High NPLs constrain support to young businesses-Ecobank  

Ade Ayeyemi

Relatively high Non-Performing Loans (NPLs) in the sub-region and the continent as a whole serve to constrain the support that banks would have offered to young entrepreneurs and perpetuate unemployment on the continent, Ade Ayeyemi, Group Chief Executive Officer of Ecobank Group, has said.

“When we have people in positions of leadership in our countries and on the continent who borrow from banks for the purpose of creating opportunities for people, and do not use the money for that purpose and refuse to pay the banks, they are worse than armed robbers because these people are taking the dreams of the youth away,” he said.

Speaking at ETI’s 31st Annual General Meeting (AGM) held in the Togolese capital Lomé last week, Mr. Ayeyemi stressed that when business leaders borrow and do not pay back, they make it difficult for banks to take risks on young graduates.

“It is important that we all know people cannot become ‘big people’ in society by stealing the dreams of young people,” he said after the Ecobank Group posted a Non-Performing Loan (NPL) ratio of 9.6 percent in 2018 – which is a better performance compared to 10.7 percent in 2017, but still above the accepted ratio of 5 percent and below.

Nigeria, the group’s biggest market, accounted for about 39 percent of its NPLs. Mr. Ayeyemi stressed that business leaders must pay back loans collected from banks because it is such monies that are given back to new business leaders, especially young ones.

Shareholders urged the bank to name and shame companies and their leaders who owe it in national newspapers, in markets where borrowers are refusing to pay to serve as a warning for others.

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Reforms yielding results

The Ecobank Group is gradually returning to solid health after a couple years of boardroom bickering.  The pan-African bank’s 2018 balance sheet shows that the ‘Roadmap to Leadership’ strategy is bearing fruits.

The bank, a leader in the use of technology through releasing the Ecobank App, has seen its workforce reduce by 4,000 and now has approximately 16,000 workers across the continent.

It also reduced its branch network by 345 to its current number of 888. Ecobank’s operation in Ghana saw the reduction of its branch network by 10.

Apart from its banking application, Ecobank has also introduced the Ecobank Omni Lite, a platform for its SME clients to allow for accessible online payment on mobile phones. Ecobank Omni Lite allows for the efficient management of clients’ cash-flow cycles and facilitates their effective communication with Ecobank.

Financial performance

The bank increased its profit before tax by US$148million, or 51 percent, to US$436million. This, according to Mr. Ayeyemi, was predominantly driven by a decrease in impairment losses and lower operating expenses. Profits attributable to shareholders of the bank improved by 47 percent to US$262million, translating into a growth of 47 percent in earnings per ordinary shares and a return on tangible equity of 21 percent.

Operating expenses were lower overall, thanks to investments in digitalisation and ongoing cost-reduction initiatives. These helped marginally improve the cost-to-income ratio to 61.5 percent from 61.8 percent in 2017.

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“We expect to achieve a target cost-to-income ratio of mid-50 percent in the medium-term as we relentlessly focus on driving revenues and containing cost,” Mr. Ayeyemi assured shareholders.

The bank’s focus on cash management and investment in digital platforms resulted in customer deposits increasing by US$733million to US$15.95billion; it increased by US$2billion if the effects of FX currency translations are excluded.

“Our core deposits, which is the average rate that we pay for deposits, rose slightly driven by relatively higher rates, especially, on US dollar-denominated deposits. Overall, the average rate paid on all funding sources, including borrowed funds, inched up slightly,” Mr. Ayeyemi explained.

Customer loans, on the other hand, decreased by 2 percent – primarily held back by a more stringent assessment standard for credit application and an intense focus on driving non-funded sources of revenue.

Despite the drop, loans grew in the fourth quarter of 2018 by nearly US$525million, driven largely by transactions in the French and English West African regions.

Despite its great performance, the bank has held back on paying dividend again, with Emmanuel Ikazoboh, Board Chairman, explaining that with impending regulatory capital requirements of the group and the need to build the holding company’s liquidity buffers, dividend payment will not happen.

“We assure you that while this was a hard decision, it was taken in the best interests of the company. Your board is confident that our strategy, and the actions that we have taken so far, have positioned the company for sustainable future growth with a return on equity above the cost of equity,” he said.

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