ADVERTISEMENT

ADRON EASTER HAPPY HOUR PROMO
You are here: Home
Monday, 18 November 2019 00:00

HOW ECOBANK DEFIES CBN REGULATIONS

Written by 
…Suffers Major Setback In Core Banking Operations At The End Of 3rd Quarter In 2019 As Earnings Per Share Dropped
 
 
 
Ecobank Transnational Incorporated (ETI) presently is facing a major setback experts revealed to the CITY PULSE NEWS business correspondent Mr Idris Lawal.
 
He said, it is necessary to enlighten the publics, shareholders, investors and customers of the bank for them to know the status of the financial institution.
 
Reason for this is that Ecobank in its core banking operations recorded low which whittled down its finances in the third quarter ended September 30, 2019.
 
Which means shareholders of the bank are the biggest losers as earnings per share (EPS) dropped and share price staggers.
 
However, the bank defies Central Bank of Nigeria directives on granting 65 percent of depositors money as loans to real sector.
 
The financial analyst said, this was as a result of the bank’s inability to attract new deposits.
 
ETI recorded a 3 percent drop on deposits in the third quarter of this year as against its performance for same period 2018.
 
As of September 30, 2019 deposits from customers dropped to N5.63trillion from N5.80trillion in the preceding third quarter.
 
In the same vein, loans and advances portfolio declined 6 percent as the bank decided to cut down on advancing credit to its customers contrary to the directive of the central bank that deposit money banks should increase lending to small and medium enterprises and individuals to accelerate economic growth.
 
The bank’s loans and advances to customers compared to its deposits base stood at about 56 per cent as at September 30, 2019. It dropped from N3.34trillion in September 2018 to N3.15trillion as of nine months ended September 30, 2019. The figure fell below the CBN’s mandatory cap of 65 percent.
 
Although Ecobank Transnational Incorporated (ETI) grew its third quarter earnings by 7 percent with net profit up 4 percent, the marginal growth did not come as a result of its core banking services as net interest income dipped 9 percent while non-interest income only grew 12 percent which means the bank fell short of key performing parameters for deposit money banks in the review period with deposits from customers dropping by 3 percent while loans and advances to customers declined by 6 percent.
 
Also total assets dropped by 0.6 percent while total equity remained unchanged in the review period. Also, earnings per share (EPS) dropped by 8 percent.
 
According to the financial expert, he highlighted that Ecobank Gross earnings recorded a marginal growth of 7 per cent from about N573billion in third quarter ended September 30, 2018 to about N611billion in the same period in 2019.
 
 
 
The ability of the bank to generate revenue improved by 1 per cent as revenue increased from N419billion in Q3, 2018 to N423billion as of September 30, 2019. Operating profit before impairment losses recorded a drop to the tune of 13 percent from N163billion in Q3, 2018 to N142billion in the same period in 2019.
 
Before tax deduction, profit increased by 14 percent from N96billion as of September, 2018 to N109billion as at September 30, 2019 while profit for the period (net profit) increased by 4 per cent at N78.8billion compared with N75.8billion recorded in the same period in 2018.
 
However, the bank’s balance sheet recorded a dismal performance as assets portfolio sheds weight by 0.6 percent from N8.22trillion in September 2018 to N8.17trillion as of September 30, 2019. Total equity remained almost fixed at N660.22billion from N660.07billion in September, 2018.
 
The bank could not grow its deposits portfolio in the review as year-on-year performance recorded a 3% drop.
 
As of September 30, 2019 deposits from customers dropped to N5.63trillion from N5.80trillion in the preceding third quarter.
 
In the same vein, loans and advances portfolio declined 6 percent as the bank decided to cut down on advancing credit to its customers contrary to the directive of the central bank that deposit money banks should increase lending to small and medium enterprises and individuals to accelerate economic growth.
 
The bank’s loans and advances to customers compared to its deposits base stood at about 56 per cent as at September 30, 2019. It dropped from N3.34trillion in September 2018 to N3.15trillion as of nine months ended September 30, 2019. The figure fell below the CBN’s mandatory cap of 65 percent.
 
 
Mr Godwin Emefiele CBN Governor
 
Meanwhile, expert revealed that Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, said he wanted to ramp up the growth of the Nigerian economy and his strategy is to bring about that desired growth for the economy through deliberate investment in the real sector which is the growth engine of the economy.
 
In a letter tagged: “Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy,” he mandated all commercial banks operating in the country to make cash available for businesses to increase their capacities and to be able to create more jobs.
 
Emefiele through the Director of Banking Supervision, Mr. Ahmad Abdullahi, instructed banks to make available as loan to the real sector, at least 60 per cent of the cash, which they collect from depositors effective from September 30, 2019. The requirement has since been reviewed to 65 per cent with a December 31 deadline.
 
“All DMBs are hereby required to maintain a minimum Loan to Deposit Ratio (LDR) of 60 per cent by September 30, 2019. This ratio shall be subject to quarterly review,” the letter stated.
 
For the purpose of implementation and to be able to track compliance, the CBN said it shall provide a framework for classification of enterprises/businesses that fall under these categories.
 
The apex had warned that failure to meet the prescribed minimum LDR by the specified date shall result in a levy of additional cash reserve requirement equals to 50 per cent of the lending shortfall of the target LDR.
 
The CBN said it shall continue to review development in the market with a view to facilitating greater investment in the real sector of the Nigerian economy.
 
Earnings per share from continuing operations attributable to owners of the parent during the period (expressed in kobo per share) stood at about 227.4kobo, dropping 8 percent from 246kobo in the same period the preceding year.
 
A breakdown of the bank’s earnings portfolio showed that income from core banking operations in the review nine months period dropped by 9 per cent as net interest income stood at N196billion compared to N215billion recorded in the preceding nine months period.
 
Interest expense, which increased by 27 per cent YoY made a mockery of the 5 per cent increase in interest income as at end of September 2019. Interest expense rose to N177billion in 2019 from N139billion in 2018 while interest income moved up from N354billion in 2018 to N373billion in 2019.
 
Non-interest revenue on the other hand gained 12 per cent with fee and commission income and net trading income being biggest contributors. Meanwhile, fee and commission expenses which declined by 34 percent, from (N14.86billion) in September 2018 to (N9.8billion) as at September 30, 2019, boosted non-interest revenue which stood at N227billion in 2019 compared to N203billion amassed in September 2018.
 
It’s obvious that the management of ETI must device means to reduce cost, if the bank must move up on the ladder of profitability and be able to compete effectively in its industry. Whilst operating income grew only by 1 per cent as of September 30, 2019, operating expenses moved up 10 per cent.
 
The condensed unaudited consolidated statement of comprehensive income of the bank presented to the Nigerian Stock Exchange for the financial period ended September 30, 2019 showed that operating expenses grew by 1 percent to N423billion from N419billion in the same period in 2018 while operating expenses jumped 10 per cent from N256billion in September 2018 to about N281billion in the same period in 2019.
 
Apparently, a growth strategy to grow its deposits portfolio must be adopted. In vein of this, Ecobank has made some moves in recent times. The Pan- African Bank with a presence in 33 African countries including Nigeria, entered into a partnership with Airtel Money, which will allow millions of Airtel Money and Ecobank customers across Africa gain access to mobile financial services using the Ecobank digital financial services ecosystem.
 
Customers will be able to make mobile deposits and withdrawals, effect real time domestic and international money transfers, make in-store merchant payments, and access loans and savings products among others.
 
The bank also said it had removed all charges from USSD transactions for its customers.
 
The Ecobank group in August 2019 appointed a new consumer banking head as well as chief financial controller to drive deposit and manage its finance.
 
 
Mr Ade Adeyemi Group Chief Executive Officer of Ecobank
 
Group Chief Executive Officer of the bank, Ade Ayeyemi, revealed that “The bank will continue to focus on its strategic priorities. Whilst noting the revenue headwinds, most of our regions delivered solid profit growth, with total Group profit before tax of $303 million, demonstrating the resilience of our pan-African business strategy.
 
We continued with the modernisation of our core banking application having now covered about 80 per cent of total Group transactions and 22 out of our 34 countries within a period of less than a year, with full completion by mid-November 2019.”
 
“Our unwavering commitment to ensuring best-in-class digital product offerings remains key. Our Ecobank Pay Zones are increasing across our network, providing SMEs and households with easy and secure digital payment solutions.
 
Additionally, we are growing our agency banking network making banking services available to more previously un-banked Africans.
 
“We recognise the imperative of ensuring excellent customer experience across all our customer touch points and we are assiduously committed to achieving this.
 
“We are confident that all the actions we are taking will deliver longer-term value to all of our stakeholders,” he added. He said.
 
 
Mr Patrick Akinwuntan MD/CEO Ecobank Nigeria
 
 
 
 
Read 430 times Last modified on Monday, 18 November 2019 14:17