Ecobank: pan-African blues
The previously expansionist bank needs to take a more modest, consolidating stance.
Ecobank, the original pan-African bank, has been a poster child for the continent’s economic dynamism, pent-up demand for capital, and growing financial integration, thanks to its stunning revenue growth and geographical expansion over the past decade.
Last month, however, the alternative image of the way business is conducted in Africa – challenges to good governance – dominated, after Ecobank’s board finally removed its chief executive, Thierry Tanoh, following months of disruption that included the departure of its chairman and risk director.
Nigerian regulators investigating alleged abuses of corporate governance, which Tanoh said predated his September 2012 tenure, triggered his downfall.
Amid publicized calls from the group’s largest shareholder, the Public Investment Corporation of South Africa, and a series of internal defections, fears grew that Ecobank’s pan-African dream was unravelling with Tanoh at the helm, amid far-fetched rumours of a bid from Barclays and Citi.
|Thierry Tanoh, former chief executive of Ecobank|
Deputy CEO Albert Essien, a 20-year veteran of the institution, and head of its corporate and investment banking division, replaced Tanoh. Essien, as a staunch member of the old guard, has much to prove, if, as is likely, he succeeds in ensuring his new position is confirmed beyond an interim basis. After all, he was a close confidant of former CEO Arnold Ekpe, whose regime shareholders now cast as an era of significant value destruction, and an uncontrollable rise in the bank’s cost base after misadventures in Nigeria. Its NPL ratio in the country reached 40% in 2009, resulting in a $2 million net loss in the largest sub-Saharan African market, after South Africa, the following year.
Supporters point out that Essien’s experience will benefit Ecobank, while his status as an approachable and mollifying Ghanaian should pacify those who fear both Ecobank’s risk-taking zeal and west African officials concerned about the activist stance of the bank’s South African shareholders. What’s more, his pioneering role establishing a partnership agreement with the Bank of China in 2010, in a bid to intermediate trade and capital flows between China and resource-rich sub-Saharan African nations, underscores his strategic vision, they say.
However, Essien needs to take a step back from his predecessors’ towering ambition and embrace modesty. After all, Ecobank, having achieved top-three status in 15 of 32 of its markets, already has the infrastructure in place to ensure revenue growth.
Given the high concentration of commodity exports in sub-Saharan trade, intra-African trade constitutes just 13% of the region’s overall trade balance, underscoring the near-term to medium-term challenge for banks such as Ecobank to capitalize on the benefits of a pan-African network, when retail and SME customers are resolutely domestic in focus.
What’s more, banking the blue-chip corporate market is a competitive business, where such banks as Citi, Standard Chartered and Standard Bank already boast global distribution and balance-sheet strength.
Instead, Ecobank needs to retool its growth-at-all costs strategy, nurture a culture of cost and risk control, focus on efficiency and business consolidation and, above all, appoint a board with teeth, giving beleaguered shareholders confidence in oversight of the institution.
Compared with 2010, Ecobank is in a much stronger position in its Nigerian franchise, with a large retail network that has enabled it to reduce funding costs and boost net interest margins, while it boasts a competitive edge over its domestic clients given the opportunity to provide cross-border corporate and investment banking products to its expansionist Nigerian clients. Although Nigeria accounts for some 44% of the bank’s asset base, it contributed only 27% of profit before tax in the third quarter of last year, highlighting the need for cost control. Boosting this unit alone is crucial to continued profitability in the medium term – and should be Essien’s number-one strategic priority.