The arrival of COVID-19 has accelerated the digital banking agenda of banks in Ghana. But Ecobank, having pioneered this agenda more than two decades ago and pursued it aggressively since then, appear to have already perfectly positioned itself even before the viral pandemic brought a ‘new normal’. The rewards of this foresight, which has provided a crucial competitive advantage for both the bank and its customers, reflects clearly in its 2020 financial performance, as TOMA IMIRHE reports.
COVID-19 has brought a ‘new normal’ to the world, Ghana inclusive, creating both winners and losers, particularly in business. The biggest winners are those who foresaw the ascendancy of digitalization – although, not the viral outbreak itself of course – early enough to be fully prepared by the time it was imposed on the world by the coronavirus pandemic, requiring the adoption of nonpersonal business transactions.
Ranking high among the biggest winners in Ghana is Ecobank, which had claimed the title of being the country’s first digital bank long before COVID-19 was ever heard of early last year. Indeed, by the end of 2019, 80 percent of its erstwhile banking hall transactions were already being done remotely through the bank’s wide bouquet of digital platforms. A year later this had risen to 84 percent.
This meant Ecobank had already put its digital platform infrastructure in place before the virus forced everyone to start using such channels. To be sure, its competitors also had digital apps in place but Ecobank had gone much further, with infrastructure and processes in place for wider applications, having launched the first ever mobile app on the Ghanaian market, Ecobank Mobile, in November 2016 and attracting over 1million downloads in only 17 months thereafter. On the back of Ecobank Mobile is a wide range of services at the disposal of customers. They are able to open instant accounts on the go, send funds to friend and families in-country and across 33 markets across Africa, make payments remotely and, in fact, perform the everyday banking transactions on the phone without the need to visit the bank.
Digitisation has allowed Ecobank to keep its cost/income ratio within normal, relatively low parameters, even as business volumes rose as its digital platforms literally attracted customers and their deposits from less prepared competitors. Added to astute treasury management, this allowed the bank to increase both revenues and net profits last year, despite the slump in economic activity brought about by the COVID-19 pandemic.
The ultimate result was an increase in Ecobank’s net revenues by 16.6 percent from GHc1,585.687 million in 2019 to GHc1,848.384 million in 2020, making for a 21.75 percent increase in pre-tax revenues which rose from GHc642.496 million in 2019 to GHc782.240 million in 2020.
This is despite inevitably depressed revenues in key areas of activity particularly fees and commissions, which fell to GHc255.889 million last year, down from GHc288.149 million in the previous one, primarily because of less trade finance activity due to disrupted international supply chains.
But this was more than made up for by an increase in net interest income from GHc1,067.676 million in 2019 to GHc1,368.981 million in 2020, achieved by bigger business volumes rather than wider interest spreads, which actually narrowed for several reasons.
Firstly, in line with industry-wide trends, Ecobank’s loan book shrunk in size during 2020 marginally Ecobank is renowned for its willingness to lend to customers and despite the value of its loan book reducing by 7.5 percent from GHc5,380.308 million to GHc4,977.797 million last year, this is still the largest loan portfolio in Ghana. This is testament to the Bank’s eagerness to support Ghanaian businesses.
Dr Edward Botchway, the bank’s Executive Director and Chief Finance Officer explains that the Bank had significant loan facilities maturing during the first quarter of 2020, and in the face of the onset of COVID-19, the Bank granted lots of loan facilities during the year leading to the rather marginal decline in the loan book. The bank’s investment portfolio grew to GHc5,301.259 million by the end of the year, up from GHc3,419.672 a year earlier. This decision was informed by both the increased risk of lending and by the 200 basis points cut in interest rates charged on loans, agreed between all banking industry players and government.
Nevertheless, bigger investment in securities and less new lending to customers translated to a narrowing of net interest margins. To ameliorate the impact of this, Ecobank focused largely on medium and long term securities – whose rates were relatively higher than short term instruments for much of 2020, – thus taking advantage of the steeper yield curve to earn the highest yields available of 18 percent and above. In doing this the bank took advantage of the increased liquidity on the Ghana Fixed Income Market.
But prudently, the bank also increased its liquid assets during 2020, increasing its cash and balances with other banks from GHc2,717.101 million to GHc3,817.067 million.
Ecobank has retained its pre-eminent position as Ghana’s biggest bank with total assets rising to GHc15,950.616 million, from GHc13,228.797 million at the start of the year. In fact the Bank also ended up as number one in literally all parameters: Profit Before Tax, Loans, Deposits etc. This is indeed a great success story for a Bank that began 30 years ago with rather humble beginnings.
The growth in Assets was made possible by a sturdy 21 percent increase in deposits, closing 2020 at GHc11,804.516 million, largely driven by two factors.
One is that depositors, worried that COVID-19 could break any financially brittle financial intermediation company, moved their funds to those which are clearly the most financially solid and robust, such as Ecobank.
The other reason, less obvious though, is that Ecobank’s superior digital positioning literally sucked deposits into the bank’s coffers.
Dr Botchway explains that the availability of Ecobank’s superior digital platforms has resulted in the deposits that fund those transactions compulsorily ending up in Ecobank’s coffers. This has thus given Ecobank an increased market share of deposits.
Ecobank’s fortunes, going forward, stand to get better still, as it has a whole suite of new digital products and services with the potential to generate a new wave of digital transformation. These include digital, remote opening of full accounts ; Omni Plus and Omni Lite, which enable corporate and SME clients to respectively connect into the bank’s platforms for easy and secured online banking transactions; Digistore which gives customers a presence on social media and allows them collect monies due them from their retail customers; and perhaps most revolutionary of all, a service on Ecobank Mobile, which allows customers generate their own virtual debit cards for online shopping and other payments. The virtual card gives users the needed peace of mind, as it is operated independently of their conventional physical debit cards and not also linked to any account, thereby reducing the usual risks associated with online payments.
Strong financial performance by a listed company is supposed to translate into commensurately strong share price performance on the stock exchange where it is listed. But this has not happened fully for Ecobank and its shareholders for two basic reasons. One is that the Ghana Stock Exchange as a whole has been experiencing its longest and deepest bear market in its 30 year history and Ecobank’s peculiar circumstances were worsened last year by the offloading of shares by a major foreign shareholder.
The other reason is, perhaps, the Bank of Ghana’s directives to banks not to pay dividends in the past few years, following the banking sector clean up and recapitalisation. This policy was initially put in place to ensure banks retain their profits so as to overcome the adverse effects of COVID-19 on their financial standing.
This has left Ecobank significantly undervalued by the GSE. It currently has a price-earnings ratio of 5.2, which is barely half of the P/E ratio of about 10 which equity valuation doctrine prescribes for a bank in Ecobank’s financial circumstances. Indeed, the bank has a market capitalization to book ratio of about 1. times currently – down from a peak of 2.6 times which is much closer to the ratio that listed companies of Ecobank’s ilk are supposed to trade at.
Ecobank’s newly released 2020 financial year results should give its share price a significant boost, especially if the BoG, in recognition of its clearly evident financial solidity despite COVID-19, allows it to pay its shareholders the dividends which the bank can clearly afford. But even in the unlikely event that the BoG refuses to allow banks to pay dividends, astute institutional investors in particular will look at the 2020 results of Ecobank, realize just how undervalued the shares are and opt to buy in to enjoy the impending inevitable share price rise in the offing.
Such are the rewards of foresight; the bank as an institution is enjoying them already and so will its shareholders sooner or later.
