Ecobank Ghana’s financial performance for the first quarter of 2019 appear to have justified the bank’s decision to reinvest all of its sturdy profits for 2018, rather than declare dividends to shareholders. The results also justify shareholders willing acceptance of a second year without a cash dividend – bonus shares were given for the 2017 financial year however. While the reinvestment was aimed primarily at growing the bank’s balance sheet, the impact has been even stronger on its income.
The reinvestment of all the profits made in 2018 has given the bank the requisite underpinning capital to increase its loan book by over 90 percent on 2018 and by the end of the first quarter of 2019, the loan portfolio was 57 percent bigger than a year earlier at GHc4,537 million.
By booking more loans, rather than investments in debt securities – which would have been the case without bigger capital – Ecobank has been able to widen its interest margins considerably. This enabled the bank to increase both its pre-tax and after -tax profits for the first quarter of this year by 51 percent each – to GHc144.461 million and GHc101.490 million respectively, against a 21 percent increase in total revenues, to GHc343.454 million.
Instructively this increase in profits more or less mirrors the 57 percent increase in the size of the bank’s loan portfolio, evidencing the relationship between the two. Ghana’s banking industry as a whole only managed two percent loan portfolio growth over this period.
With regards to balance sheet size as a whole, the reinvestment of the 2018 profits has enabled the bank to increase its total shareholders’ funds by 37 percent to GHc1, 443.004 million over the 12 months up to the end of the first quarter of 2019. Not only has this compensated for a slowdown in customers deposit growth over the period by 12 percent, year on year, which nevertheless rose to GHc7,834.168 million by the end of March – an inevitable consequence of the uncertainty which gripped the banking public last year in the face of numerous forced liquidations of banks and revelations of poor corporate governance and risk management shortcomings in the industry – but it has proved a cheaper source of financing too, further widening interest margins.
Over the 12 months up to March 31, 2019, Ecobank Ghana’s total assets increased by 22 percent to GHc11,163.218 million.
Actually however, the bank’s sharp improvement with regards to profitability is not only the result of better performance of its funded activities; about a third of its revenues are derived from non-funded activities, primarily fees and commissions, a ratio higher than what most of its competitors have achieved.
These are derived from the sharply growing number and values of financial transactions, such as payments and fund transfers consummated through the bank; growth made possible by its leadership with regards to the deployment and use of digital platforms. Indeed about 82 percent of customers transactions are now consummated through digital platforms. Importantly this has enabled the bank to keep its fee and commission tariffs steady at a time its competitors have been raising theirs in consonance with rising product and service delivery costs. This, coupled with the sheer convenience the digital channels offer, has attracted new customers in droves.
Indeed, while Ecobank currently has some 850,000 customers who use traditional ways of consummating their financial transactions – banking halls and ATMs – the bank already has over 1.4 million customers on its mobile app. Importantly however, to ensure that even those who primarily use digital channels have easy physical access – such as for cash deposits and withdrawals – the bank has introduced a new concept, that it calls Ecobank Express Points, which deploys agents nationwide to serve customers. While the bank has less than 100 branches, it has some 1,500 Express Points, including Shell (VIVO) fuel service stations across the nation.
Dr Edward Botchway, Ecobank Ghana’s Chief Finance Officer, and an Executive Director enthuses that Ecobank’s greatest achievement so far is that it has put financial structures, technological infrastructure and processes in place to ensure that the bank’s current growth and income spurts are sustainable rather than one-off. The financial performance for the first quarter of 2019 incontrovertibly confirms this as true.
By Toma Imirhe