Employee-related expenditures decreased by $8 million to $455 million, partly due to a decrease in headcount. The depreciation and amortisation charge increased $4 million to $109 million, driven by digital and mobile capability enhancements to improve the customer experience and drive revenue growth. Other expenses fell $16 million partly due to the one-off non-recurring restructuring costs of $31 million incurred in 2020.

Overall, cost reductions benefit from our ‘One Bank’, ‘Manufacture Centrally, Distribute Locally’ strategy, driven by initiatives such as our regional cost centres (RCCs) and other structural changes to reduce costs. Consequently, the cost-to-income ratio (efficiency ratio) improved to 58.9percent, the lowest in a decade, compared to 62.7percent in 2020. Also, the cost-to-assets ratio, which measures costs to average assets, improved to 3.9percent compared with 4.3percent in 2020.

Impairment charges on loans (provision for credit losses), net of loan recoveries and impairment releases were $170 million compared with $182 million in 2020. Gross impairment charges were $374 million, $62 million more than a year ago, driven by higher impairment charges in our Francophone West Africa and Central, Eastern and Southern Africa regions.

The credit impairment charges for 2021 includes a central macro-overlay of $85 million, a provision buffer on top of the model computed estimate for expected credit losses (ECL) to cater to lingering uncertainties in the credit environment. The net impact of loan collections, recoveries and provision releases was $205 million for 2021, increasing by $74 million from 2020. The current period’s loan recoveries include $32 million from the Resolution Vehicle (RV). The Bank’s credit quality is strongly evident in the cost-of-risk, which improved to 1.69percent compared to 1.85percent in 2020.

Gross loans and advances to customers (EOP) were $10.2 billion as of 31 December 2021, an increase of $430 million, or 4percent, from 31 December 2020. End-of-period net loans (gross loans less accumulated credit losses) were $9.6 billion, an increase of $336 million, or 4percent, from 31 December 2020. Excluding exchange rate impact, net loans increased by $914million.

The gradual recovery in household and business activity supported net loan growth across our businesses, with Corporate Banking loans increasing by $347 million, mainly in the fourth quarter, and Consumer Banking by $10 million, partially offset by a decrease of $21 million within Commercial Banking. Net loans grew in AWA, Nigeria, and CESA in our geographic regions, while UEMOA experienced muted loan demand.

“2021 proved to be a transformational year for Ecobank,” says Ade Ayeyemi, CEO, Ecobank Group.

“The Bank made significant progress with its strategic priorities and delivered strong business and financial returns. We grew revenues, remained efficient, improved credit quality, strengthened the balance sheet and, for the first time since 2016, our Board has recommended the payment of dividends to shareholders” he said.

“We increased profit before tax by $140 million to $478 million, after adjusting for the $164 million goodwill charge in 2020 and generated a record return on tangible shareholders’ equity of 19percent. Net revenues were $1.8 billion, up 5percent, benefiting from our diversified operating model and the continued focus on growing our trade finance, payments, fixed income, currencies, and commodities businesses. Furthermore, the efficiency ratio of 58.9percent was the best in over a decade,” Ayeyemi said.

The CEO said, “Credit quality continues to be particularly strong, with non-performing loans at a historic low of 6.2percent of total loans and a reduction in the concentration risk of the credit portfolio. Moreover, we proactively built provision reserves to above 100percent of non-performing loans. In addition, deposit growth was robust, increasing by $1.4 billion, or 8percent, which significantly boosted liquidity and supported our modest loan growth. The investments in pivoting Ecobank as a credible enabler of economic activity for households, businesses and governments in Africa strengthened our optimism for 2022 and beyond, while complementing the expectation of a strong global economic recovery following the easing of Covid-19 restrictions. “

“However, a word of caution following two critical global setbacks: IMF’s plan to cut global growth forecast, in a high inflation environment with about 60percent of low-income countries in or at risk of ‘debt distress’; and Russia’s recent invasion of Ukraine. In this mix, African economies hang in the balance as contagion risks spread, US Fed and other developed-world central banks hike interest rates, energy prices soar, and geopolitical tensions exacerbate inflation and supply chain bottlenecks.

“Already the reverberations from these developments have forced some central banks in Africa to hike rates, as prices of goods and services soar and currencies are under pressure, all with security implications. In all this turmoil, we at Ecobank remain highly focused on conducting our business responsibly, committed to ESG principles, and discharging our investment in the Ecobank Foundation. We will continue to be aggressive in driving our strategic priorities, leading with technology, and serving our clients and communities.”

“Finally, I want to thank all Ecobankers for their unwavering commitment to realising our vision and remaining the bank that Africa and friends of Africa trust”, he added.

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