What do you do when you have a bad result? You try to liven things up with some good news. During the week, Ecobank announced that it had removed all charges from USSD transactions for its customers. It also announced that it had signed a mobile money partnership with Airtel, thus bringing mobile financial services to millions of their customers in Africa. In contrast, its 2019 half-year result for its Nigerian entity was anything but good.
Poor results: Ecobank’s Nigerian operations reported a pre-tax profit of N206 million, down a whopping 99% from the N26.5 billion reported the same period last year. The weak profits were driven by a massive drop in Net Interest Income falling to N25.6 billion compared to N64.7 billion for the same period last year. The bank had an explanation for the dismal performance. It blamed “lower rate environment and competition, and the impact of the suspension of interest income on subsidy related oil/gas loans in Nigeria” as the reason.
Unfortunately, this will not go down well with investors who quibble over what to do with the resultant 0.1% return on average equity for the first 9 months of the year. The company also reported an increase in non-performing loans for the period under review. Fortunately, its other African operations are faring better, reporting a pre-tax profit of N109 billion. So, if anything needs to change, it has to be from its Nigerian operations.
Ecobank Nigerian operations have been characterized by a multitude of ugly decisions. Ecobank acquired the assets and liabilities of All States Trust Bank and Hallmark Bank in 2006. In October 2011, ETI acquired Oceanic Bank Plc. The entire share capital of Oceanic was canceled, while its shareholders received one ordinary share of $0.025 and $0.428 preference shares of $0.1032 in ETI, for every 20 held in Oceanic Bank.
Bad decisions: The string of acquisitions, especially in Nigeria has left the bank looking for character and a cultural fit. The bank often looks like a relic of the old days and fails to cater to the younger more tech-savvy millennials highly courted by their rival banks. Ex-staff of Oceanic Bank who were subsumed during the acquisition complained bitterly about the slow pace in marketing and execution not often found in the so-called new generation banks. The bank is in dire need of fresh ideas.
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In 2017, ETI (the parent bank) set up a Special Purpose Vehicle (SPV) to acquire impaired assets from Ecobank Nigeria. These include legacy loans from Oceanic bank. Last August, the bank announced that its long-time shareholder, International Finance Corporation (IFC), was transferring its investment in the bank managed by the IFC Asset Management Company (AMC) to Arise B.V., which has become a major shareholder of ETI resulting in a 14.1% stake in the company.
Changes at the top: The deal would also help deepen the bank’s financial inclusion strategy across Africa, perhaps leading to the breakthrough deal with Airtel. Just recently, the bank announced yet another round of senior management changes, appointing Kenneth Okere as Company Secretary & Chief Legal Counsel, Ibukunoluwa Oyedeji as Chief Financial Officer (CFO); Abiola Aderinola, as Financial Controller, Adetokunbo Uko as Treasurer, and Akintunde Dawodu as Chief Compliance Officer and Head, Compliance & Control.
Changes in management help to inject new blood into a dying strategy, but this also brings its own baggage. Last year, the company CEO, Charles Kie, resigned and left the country following several clashes with law enforcement agencies. His replacement, Patrick Akinwuntan, will have his work cut out as he tries to return the bank to its rightful place.
At N7.1, Ecobank share is down 55% in the last one year. The latest result paints an ugly situation for investors looking for an upside.