Company Analysis

ETI posts the biggest quarterly profit in two years


Ecobank Transnational Inc (ETI) closed its first quarter operations in March 2018 with the biggest quarterly profit in more than two years. With an after tax profit of N27.86 billion, the West Africa bank is sustaining the upturn in operating performance that saw a turnaround from a loss of N52.60 billion in 2016 to a top record profit of nearly N70 billion in 2017.

The strength for the last year’s rebound came mainly from a 43% drop in loan loss expenses against a 15% rise in gross earnings. Those strengths are again being sustained in the current financial year and have been reinforced with a moderating operating cost. The developments have lifted the bank’s ability to convert revenue into profit to the best record the bank has seen in six years.

Mr. Ade Ayeyemi, group CEO, ETI said it is a turning point in the bank’s five-year strategy. After tax profit grew by nearly one-half year-on-year from a 12% improvement in gross earnings. A big gain in profit capacity is reflected in a leap in net profit margin from 10.4% in the same period last year to 14% at the end of March 2018.

Gross earnings amounted to N198.61 billion at the end of the first quarter with non-interest income leading the growth at 13% to N66.30 billion. Interest income grew by 9% to N126.58 billion over the period, down however from 12% growth recorded at the end of 2017. Based on the current growth rate, ETI is likely to close the 2018 financial year with gross earnings of over N800 billion. It closed last year’s trading with gross income of close to N764 billion.

Rising cost of funds remains about the only major headache for management on the side of costs. Last year, interest expenses grew more than twice as fast as interest income. At the end of the first quarter, interest cost grew by 15% compared to the 9% improvement in interest income. That permitted an increase of only 6% in net interest income to N75.85 billion at the end of the first quarter.

Impairment losses on financial assets are dropping for the second year and this is more than compensating for the rising interest expenses. At N20.84 billion, loan impairment expenses went down 11% year-on-year at the end of the first quarter. This is in continuation of a drop of 43% the bank recorded in 2017 after credit losses hit an all time high of about N222 billion in 2016.

Ayeyemi said this is an indication of progress management has made in the last two years in strengthening the bank’s foundation as part of the roadmap to improving operating efficiency, credit risk management and reducing cost per unit of service.

Total operating expenses moderated at an increase of 4% to N87.43 billion, indicating a reduced cost per naira of revenue earned. Operating cost margin is down from 47% in the same period last year to 44% at the end of the first quarter.

The moderated growth in operating expenses and the drop in loan loss expenses have recharged the bank’s profit capacity. At 14%, net profit margin is higher than the bank has seen any time since 2012.

The bank’s CEO has made a promise that “in the next few years, we will build on this momentum with one major goal – relentless execution”. He expects that improving growth in economic and client activities would continue to support the reconditioned internal growth functions of the bank.

Based on the first quarter performance, another outstanding profit growth seems to be in the making for ETI in 2018. The bank pulled back from a loss position in 2016 and recorded a recovery and growth of 233% in 2017. Sustaining the strong profit growth seen in the first quarter will require that credit impairment expenses keep declining, revenue growth is maintained and operating cost keeps moderating.

The bank closed the first quarter with earnings per share of 96 kobo, up from 63 kobo in the same period last year. It earned N2.22 per share in the 2017 full year.

The bank’s asset base of N6.81 trillion at the end of March is dominated by total loans and advances of N3.14 trillion, investment securities/treasury bills of N1.93 trillion and cash/bank balances of N888 billion. The assets are funded mostly by customer deposits of N4.72 trillion, borrowings and other liabilities of N504 billion and N502 billion respectively as well as due to banks of over N444 billion.

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