Ecobank Transnational Incorporated (ETI) Plc, the pan-African lender, grew its net profit by 15.4 percent in the second quarter of 2019, the bank announced Friday.
Profit after tax rose to N59.49 billion in the three months to June, from N51.55 recorded in the first quarter of the year, ETI said in a statement released to the Nigerian Stock Exchange.
Profit Before Tax increased by 12.8percent to N73.43bn from N65.09bn recorded in the previous quarter, it said. Gross earnings rose 5.4percent to N405.20bn from N384.58mn in the previous quarter, the lender said.
Meanwhile, global rating agency, Fitch, has affirmed ETI’s Long-Term Issuer Default Rating (IDR) at ‘B’ with a Stable Outlook.
ETI is a holding company of the Pan-African Ecobank group. According to Fitch, ETI’s IDRs are driven by its intrinsic creditworthiness, as defined by its ‘b’ Viability Rating (VR), which is assessed based on the group’s consolidated risk profile.
Fitch further noted that at end-2018, ETI’s double leverage was high at 150percent, which is above the 120percent threshold at which the agency would usually consider notching the holdco ratings down from those derived from the group’s consolidated profile.
The ratio increased from 114% at end-2017 following the day-one impact of IFRS 9 implementation (USD250 million deducted from ETI’s equity) and capital injections into subsidiaries (USD257 million adding to ETI’s equity interest in subsidiaries), including Ecobank Nigeria and Ecobank Development Corporation.
“However, we consider that the underlying risk is mitigated by ETI’s prudent liquidity management, including buffers of highly liquid assets covering at least 12 months’ cash outflows and liquidity fungibility across the group (which is reflected in its contingency plans) providing a certain flexibility to manage temporary liquidity mismatches,” the report said.
As a non-operating holding company, ETI’s principal assets are its equity shares in the subsidiaries. Loan repayments, dividends and other payments from subsidiaries are the main sources of cash flows to service the holdco’s debt. The ability of the subsidiaries to make these payments depends on local regulations and their own capital and liquidity requirements.
ETI’s capacity to reduce double leverage to the targeted levels (end-2019: 130% and end-2020: 120%) rely heavily on the dividends and other payments from its subsidiaries.
Management also considers the sale of minority stakes in certain subsidiaries and no further material capital injections into subsidiaries over the next 18 months.
