The turnaround of Ecobank Ghana’s financial performance in 2023 illustrated the potential for it to achieve new heights in 2024. The bank’s 1st quarter results this year show that this potential is being almost fully realized. TOMA IMIRHE explains how.
The financial performance of Ecobank Ghana for the full year,2023, brought with it the promise that the huge blip it suffered in 2022 as a consequence of government’s Domestic Debt Exchange Programme, has been reversed and, indeed, replaced by the potential for a quantum leap in sheer profitability and growth in size as well.
However, in a Ghanaian banking industry operating in an environment where external shocks keep occurring accompanied by the uncertainties of regulatory reform and changes in public policy, this potential might not be actually fulfilled, which is why Ecobank’s shareholders and wider stakeholders such as depositors, had been looking out for its first quarter of 2024 financial results with intense interest.
The financial performance results eventually released for the first three months of this year however do not just make them relieved – they have generated huge confidence and enthusiasm among everyone with stakes in the bank’s improved fortunes.
That Ecobank has emerged as the nation’s biggest bank as at March 31 2024 is not particularly surprising; for most of the past 12 years since the bank first achieved that exalted position it has retained it, albeit this occasionally punctured by GCB Bank which continues to be a worthy challenger to Ecobank’s claim as the market leader in Ghana’s banking industry.
But by the end of the first quarter of this year, Ecobank not only had the biggest balance sheet in Ghana’s banking industry but it also led by all the key indicators of size.
By the end of the 1st quarter Ecobank had total assets of GHS36.323billion, this being nearly GHS6 billion more than its closest competitor. Instructively, the bank is not about to lose its number one status anymore; its total assets grew by 28% over the 12 months up to the end of March 2024, up from GHS 28.432billion a year earlier, and none of the other three largest banks in the country – GCB Bank, Stanbic Bank and ABSA Bank beat that balance sheet growth rate.
Perhaps the most instructive fact though is that Ecobank not only had the biggest customer deposit cache by end of 1st quarter 2024, at GHS28.168billion, but also had the 2nd highest deposit growth rate of 23%, this taking the bank’s deposits up from GHS22.968billion 12 months earlier. This illustrates that the banking public reposes even more confidence in Ecobank as safe haven for their savings and investments than hitherto, when deposits tended to grow at slower rates.
The bank also retained its position as the biggest lender in Ghana, even though it recorded a dip in its total loan exposure by some 8% over the 12 months up to March 31 this year, by which time its loan book was valued at GHS9.175billion, down from GHS9.919billion 12 months earlier. Instructively though no other bank in Ghana had up to GHS7.000 billion in loans by that time; indeed, Ecobank’s loan book was still nearly GHS2.500 billion bigger than even its closest competitor in this respect.
To cement its banking industry leadership status, Ecobank also ended the 1st quarter with the biggest shareholders funds, which is the alternative measure of bank size, used by some analysts. The bank had GHS4.009billion, retaining its position as having more total equity (stated capital plus reserves) than any other bank in the country, through 40% growth in shareholders’ funds over the previous 12 months.
This ensures that despite the bank’s loan asset quality challenges it still maintains a capital adequacy ratio that exceeds the 10% global standard minimum plus the extra 3% capital buffer insisted on by the Bank of Ghana – a total of 13% – with its CAR standing at 13.79% by the end of March 2024. Furthermore, the bank’s capital adequacy is moving in the right direction, this being an increase over the 13.04% at which it stood 12 months earlier.
Ecobank being Ghana’s biggest commercial bank – and the one most trusted by depositors and most committed to borrowers – is not the biggest reason why its shareholders are abuzz with optimism right now over what their equity investments are generating for them. The bank did not declare a dividend for the 2023 financial year despite replacing the previous year’s GHS27.218 million loss with a GHS985.240 million profit. The bank’s Board explained that the profit was being retained to rebuild the bank’s capital in order to facilitate sustained increased profitability going forward and the 1st quarter 2024 financial results indicate that those shareholders are on the brink of being handsomely rewarded for their patience.
The bank delivered the biggest pre-tax profit in Ghana’s banking industry for the first quarter of 2024 of GHS487.496 million and this is very instructive in two separate ways. Firstly, it represents a complete reversal of the GHS11.963 million loss made in the corresponding period of 2023, a hangover from the effects of the DDEP, which was only overcome by the return to strong profitability enjoyed from the second quarter of last year.
Secondly it brings Ecobank to market leadership with regards to profitability after falling to ninth best for 2023. Despite having the largest income tax obligations of any bank in Ghana for the 1st quarter of 2024 at GHS170.903 million (in direct contrast to the tax credit it earned of GHS3.974 million for the corresponding period of 2023 due to the loss declared), Ecobank still delivered the biggest after-tax profits in the industry of GHS316.593 million.
But even this does not fully reflect the sheer net income expansion potentials facing the bank. Its 1st quarter net revenues were up by 45% – the fastest growth among the top four banks in the country – to GHS1.093billion, the highest in the industry – from GHS752.234 million during the corresponding period of 2023.
But this was propelled almost entirely by a 32% increase in net interest income to GHS942.481 million, up from GHS714.252 million during the 1st quarter of 2023. It is instructive that this was made possible because Ecobank generated the biggest interest income in the industry but not the biggest interest expense.
This was supported by an increase in trading and other income from negative GHS60.817 million to GHS70.741 million, representing a 216% growth. However, for Ecobank to optimize its revenue, it needs to restore its net revenue generating prowess with regards to fees and commissions which fell 19% to GHS79.816 million from the GHS98.799 million made the year before.
The final pillar in Ecobank’s framework for improved performance in 2024, as illustrated during the first quarter of the year, is its expenses. The bank was able to lower its expenses by 21% to GHS605.542 million, which was very significant given the challenges of the environment and the fact that none of its immediate competitors was able to reduce its expenses by more than 10%.
Ecobank’s shareholders must be cheering in unison right now. They certainly have good reason to.
