Marking a change of direction from his predecessor, Ecobank Transnational Incorporated’s (ETI) new CEO Ayeyemi has announced the group will no longer look to sell a stake in its Nigeria subsidiary to raise additional capital, citing the poor economic and financial climate in Africa’s largest economy as the determining factor.
| Now is not the right time to give up any of the jewels in Ecobank’s crown|
In an interview with Euromoney, Ayeyemi, who moved from Citi to ETI on September 1, says: “As opposed to when my immediate predecessor Albert [Essien] was CEO, current market conditions in Nigeria do not currently support selling anything in the country.
“Commodity prices are still weak, the currency has weakened further, Nigeria has been taken out of the JPMorgan Index and government reserves have been depleting, and there is new administration that is working its way through all of these issues.”
He adds: “If we are going to sell an asset, we need to sell at a time and price that reflects the value embedded in the firm. This is not the case at the moment. Instead, current market conditions in Nigeria warrants doubling down and focusing on efficiency and execution.”
ETI had planned to sell a 25% in the Nigerian bank to raise up to $500 million in capital. A potential sell down in the Nigerian subsidiary was announced by Essien in November and was still on the cards up to June.
Since November, the naira has been devalued by the central bank twice and crude oil prices in Nigeria have remained subdued at around $45 a barrel.
As a result, banking sector stock in Nigeria is “cheaper than cheap”, according to one bank analyst based in Europe, with the forward price to book multiple of tier-two banks in Nigeria trading between 0.25 and 0.37 on Wednesday.
“Today’s stock prices in Nigeria, and not Ecobank fundamentals, will determine the price ETI would get for their Nigerian subsidiary and it is not good,” says the analyst.
“ETI will not look to sell a stake in Ecobank Nigeria until bank stocks are seen to be trading by at least book value, as shareholders would be vehemently against anything else, but I do think it would be wise for the bank to look at other ways to raise additional capital for their Nigerian subsidiary.”
He adds: “The bank’s capital adequacy ratio stands at 16%, which is the minimum requirement set by the central bank for systematically important banks, but doesn’t give the bank much room to grow in the country.”
However, as Ayeyemi says: “Capital is not an issue for our Nigerian subsidiary and we meet all regulatory requirements. We will raise capital for the business if needed. Now is not the right time to give up any of the jewels in Ecobank’s crown. Now is the time to support our Nigerian subsidiary.”
Even though ETI’s banking business boasts a pan-African presence in 36 African countries, Ecobank Nigeria accounted for 40%, 38% and 37% of ETI assets, loans and deposits respectively in the second half of 2015.
Therefore, even with meaningful attempts to diversify away from West Africa, shocks in Nigeria still have large repercussions on the banking group.
Recent central-bank moves to introduce the Treasury Single Account (TSA) – an account that channels all government revenue into one account held with the central bank – has withdrawn a huge amount of cash from the system and taken an important revenue stream away from the banking sector, whereby commercial banks no longer act as custodians of government revenue.
|I would like things to move faster in Nigeria, but … |
it is better to do things slowly than to do them badly
Ade Ayeyemi, Ecobank
“The TSA will be painful initially, but if over time we can see that government resources are being used to execute infrastructure that’s needed, create jobs and encourage a strong business environment, then it means that the future will be better than the present and that everyone can look forward to a better future,” says Ayeyemi.
“The aim of the government is to try to consolidate resources in a way to block leakages, cut corruption and stop rent seeking. These are objectives we shall support and the banking sector should do all it can to support these aims.”
Corruption and the financial exclusion of some of Nigeria’s most vulnerable create breeding grounds for the likes of Boko Haram, explains Ayeyemi, and need to be tackled for the country to move forwards and create a conducive business environment.
Indeed, initial enthusiasm around Nigeria’s new government led by Muhammadu Buhari has started to wane as Nigeria’s new leader is yet to appoint a full cabinet since winning the election in March and his inauguration in May.
“I would like things to move faster in Nigeria, but I am also of the opinion that it is better to do things slowly than to do them badly and then have to fix them in the future,” says Ayeyemi.
“I’m not aware of all the decisions the new president needs to make, but we shouldn’t judge too quickly if things take longer than expected.”
He concludes: “And the one thing we should not forget even now is that, in terms of an election, we got the best outcome. We had a fair election where the incumbent lost, but graciously gave up his seat and congratulated his successor. Maybe we should just let things run their course.”