Ecobank CIB: what the numbers say

By:
Kanika Saigal
Published on:

Despite headwinds affecting banks in West Africa, Ecobank group’s financial results have been supported by strong CIB business in the region. Euromoney digs into the numbers.

Banks in Ghana and Nigeria have been under pressure in recent months, as low commodity prices, local currency weakness, limited investment-banking deals in benchmark size, and weak foreign portfolio flows have impacted trade finance businesses across the board and led to an uptick in bad loans. 

However, despite recent headwinds, Ecobank has remained resilient in West Africa, supported in particular by steady revenue from the group’s corporate investment banking division.

Charles Kie 2
Charles Kie, Ecobank
"As a virtue of being well-entrenched in the markets, we have the ability to adapt well in times of difficulty," explains Charles Kie, group executive of corporate and investment banking at Ecobank.

"In both Nigeria and Ghana, we have maintained our balance sheet, profitability and returns to our shareholders, and we have supported the group’s overall business performance because CIB has remained strong within this difficult context." 

He adds: "And in Nigeria, processes which we started around three years ago to reduce our costs base has also helped to maintain profitability in the country."

Streamlining the CIB business in Nigeria for Ecobank came, in part, as a result of its acquisition of 100% of Oceanic Bank in 2011, explains Kie. 

"We were lucky we started this process back then as now we are a very efficient business," he says. "If we hadn’t started the process of streamlining our Nigerian CIB business back then, we may not have been able to hold up as well as we have."

CIB remains one of the leading contributors to the group’s earnings, accounting for 41% of total profits of the three business segments. 

Corporate banking grew revenue by 10%, investment banking by 24%, securities and asset management by 20%, and the transaction services group by 18% year-on-year. The largest contributors to  CIB revenue were Nigeria and Ghana, which accounted for 36% and 14% of revenue respectively. CIB revenue in Nigeria and Ghana increased by 33% and 6% respectively.

However, there has been some pressure on CIB profitability for the group. While net revenue for the group reached $667 million in 2014, up from $607 million a year earlier, profit after tax declined by 8% from $288 million in 2013 to $264 million in 2014, and the cost-to-income ratio increased slightly from 43.4% in 2013 to 44.6% in 2014.

"However, month-on-month revenues this year have been impacted by negative currency translation effects, but we expect this to stabilize and improve in the second half of the year as the naira and the cedi slowly strengthen against the dollar," says Kie.


Revenue contribution YoY trend $ thousands
Ecobank_CIB_thousands
Source: Ecobank

In Nigeria and Ghana, currency devaluation has been a strong theme, as global commodity prices have dipped since the beginning of last year, putting pressure on government revenue in both import-dependent countries.

While the cedi has rebounded slightly in recent weeks, the currency has more or less been in free-fall during the past 18 months, and has lost around 25% against the dollar since the beginning of the year. 

In Nigeria, the naira has depreciated by around 24% since November, with calls by bankers and economists in the country for further devaluation falling on deaf ears. 

Nevertheless, the Nigerian central bank has made efforts to tighten policy and, in effect, oversaw a 22% devaluation of the naira against the dollar since November 2014 by limiting the number of non-essential goods imported into the country, the amount of dollars that can be spent abroad and limiting interbank FX markets.

As a result, the environment has not been easy for the banking sector in West Africa on the whole, as there has been a substantial reduction in trade volumes and profit margins across the board.

"We have very well-diversified corporate and investment banking businesses, which means that we have been able to weather the storm more than some," says Kie. 

"Add to this our large footprint and penetration in main markets, including Nigeria, Ghana and Cote d'Ivoire, and we have done well despite problems affecting the region."

Diversification of CIB business 
Ecobank CIB diversification 
Source: Ecobank  

Regional ambitions

Despite marketing the bank as the region’s pan-African leader, Ecobank’s stronghold remains in western Africa, with the bank’s CIB business gaining little traction in East Africa.

Indeed, efforts to develop Ecobank’s CIB business in Kenya has been slow, event though the bank was awarded an investment banking licence by the Kenyan regulators in August 2014.

"Our CIB venture in Kenya has been delayed slightly, as although we had applied for an investment banking licence around this time last year, the whole process has taken longer than expected to get off the ground," says Kie.

"But the timing and delays weren’t too bad. Indeed, because there has been a lot of volatility in markets since the beginning of the year, we took the decision to focus on our main CIB markets in Ghana and Nigeria and Cote d’Ivoire, while ensuring that we grow our smaller markets more sustainably."