Daniel Sackey, the Managing Director of Ecobank, has indicated that he expects the bank to come out of the temporary setbacks caused by the Domestic Debt Exchange Programme (DDEP).
Daniel Sackey, thus, noted that the bank recorded healthy performance despite prevailing challenges in the macroeconomic sphere in 2022.
“Although the DDEP has resulted in significant impairment losses relating to the bank’s investments in government securities, this is a temporary setback that we expect to recover quickly from. The bank has booked the required impairment and closed the chapter on local bonds. The bank remains very liquid, solvent and the most capitalised bank after the debt exchange programme.”Daniel Sackey
The managing director stressed on the importance of rebuilding the bank’s capital base and liquidity buffers to deliver superior Return on Equity (ROE) for shareholders. Ecobank aims to prioritise the rebuilding process to enhance its capacity to deploy loans, taking into account the availability of liquidity and capital.
“The capacity to deploy loans is a function of liquidity and capital availability. There is however an expectation that over time there will be improved capacity to grow the loan book by rebuilding our capital base.”Daniel Sackey
Despite the challenging macroeconomic environment, Ecobank MD said the bank is committed to its strategy and intends to deepen its relationships with customers in all three banking segments – consumer, commercial and corporate. The bank is well-positioned to take advantage of lending opportunities as they arise.
Mr. Sackey assured shareholders that the bank’s strategy broadly remains unchanged despite happenings in the economy.
“So, starting from 2023, we have been working to implement that strategy while bearing in mind the current economic situation. We will continue to deepen our relationships with customers in all three segments of consumer, commercial and corporate banking, regarding lending activities in 2023 and 2024.”Daniel Sackey
Total Revenue Surges
In the year under consideration, total revenue surged by 40.3%, reaching GHC2.97 billion and demonstrating the bank’s ability to generate income even in difficult circumstances. The increase in revenue was primarily driven by higher net interest income, fee-based income, and successful trade and cash management initiatives.
Net interest income remained the largest contributor to revenue, accounting for 85% while non-interest income made up the remaining 15 percent. Interest income witnessed a significant growth of 63 percent, supported by higher loan volumes and increased lending rates.
However, interest expense rose by 108.7% due to the disruptive operating environment. The bank’s Treasury business also experienced challenges, resulting in an 82.5% decline in trading income compared to the previous year.
Operating expenses increased by 37%, mainly driven by unprecedented inflationary pressures and exchange rate depreciation. The bank incurred a net impairment charge of GHC1.73 billion on government bonds due to the domestic debt restructuring, leading to a loss of GHC27.2 million before tax payment.
Despite these challenges, Ecobank’s balance sheet remained robust with total assets amounting to GHC25.9billion; marking a growth of 44.5% from the previous year. Customer deposits appreciated by 54.4%, reaching GHC20.4 billion driven by improved product offerings and increased customer confidence in the Ecobank brand.
The bank’s digital channels and proactive customer engagements played a significant role in fostering deposit growth.
Ecobank demonstrated its commitment to supporting business growth, boasting a net loan book of GHC8.9 billion – which is among the industry’s largest. The bank’s capital adequacy ratio stood at 14.63% in December 2022, surpassing the regulatory requirement of 10 percent and highlighting its healthy capital position.
Prudent Cost Reduction Measures
Furthermore, Ecobank demonstrated prudent cost reduction measures, which resulted in a reduction of the cost-to-income ratio (CIR) from 46.24% to 43.47% for the year under review.
The bank’s chief reassured shareholders, saying, “We also operate a zero tolerance for spending overruns by evaluating spending in detail – either as a revenue booster or a cost savings catalyst”.
The bank’s credit appraisal processes contributed to a strong loan book and notable improvement in non-performing loan (NPL) ratios.
“As a bank, we have a very robust credit appraisal process which gives rise to a strong loan book. As a result, our NPL ratios improved from 6.22 percent in 2021 to 5.66 percent; and from 12 percent to 9.47 percent at the end of 2022, which is an enviable performance compared with our peers and the industry average.”Daniel Sackey
Although the DDEP impacted the bank’s bottom line, Ecobank recorded significant revenues of almost GH¢3billion in the year under review. The MD expressed confidence in overcoming the setback swiftly and returning to maximising shareholder value.
“We believe we were able to deliver on our promise to our customers and employees, resulting in record revenues of almost GHC3 billion. However, the DDEP has significantly impacted our bottom line; such that we could not declare profit to our shareholders. We are confident that we can overcome this setback as quickly, and return to set the pace when it comes to shareholder value maximisation.”
In line with central bank expectations on dividend payment, the bank elected not to pay a dividend for the calendar year under review.
Ecobank, however, stressed the importance of restoring capital eroded by the DDEP for soundness of the industry and long-term sustainability of banks. While short-term cashflows of shareholders relying on dividends may be affected, the restoration of capital will contribute to increased returns in the medium to long-term.
Looking ahead, Ecobank MD acknowledged the challenging macroeconomic environment in 2023, noting that revenues, particularly income from investments, could be slightly affected due to lower coupons on the new bonds.
However, the bank remains optimistic about the medium- to long-term fundamentals of the economy, highlighting government’s swift IMF deal and its ability to navigate through short-term economic headwinds.