Why Ecobank is so highly rated internationally

GCR Ratings

Ecobank Ghana is one of the highest rated banks on the entire African continent by GCR Ratings, Moody’s affiliate that is globally regarded as the specialist ratings agency on corporate Africa. GCR rates the bank A+ (GH) for its long-term issuances and A1 (GH) for its short-term issuances, with positive outlook.

These ratings were affirmed as recently as August 25, 2022, with the next rating to be announced on September 30. A retention of the current rating is the most likely outcome; although following the bank’s sterling financial performance for first-half of this year an even higher rating could be in the offing, more so since the current rating contains a positive outlook – which means an improved rating is more likely than a downgrade.

GCR‘s high regard for Ecobank Ghana is for good reason. “The ratings on Ecobank Ghana PLC reflect a strong business profile supported by leading market shares, stable funding sources and good levels of liquidity,” GCR explained in a recent statement. “The ratings also factor-in improving capitalisation and increasing asset quality risk. The bank’s competitive positioning is a relative strength to the rating, benefitting from its well-established franchise and leading domestic position as a top-tier financial institution,”

Indeed, Ecobank is the country’s largest bank adjudged by its total assets of GH¢21,647.128million as at June 30, 2022, and the second-largest by total shareholders’ funds (after GCB Bank) of GH¢2,857.189million. Instructively, Ecobank also has the largest deposit base in Ghana’s banking industry of GH¢16,794.887million and the largest loan portfolio of GH¢6,903.228million.

Not only is Ecobank the biggest bank in Ghana, it is also one of the most financially solid. Although the bank’s capital adequacy ratio fell marginally to 16.05% by June 30, 2022 – down from 18.45% a year earlier, this is still well above the global minimum capital ratio of 10% and considerably higher than even the 13% set specifically by the Bank of Ghana… which adds on 3% as a capital buffer, having learned from the recent banking sector meltdown between 2017 and 2019.

On funding and liquidity, GCR Ratings asserts that: “The bank’s funding is considered stable, with customer deposits making up 94% of the group’s funding base.  Though deposits are predominantly demand deposits, they have historically been sticky”.

This means that the bank always has more than enough money to meet its financial obligations.

It is instructive that over the past couple of years the bank has taken major, deliberate steps to diversify its risks by widening the scope of its borrowing customers; and this has resulted in better than market-average – and still improving – loan quality ratios.

Instructively, Ecobank’s non-performing loans ratio nearly halved – to just 4.98% from 8.03% – a year earlier. This means Ecobank has one of the highest-quality loan portfolios in Ghana, an achievement made all the more impressive by the fact that the bank has expanded its loan portfolio aggressively over the past one year – in contrast to the strategic retreat being beaten by most other banks. Over the 12 months up to June 30 this year, Ecobank grew its loan portfolio by 52% to GH¢6,903.228million… up from GH¢4,532.076million.

Importantly, Ecobank has built strong financial performances on the foundation provided by its industry-beating balance sheet; and just as crucially, has done it in such a way as to ensure business continuity beyond external shocks – even one as severe as that generated by COVID-19.

Says the latest GCR report on the bank: “Ecobank Ghana is one of the leading digital banks in Ghana, leveraging on Ecobank Transnational Incorporated’s (ETI’s) extensive digital strategy innovations. As such, we consider the bank to be adequately equipped to deal with the ramifications of COVID-19 from a business continuity level. Ecobank Ghana is adequately capitalised. We think the COVID-19 pandemic has not had as severe an impact on the bank’s earnings when compared to domestic peers, and we believe the bank’s forward-looking earnings capacity is still good and will support future capital generative capability”.

Ecobank’s resilience has gone beyond overcoming the challenges generated by COVID-19 to navigating the treacherous operating terrain imposed by Ghana’s ongoing economic difficulties, which have persuaded most other banks to retreat from lending to customers and toward investing in relatively low-risk government securities.

Ecobank’s success in growing its loan portfolio faster than its (government debt) investment portfolio has enabled it to expand its interest margins wider than if it had followed the current conventional wisdom in Ghana’s banking industry. This facilitated a 32% increase in net interest income to GH¢859.444million; up from GH¢652.857million during the corresponding period of 2021.

Increases in both fees and commissions – by 24% to GH¢203.876million and trading and other income by 27% to GH¢122.509million – also contributed to an overall 20% increase in Ecobank’s total revenue to GH¢1,185.829million, up from GH¢984.698million during the corresponding period of 2021.

On the other hand, Ecobank continues to leverage its longer experience and industry leadership with regard to digitalisation of its activities to keep a lid on its operating costs even as the scope and size of those activities expand. The bank’s cost-income ratio for first-half 2022 was 46.0%; not that much higher than the 39.6% incurred during the first half of 2021.  The increase was in part an inevitable consequence of deliberately fragmenting the bank’s loan portfolio; but even here, digital savviness is containing the unavoidable increase in loan administration costs.

All this culminated in a modest 12% increase in pre-tax profits – which were GH¢538.891million for first-half 2022, the highest profit recorded by any bank in Ghana. The tightened fiscal regime imposed over the past year meant profit after tax rose at a slower pace, by 8% from GH¢325.379million last year to GH¢350.148million this year.

All this belies the recent curious decision by Fitch Ratings to downgrade Ecobank – along with the two other Ghanaian banks it rates) to BBB – simply to keep them in line with its sovereign credit risk rating of Ghana itself; a tendency that has made the global investment community regard GCR’s independent quantitative and qualitative assessments of each separate company it rates across Africa as the much more highly regarded of the two.

Indeed, it is GCR’s scientifically arrived at rating of Ecobank Ghana that all its financial stakeholders – be they depositors, debt or equity investors, suppliers, or even employees who seek to be sure their jobs are safe – are  going by. Which is why the bank keeps growing bigger and better, and looks good to continue doing so into the future.

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