|Ade Ayeyemi, CEO of Ecobank|
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In terms of distance, it should be no more than a three-hour direct flight, but in practical terms that’s just not an option and instead, Ayeyemi and his team spend more than six hours travelling, first driving from Lomé to Cotonou, in neighbouring Benin to catch a flight taking them to Libreville, in Gabon, from where they are able to fly to Kigali.
That’s just a taster of the daily practical challenges for Ayeyemi, a former Citibanker who was brought in two years ago to restore stability and leadership to Ecobank following a prolonged period of turmoil.
With $20 billion of assets, a presence in 33 countries, plus representative offices in another three, Ecobank is indisputably the pan-African bank with the most extensive footprint across the continent, beating rivals such as Nigeria’s United Bank for Africa, South Africa’s Standard Bank and Morocco’s Attijariwafa Bank.
That geographical reach tells you just how dedicated Ecobank is to the pan-African model. But Ayeyemi admits that making this model work is no easy task.
“Our countries are fragmented, our financial system is fragmented, our capital market is fragmented, our airline is fragmented,” he says of the African continent. “Ecobank, when it was conceived, was to try and solve that problem of fragmentation.”
We are working with the countries to identify the sector strengths- Ade Ayeyemi, Ecobank
The result has been mixed, and the bank appears to have struggled since its inception in 1985 to unify banking across such a vast expanse. Of course at the time, the technology was lacking. Africa may still be physically fragmented, as Ayeyemi’s trip from Lomé to Kigali demonstrates, but new digital financial tools could soon make the continent feel smaller and more interconnected than ever before.
“That case is now easier to execute with the presence of technology, with information that can flow, with a new economy that says the world is globalized.”
Ayeyemi’s big bet is that new technologies will finally enable Ecobank to deliver on its promise. For that reason, Ecobank is investing heavily in innovation; it reported operating expenses for communications and technology of nearly $130 million last year. The bank thinks it can grow from 13 million customers today to as many as 100 million three years from now, all thanks to technology.
Ayeyemi, a Nigerian banker in his mid 50s, joined Ecobank when it was still reeling from years of internal conflict and allegations of mismanagement that led to the board’s ouster of its chief executive, Thierry Tanoh, in 2014.
Tanoh and Kolapo Lawson, the former chairman who resigned in 2013, were accused by the bank’s head of risk and finance of writing off debt, selling off assets at cut-throat prices and inflating the bonuses they were due. An investigation by the Nigerian regulator found governance lapses at the bank, including the absence of a clear strategy to drive the institution, conflicts of interest at the top and a lack of transparency in pay procedures. Both Tanoh and Lawson denied any wrongdoing.
Tanoh has since fought back against these allegations in court both in Togo, where Ecobank is headquartered, and in Côte d’Ivoire, where he has begun a political career as minister.
Undeterred by the turmoil, South Africa’s Nedbank acquired a 20% stake in Ecobank in 2014 and now owns 21%, making it the bank’s largest shareholder ahead of Qatar National Bank, which owns 20%, according to a presentation Ecobank gave to investors in June. Both the IFC and asset manager Public Investment Corporation (PIC) have stakes of about 14%.
Another 180,000 private and institutional investors own stock in Ecobank, which is listed in Lagos, Abidjan and Accra and has a market capitalization of about $1 billion.
Nedbank’s chief executive, Mike Brown, said Ecobank had made “enormous progress” in resolving its governance issues at the time of the purchase. Of the three main rating agencies, only Fitch rates Ecobank: B with a stable outlook. Deputy chief executive Albert Essien took over from Tanoh for a little over a year, before being replaced by Ayeyemi, who had spent his entire banking career at Citigroup, most recently as the head of sub-Saharan Africa, based in Johannesburg.
Unsurprisingly, Ayeyemi is keen to put Ecobank’s bad days behind it. The digital drive is part of that: 2016 was the biggest year yet for Ecobank in its effort to reform the way it does business.
As many other banks have done before it, Ecobank launched a new mobile application last year to cater to its customers’ needs. But no bank had ever done so on such a large scale, at least not in Africa: Ecobank made its app available on the same day in all 33 African countries where it has a presence.
Ecobank became the first bank in sub-Saharan Africa to offer instant fund transfers across that many countries, all directly from a mobile device. It is also the first financial institution in that region of the world to enable instant name matching for cross-border transfers, reducing the risk they may be sent to the wrong beneficiary.
The app is available in English, French, Spanish and Portuguese, some of the main languages spoken in the countries where Ecobank has a presence. It allows customers not only to transfer funds cross-border, but also to communicate with customer service at any time of night or day, consult their account statements, top up their air time, settle bills and pay for utilities. They can also receive payment notifications and receipts.
Ayeyemi is especially proud of this app. “The important thing here,” he says, “is that irrespective of how remote [the] country is, irrespective of how small our operation is in that country, they have access to the same quality of app at the same time as the biggest of our countries. And therefore that leading innovation, bringing new products to markets that on their own may not be sufficiently large to attract that investment, is what the mobile app has demonstrated.”
A number of Ecobank customers have reported issues logging in to the app, or transferring money. Ecobank’s social media team has been quick to assist with these complaints.
The app was about creating cohesion between the various markets where the bank operates, irrespective of the size and profitability of each one. In other words, the guiding idea was that tech could beat fragmentation.
Beyond the app, Ecobank was also the first bank to introduce a pan-African card that can be used to withdraw cash and make payments in as many as 36 countries across the continent.
Last year, the bank also partnered with MasterCard to introduce a new product called Masterpass, to make payments in store and online using a mobile phone. While some may see that service as commonplace these days, Ecobank was the first financial institution in Africa to offer it.
And for those looking for as smooth a banking experience as possible, Ecobank also introduced a bank account that can be opened directly from a mobile device. Almost 2 million people have opened such accounts, which are light on know-your-customer requirements: because of that, customers have access to fewer services.
Holders of these accounts were the first to be offered access to microloans. That makes sense, as customers who need access to microfinance may live in remote areas and not have access to a bank branch. All of Ecobank’s retail banking customers now have access to such loans.
Ayeyemi knows there are obstacles to overcome. Even as technology enables greater interaction between the peoples and economies of Africa, an institution like his cannot thrive if intra-African trade does not increase. The kind of technology Ecobank is introducing is meant to encourage such a development, but change cannot come from the banks alone. The governments and corporations of Africa would also have to adopt a similar attitude to progress.
“I’m not saying that it is easy for people to surrender some elements of sovereignty for prosperity,” Ayeyemi says of the prospects for fewer trade barriers on the continent. But in defence of an open market, he continues: “We cannot celebrate poverty; we cannot make policies that isolate our people so that they can be poorer. We have to make policies that can bring us together. And it’s in that coming together that I think we can actually break the logjam of society problems that we have today.”
The issue for Ecobank is that only once Africa becomes one big market, with seamless trading and financial flows between its constituent parts, can the bank achieve its aspirations. Operating separate banking entities in each African country is an expensive and altogether pointless exercise: what Ayeyemi seeks are synergies across the continent and the emergence of more multinational African clients in need of a pan-African bank.
“The internal market of 1 billion people is more than three times the population of the US,” Ayeyemi says of Africa’s great promise. “But 1 billion people plus is not an addressable market and therefore we have not been able to attract industries to cater to the market. If you are a billion people and there’s no mobile phone manufacturer to address 1 billion people, it’s an issue.”
Even MTN Group, Africa’s biggest mobile phone operator, has only just over 230 million subscribers.
“The role of banks is not to exist on their own,” Ayeyemi says. “The financial institution is a service to society, to support the real economy. The core issue is the real economy that needs financing, that needs capital formation, that needs transactions to flow in a way that is frictionless.”
Ecobank needs more large-scale clients because it thrives on their custom. While Ecobank’s consumer and commercial banks did well last year, generating $484 million and $374 million of net revenue respectively from products such as microfinance and mortgage loans to individuals, as well as cash management, trade finance and internet banking to small and medium-sized enterprises, the main source of revenue by far is from the corporate and investment bank, which in 2016 generated over $1 billion.
But while Ayeyemi makes his case for a continent-wide market, some critics tell Euromoney that pan-African banks often fail to understand that there are, and will continue to be, differences between the various regions of Africa.
Faustin Byishimo, executive director at I&M Bank Rwanda, cites Nigeria and Rwanda as examples of two different banking markets. Nigerian banks are used to catering to the needs of large companies, particularly in the oil sector: but if they go to Rwanda, they need the expertise to serve the SMEs that form the backbone of the economy.
SME banking is very different to catering to the needs of large oil businesses, Byishimo says.
Ayeyemi rejects that point of view as “my village culture”. He says: “It doesn’t matter whether the person is from Timbuktu or Bogota, is from South Sudan or from South Dakota. It really doesn’t matter. What matters is whether the person has the skill set to be able to add value in that particular context.”
To Ayeyemi, there is no such thing as a local banking culture, only “global best practices”, which apply everywhere.
Ecobank’s cash management head is from Kenya, he points out, while the CFO for the corporate and investment bank is from Zimbabwe. To Ayeyemi, nationality and place of origin are an irrelevance. “The quality we seek is global, and therefore the talent we seek should be global.”
While Ecobank has little time for country specifics, it strives to understand what makes each region in Africa unique. Ayeyemi says the bank, in its efforts to promote intra-African trade, focuses on the trading potential of each region.
“All of us cannot be producing rice and think we can trade rice with each other,” Ayeyemi says. “We are working with the countries to identify the sector strengths. And we are partnering with Afreximbank, with the AfDB to try and support those sectors.”
So, for example, tea is an east African crop, not a specifically Rwandan or Kenyan one, he says, while cocoa is a west African crop. “So we need to then start asking ourselves the question: those are the things those guys are good at. How do we support them on a regional basis to be able to get that done?”
Again, single-country banks would not be able to provide such a service. To be able to deliver the funding the continent needs, Ayeyemi argues, scale is key.
That is also how Ayeyemi thinks about Ecobank’s internal organisation. He wants everything the bank does to be scalable and seeks economies of scale wherever possible. The bank’s technology and data centres are in Accra and Lagos, meaning no other Ecobank outfit needs to spend money on those aspects of their operation: they simply rely on the centralized data centres. He says the choice is between scaling and sub-investing. He adds, referencing the recent case of hacking software that plagued companies worldwide: “You scale it or you sub-invest in it. If you sub-invest in it, you take security risk, à la WannaCry.”
He adds that only the banks and companies with a large scale are part of the global value chain, making them more likely to adopt global standards and gain their peers’ trust, and custom, as a result.
That doesn’t mean Africa can yet match the manufacturing prowess of some other places, he says, but it does mean African companies and banks should participate in that global value chain. He sums up that idea with the thought: “I’m not asking Africans to build aircrafts right now, but by God we can make wires that go into making the aircrafts.”
Still, despite the optimism, things aren’t all rosy. For one, Ecobank’s results were poor last year, suggesting the bank’s years of hardship were not over. The bank reported a loss before tax of $131 million, after a profit before tax of $205 million the year before. That was due to asset quality issues in Nigeria – by far Ecobank’s most important market, representing 38% of total net revenue last year – and an increase in non-performing loans across all of the regions where it operates. Ecobank set up a resolution vehicle specifically to manage its legacy loan portfolio in Nigeria. To cope with the rise in non-performing loans, Ecobank increased its impairment charges, from $523 million in 2015 to $864 million in 2016.
Ayeyemi points out that profit before tax and impairment last year was $735 million. “Impairments that came last year are not because of the loans book last year, let’s be clear,” he says, adding that businesses should be judged through the cycle.
Loans were indeed the issue pointed out in the bank’s 2016 annual report, however. Ecobank said the legacy Nigerian loans had become “challenged”. As for the rise in non-performing loans as a percentage of gross loans across the continent, Ecobank blamed the “difficult macroeconomic environment”.
Ayeyemi confirms to Euromoney Africa that he is concerned about macroeconomic conditions, in particular in the continent’s larger economies.
“I worry about the big economies in Africa, because they are supposed to be a source of strength that should lead the continent, and they are not doing as much as they can do. That’s the biggest source of worry for me.”
Due in part to low commodity prices, Nigeria’s economy suffered its first contraction in a quarter century last year, South African GDP growth was below expectation, at just 0.3%, while in Egypt, the currency’s black market depreciation choked business.
“If South Africa is doing very well, so do other parts of sub-Saharan Africa; if Egypt is doing very well, then so does the region; if Nigeria does very well… Just think about it, if those pillars of the continent do very well, every other country around them benefits.”
Nonetheless, Ayeyemi says there is cause for hope as the economic prospects for those three countries look up.
Ecobank has obtained shareholder approval to raise $400 million in convertible bonds – $200 million to repay the short-term bridge finance used in setting up the Nigerian resolution vehicle and $200 million to restructure the bank’s debt portfolio, replacing costly short-term borrowings with loans with tenors exceeding five years.
Importantly, technology should drive growth in customer numbers and open up avenues for potential business. Last year, customer numbers grew 23%, in large part thanks to tech.
“I believe that a pan-African institution is good for the continent. I believe it needs to be run on the principles of economics. I believe that every part needs to deliver return on equity greater than cost of equity. I believe that the current age of digitization and technology makes that possible,” he says.
Ayeyemi believes bank users will increasingly bank with several institutions, adding to each financial institution’s customer numbers. And new, more flexible financial tools will naturally emanate from today’s popular digital platforms: “We will be able to provide banking services, payments, through people having conversations on social media, whether it’s WhatsApp, it’s Twitter, it’s Messenger, it’s Telegram, it’s all of those things. Instead of waiting till you have $500 to send, you can send $50 home.”
Asked if he’s not setting himself up for disappointment with a target of 100 million clients within just three years, he says: “No, I’m not worried.”
To him, in today’s world, the best way to assess how many more customers a bank can have is simply to look at how many people use digital services: “What we are doing in terms of our consumer focus is we are creating a platform in which so many people can operate. And we feel comfortable, with 200 million users on Facebook on the continent, with about the same number of users on WhatsApp, we believe that number is realizable. It’s not a big issue.”