Ecobank Transnational Incorporated benefits from diversification as earnings surge
Ecobank Transnational Incorporated, (“ETI”), the Lomé-based parent company of the Ecobank Group, reported a third quarter result that beats analysts’ expectation amid a volatile and tough operating environment.
This means lender’s consistent and steady dividend payment means its shareholders are drinking from the golden goblet.
If ETI were a local bank, its N6.40 trillion total assets would have been the largest in the industry. Growth in interest and non interest income underpins gross earning
For the first nine months through September 2017, Ecobank’s gross earnings increased by 24 percent to N564.46 billion from N456.46 billion as at September 2016.
Interest income and similar charges were up 16 percent to N353.38 billion in the period under review as against N303.51 billion as at September. The growth in interest income was underpinned by increase in interest income on loans and advances.
Net interest income followed the same growth trajectory as it grew by 8 percent to N216.31 billion in September 2017 as against N200.015 billion the previous.
Ecobank’s noninterest income revenue moved by 37 percent to N596.88 billion in September 2017 from N197.40 billion in the period under review as against N143.30 billion as at September 2016.
The growth in non interest revenue was driven by a 20 percent and 63 percent increase in fees and commission income and net trading income to N103.29 billion and N101.10 billion respectively.
Ecobank’s profit before tax spiked by 11 percent to N57.75 billion in September 2017 from N52.05 billion as at September 2016. Profit after tax increased by 12 percent to N57.95 billion as at September 2017 from N51.57 billion as at September 2016.
“Our results reflected the benefits of diversification and the progress made in executing our strategy to positioning the company for long-term growth. Actions we took around reducing costs have shown positive results and were evident in improvements to the cost-to-income ratio for the group, and particularly for Nigeria,” said Ade Ayeyemi, Group CEO of Ecobank
“Our commitment to creating a digital bank is progressing strongly. The number of mobile app downloads, merchant acquisitions, and merchant processing volumes have increased. Ecobank OMNI and Bank Collect, both cash management solutions for our commercial and corporate clients, are making it easier for them to efficiently pay and receive cash digitally,” said Ayeyemi.
Fitch Ratings has affirmed Ecobank Long-term Issuer Default Rating (IDR) at ‘B’. The Outlook is Stable.
ETI’s Long-term IDR is driven by its intrinsic creditworthiness, as reflected in its ‘b’ Viability Rating (VR).
ETI’s VR is constrained by its volatile operating environment. The VR factors in ETI’s leading pan-African network, vulnerable asset quality, solid capacity to generate earnings, acceptable capital ratios and adequate funding and liquidity profile.
The group’s operations across multiple countries are a positive driver for ETI’s VR as we consider the group benefits from diversification. Fitch considers ETI’s operating environment as volatile and challenging, which has a high influence on the VR. As a leading pan-African banking group, ETI operates in not rated or low rated countries (between B and BB-).
Fitch also views financial market developments and regulatory frameworks as weak in most of these jurisdictions. Around 40% of ETI’s assets are in Nigeria (BB-/Negative) where its 100%-owned operating subsidiary, Ecobank Nigeria, is based.
The operating environment in Nigeria is facing various challenges, with increased vulnerability of the oil and gas sector, pressure on the naira, slower economic growth and tightening bank liquidity, which puts the group under pressure.
Fitch views ETI’s company profile as solid. The group has fully fledged banking subsidiaries in 36 countries across the region and provides a full range of corporate, retail and investment banking service.
“We expect ETI to benefit from substantial synergies with its strategic shareholders Nedbank (BBB/Negative) and Qatar National Bank (QNB, AA-/ Stable). Synergies come from cross-border banking as well as the sharing of technical skills, strong governance practices and risk management expertise. We believe that ETI has addressed its widely publicised corporate governance problems,” said the ratings agency.
Fitch views ETI’s asset quality as vulnerable given the bank’s significant exposure to volatile emerging industries and low-rated sovereigns.
Fitch expects the impaired loans ratio to remain stable in 2015 despite a challenging operating environment in Nigeria, on the back of further write-offs and restructuring of some oil and gas exposures. Fitch considers ETI’s impaired loan loss reserve as weak (68.1% as of 1H15) given uncertainties relating to collateral valuation and potential issues in realising collateral.
Ecobank has announced the successful raising of $400 million convertible debt placements
ECobank has announced the successful placement of $400 million convertible debt. The convertible debt was structured in three tranches.
The first, a convertible loan facility of $250 million, was arranged through the Public Investment Corporation (PIC) of South Africa, an institutional shareholder.
The second tranche consisting of $140 million convertible notes was fully subscribed to by Qatar National Bank (QNB), also an institutional shareholder. The third tranche of $10 million convertible notes, was reserved to shareholders other than the institutional shareholders who participated up to $1.11 million.
The remaining balance was subscribed by QNB, bringing QNB’s total participation to both the second and third tranches to $148.89 million. The second and third tranches of the convertible notes, amounting to a total of $150 million has been listed on the International Securities Market (ISM) of the London Stock Exchange (LSE).
The convertible debt due 2022 will have a coupon, reset semi-annually, equal to 3-month USD LIBOR plus 6.46% per annum, payable semi-annually in arrears. The debt will be convertible at the option of the holder of the convertible debt who is also an ETI shareholder into ETI ordinary shares at an exercise price of 6 US cents during the conversion period of 19 October 2019 to 13 October 2022 or upon the occurrence of a change of control in accordance with the terms of the convertible debt. The debt will be redeemed at 110% of principal amount if the conversion option is not exercised.
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