Ecobank Ghana’s first half of 2023 financials reveal its return to profitability after the hit it took from the public debt restructuring, this was propelled by strong balance sheet growth and risk asset quality as well as increased liquidity. TOMA IMIRHE examines how the bank returned to its customary financial performance and how it has accompanied this feat with increased financial solidity too, compared with its industry peers.
Ecobank Ghana, for long the industry leader in the country’s commercial banking industry has announced financial statements for the first half of 2023 that show that it is well on course to successfully navigating the treacherous terrain thrown up by the ongoing restructuring of Ghana’s public debt. The banking group is back to profitability after impairment charges on its holding of government debt securities-imposed losses on it for both the full 2022 financial year and the first quarter of 2023.
The return to its customary levels of profitability is still ongoing, though as; profit after tax for the first half of 2023 of GHc282.429 million was still 19.3% lower than the GHc350.148 million the bank made during the corresponding period of 2022, which was the last half year financial reporting period before the effects of the public debt restructuring set in. Indeed, the bank’s pre-tax profits of GHc435.4 million for the first half of 2023 were the 8th highest in Ghana’s banking industry and the bank is still playing catch up, compared to ABSA’s industry leading GHc1,148.4 million, Stanbic’s GHc779.3 million, and Standard Chartered bank’s GHc641.0 million. But Ecobank’s shareholders should not care – what they should care about is that their bank has reversed the losses suffered for the full 2022 financial year and the first quarter of 2023.
But even as the bank’s shareholders will be celebrating the bank’s sharp return to the profitability that attracted them to it in the first place, its customers – especially its depositors – will be even more enamoured by its strengthened financial standing which is coming at a time that doubts have arisen over the capacity of the industry in general to survive the debilitating effects of ongoing public debt restructuring.
Ecobank has focused on increasing its liquidity in recent months. By the middle of 2023 its cash and balances with other banks stood at GHc7,470.277 million, up 54.7% from GHc4,828.810 a year earlier. Indeed, the bank’s liquidity ratio increased nearly four-fold during the period from 7.77% to 29.5%. This will provide comfort for the bank’s customers who are showing ever growing confidence in its standing as a safe haven for their monies. Customer deposits grew by 42 % to GHHc23,866.346 million by the end of June 2023, up from GHc16,794.877 million a year earlier. Instructively Ecobank still has the biggest deposit base in Ghana’s banking industry, well ahead of GCB Bank’s GHc18,935.3 million and Stanbic’s GHc16,837.1 million.
Keeping faith with its customers, the bank has grown its loan book even faster. By the middle of 2023 outstanding loans to customers stood at GHc10,256.679 million, up 49% from the GHc6,903.229 million loan book value a year earlier. Again, Ecobank leads Ghana’s banking industry in this regard, ahead of Stanbic’s GHc6,300.5 million and GCB Bank’s GHc6,079.2 million.
The increases in both customer deposits and loans to customers were key towards the strong growth in size and balance sheet strength, which Ecobank Ghana achieved over the one year up to June 30, 2023. These, indeed, provided the fuel for the bank’s total assets to rise by 39% to GHc30,090.733 up from GHc21,647.128 million.
To back up this expansion, the bank also managed to increase its underpinning shareholders’ funds to GHc3,197.845 million, up from GHc2,857.189 million. This was made possible by a net increase in reserves, even though the impact of impairment charges on the bank’s profitability reduced the contribution of retained earnings from GHc1,813.244 million to GHc1,481.905 million.
In turn, this has enabled the bank to retain its sturdy capital adequacy despite the hit on profits it took in 2022 and the first quarter of 2023. Ecobank’s capital adequacy ratio (CAR) as at the middle of 2023 was 16.02%, almost the same as it was a year earlier, before the dire impact of public debt restructuring, when the ratio was 16.05%. This remains well above the requisite minimum CAR of 10% and even that ratio plus the 3% additional capital buffers required by the BoG. Here, Ecobank ranks 13th in the industry, ahead of Stanbic’s 15.94% but behind GCB’s 18.00% and even further behind Stanchart’s 24.08% and FBN bank’s industry leading 57.06%.
Importantly, despite the elevated risk created by the banking industry’s imperative shift from government debt securities to lending to the private sector, Ecobank’s exemplary capacity with regards to risk assessment and management have enabled it to maintain loan asset quality well above the industry average. By mid-2023, the bank’s non-performing loans ratio was 11.26% measured by the BoG (10.92% a year earlier) and, instructively, a much lower 5.50% (2022: 4.98%) as measured by globally- used International Financial Reporting Standards. This translates to the 5th best asset quality in the banking industry, its NPL ratio much lower than those of its peers. GCB’s ratio was 20.00%; Stanbic 17.28%; ABSA 18.38%; and Stanchart 15.45%.
Ecobank has put its increased size, improved liquidity and exemplary risk asset quality to good use. During the first half of 2023, the bank increased its net income by 42% to GHc1,683.890 million, up from GHc1,185.829 million during the corresponding period of 2022. This was made possible by sharp increases in both net interest income to GHc1,432.528 million (2022: GHc859.444 million) and net fees and commissions income to GHc256.701 million (2022: GHc203.876 million) which, combined, completely overcame the negative net trading income of GHc38.072 million, in contrast to positive income of GHc101.808 million from that source in the corresponding period of last year; another dire impact of public debt restructuring. Indeed, during the first half of 2023, Ecobank generated the 2nd largest net revenues in the industry, beaten only by GCB Bank’s GHc1,805.8 million.
But the inevitable increase in impairment charges from GHc101.607 million to GHc383.052 million, coupled with near 50% increases in both personnel and other operating expenses brought about by the surge in inflation to a peak of over 50% by the turn of 2022, forced the reduction in both pre-tax and post-tax profits, which in turn led to a fall in earnings per share from GHc2.17 to GHc1.75.
What shareholders will consider most though is the bank’s increased revenues size and risk asset quality, all of which point clearly to even bigger profits than ever before when the already receding impacts of the ongoing public debt restructuring initiative dissipate altogether from next year.
For the bank’s customers their comfort will come primarily from the bank’s increased liquidity and stronger capital, which assures them that their deposits are in a safe haven – which they are rewarding it with more deposits – and from a growing loan book which reflects the increased support they are receiving from the bank.
All in all, Ecobank’s stakeholders have every reason to be happy with the return to its customary exemplary financial standing and performance.
