…as it seeks out small customers
Ecobank is back to being Ghana’s biggest bank, measured by total assets, after a short, six-month hiatus. However, this time, its reign is to be held up by more, but smaller customers than during its previous era as the industry’s leading corporate bank. TOMA IMIRHE, examines a strategy and its financial results that will once again provide guidance for the rest of Ghana’s banking industry.
It has taken just six months for Ecobank Ghana to retrieve its decade-long status as the country’s biggest bank from GCB Bank, the flag bearer of indigenous banking, but not quite up to Ecobank Ghana’s positioning as a star member of the widest pan continental banking group, stretching across 33 African countries and counting. As at June 2022, Ecobank’s GH¢21,647.128 million in total assets exceeded GCB Bank’s GH¢21,389.382 million, reversing the latter’s brief spell as the largest bank in Ghana, achieved at the end of 2021, after conceding that coveted position back in June 2012 when Ecobank acquired the then The Trust Bank and its high-quality portfolio of small and medium sized customers, becoming Ghana’s biggest bank from then.
GCB Bank still leads the industry as adjudged by equity, its GH¢3,012.225 million in total equity (including reserves) as at mid-2022, beating Ecobank’s GH¢2,857.189 million to second place. To be sure, GCB has remained the bank with the largest equity in recent years, even when consistently behind Ecobank with regards to total assets. But it is the structure of the balance sheets of these two banks that – apart from ownership and strategic market positioning – sets them apart. While the government controlled GCB has, just like nearly every other bank in Ghana, shifted away from lending to customers, towards investing in government debt securities to exploit the highest interest rates offered on these risk-free government treasury bills, notes and bonds since late 2016, Ecobank has instead focused on establishing an expanded loan portfolio for its customers, structured in such a way that provides high risk asset quality at even better interest spreads than government paper offers. This is key for Ghana’s economy at a time when rising inflation and consequent interest rates threaten economic growth and the fortunes of businesses and households alike.
To be sure, Ecobank’s financial solidity is a strong as ever. 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 adequacy ratio of 10% and considerably higher than even the 13% set specifically by the Bank of Ghana, which adds on 3% as capital buffers, having learnt from the recent banking sector melt down between 2017 and 2019.
Even more instructively, Ecobank’s nonperforming 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.
Indeed, over the 12 months up to June 30 this year, Ecobank grew its loan portfolio by 52% to GH¢6,903.228 million, up from GH¢4,532.076 million. Instructively, this is the largest loan portfolio in Ghana’s banking industry, ahead of Stanbic Bank’s GH¢6,846.018 million, the second largest. Even more instructively, this loan book growth was faster than the also formidable 38% growth in customer deposits over the period, which increased to GH¢16,794.877 million – the largest deposit base in the industry, ahead of GCB Bank’s GH¢14,315.084 million – propelled by the much-increased emphasis of the banking public on identifying and using the most financially solid banks as safe havens for their savings and investments. This clearly is a sign of the trust and confidence that customers have in Ecobank, due to its size, solidity, image and positioning as a pan African bank with local solutions to meet the varied needs of customers across its footprints on the continent.
The success of Ecobank in growing both the size and the quality of its loan portfolio, at a time that most of its competitors are opting for safer – and abundantly available – high yield government debt paper lies largely in its strategy of deliberately diversifying its borrowers, reducing its exposure to the biggest borrowers while increasing its retail lending activities. Indeed, its busiest loan activity is in the granting of Express Loans, the bank’s recently introduced, and hugely successful micro loans product.
Ecobank’s success in growing its loan portfolio faster than its (government debt) investment portfolio has enabled the bank 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¢859.444 million, up from GH¢652.857 million during the corresponding period of 2021.
Increases in both fees and commissions, by 24% to GH¢203.876 million and trading and other income by -27% to GH¢122.509 million also contributed to an overall 20% increase in Ecobank’s total revenue to GH¢1,185.829 million in June 2022, up from GH¢984.698 million during the corresponding period of 2021.
On the other hand, Ecobank continues to leverage its longer experience and industry leadership with regards to digitalization 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 the first half of 2022 was 46.0%, not that much higher than the 39.6% incurred during the first half of 2021. The increase was in part the inevitable consequence of the deliberate fragmentation of the bank’s loan portfolio but even here digital savvy is containing the unavoidable increase in loan administration costs.
All this culminated in a modest 12% increase in pretax profits which were GH¢538.891 million for the first half of 2022, the highest profit recorded by any bank in Ghana, ahead of GCB Bank’s GH¢479.576 million. The tightened fiscal regime imposed over the past year meant profit after tax rose more slowly, by 8% from GH¢325.379 million last year to GHS350.148 million this year.
Yet again, Ecobank Ghana is setting the direction for the country’s banking industry; the way to keep the private sector financed and to, at the same time, maximize interest margins as well as financial service fees and commissions, all without putting deposits at risk. Of course, the ability to deliver high service quality and high internal productivity are key to making all this work. But Ecobank Ghana has them in good measure. That is certainly the way to go, both in good times and in bad times, banks must support businesses, of all sizes, to grow in other to propel economic growth.
