Ecobank Inc. is on a high speed recovery and growth this year and profit is expected to climb to a new peak for the pan African bank in 2014. The bank suffered a sharp fall in profit last year and the performance so far this year shows management is able to remedy the disappointment. At the end of the second quarter, net profit was already more than 34% above the full year figure in 2013. Prospects are very good for a rise of more than one and half times in profit for the bank at the end of 2014.
Mr. Albert Essien, Group Chief Executive Officer of the bank is quite pleased with the bank’s high growth rate at the end of the first half. He said the earnings numbers are evident of operational improvements made in the business. Essien has a strategic focus on attaining efficiency, which he said has succeeded in lowering the cost-income ratio, stretching out profit margin and ensuring profit growth.
The bank posted an after tax profit of N31.63 billion at the end of the second quarter, which is an improvement of about 15% over the corresponding figure last year. Profit growth has stepped up from the N15 billion the bank reported in the first quarter.
The year-on-year growth however isn’t showing the strength in the bank’s earnings this year. The real improvement is revealed by the fact that the bank closed last year with a lower profit figure than it reported in the second quarter. Consequently, the second quarter profit figure is already standing 34.2% above the N23.57 billion at which it closed last year’s operations.
Based on the second quarter growth rate, after tax profit is projected at N63.5 billion for Ecobank in 2014. This will be a major advance of 169.4% over the full year profit figure in 2013. The bank had maintained strong profit growth until last year when after tax profit went down by 44.7% from the all-time peak of N42.61 billion in 2012.
Ecobank is maintaining a stable growth in gross earnings with a year-on-year increase of 13.1% to N225.26 billion at the end of June. This is an accelerated growth from the first quarter gross income of N109.84 billion. Based on the second quarter growth rate, gross income is projected at N454.2 billion for Ecobank at full year. This will be an increase of 10.5% over the gross earnings of N411.18 billion the bank posted in 2013.
The bank has maintained a strong growth in revenue in the past three years after a drop in 2010. Revenue driver this year is fee-based income, which rose by 23.1% to N87.19 billion in the second quarter. Interest income grew moderately at 7.0% to N135.39 billion during the same period.
The strength to grow profit in the second quarter came largely from cost moderation. Operating expenses grew by 9.3% to N119.21 billion in the second quarter and therefore moderated relative to revenue. Operating cost margin declined from nearly 55% in June last year to about 53% this year.
Interest expenses also moderated and permitted a decline in the cost-income ratio. At N47.53 billion, interest cost claimed 21% of gross income at the end of June, down from 22% last year. Interest expenses grew at a much lower rate of 8.6% than the 18% advance in customer deposits during the review period, which enabled the bank to cut down the average cost of funds.
Credit losses are the only major expense line that failed to moderate so far. Impairment losses grew by 19.1% to N14.17 billion in the second quarter, well ahead of the 13.1% improvement in gross earnings. It therefore claimed an increased share of revenue during the review period. The rise in loan loss provisioning appears to follow a 28% growth in the net lending portfolio to over N2.0 trillion at the end of June.
The result of the overall cost moderation the bank has achieved so far this year is that profit capacity has improved considerably. A major improvement in profit margin has happened for the bank. Net profit margin has recovered from 5.7% at the end of last year to 14% at the end of the second quarter. Nigerian banks experienced loss of profit margins generally in the second quarter but leading banks still maintained higher profit margins than Ecobank.
The bank earned N1.55 per share at the end of the second quarter, up from N1.41 in June last year and 95 kobo at the end of last year. Based on the projected net profit for the year, earnings per share is expected to be in the region of N3.11 for Ecobank at the end of 2014. The bank paid no dividend to shareholders for its 2013 operations.
Essien is working a long-term strategic development plan that involves capturing new markets. He has made an important addition to the bank’s Southern African cluster by starting banking operations in Mozambique. He has secured a banking licence in Angola and expects to open business there in due course. He is expecting to sustain the strong growth in earnings in the second half of the year.
