The shareholders of Ecobank Ghana must be a happy lot. At last year’s Annual General Meeting they faced a most unusual situation; for the first time no dividend was declared despite the bank’s maintaining its customary outstanding profitability.
This was because the bank needed to reinvest all its profits for the 2017 financial year back into the business, using its income surplus account to beef up its stated capital in order to meet the stiff GHc400 million minimum capital requirement set by the Bank of Ghana ahead of the December 31, 2018 deadline. Shareholders grudgingly accepted this unavoidable situation and since then have been impatiently waiting for the bank to fulfil its assurance that this sacrifice would enable even bigger profitability and consequent dividends in subsequent years.
At todays AGM, Ecobank will present its 2018 financial performance to shareholders and in doing so will prove that those assurances given one year ago have been fulfilled.
Most importantly for shareholders, profits have risen to record levels. Instructively, the bank’s pre-tax profits have surpassed the GHc500 million mark for the very first time; for 2018 they were GHc500.974 million, up 40 percent on the GHc357.760 million in the previous year. Profit after tax was similarly a record high GHc337.760 million, up 32 percent on the GHc255.384 million made in 2017. This has made Ecobank the second most profitable bank in Ghana after Barclays Bank Ghana which, instructively has not invested nearly as much of its cash flow in infrastructure to improve customers’ convenience.
Bigger profits are being generated by a substantially bigger bank. Indeed, Ecobank’s balance sheet size , by the end of 2018, had passed the GHc10 billion mark for the very first time, reaching GHc10,457,596 million which is 14 percent bigger than the GHc9,098,692 million in total assets that bank had a year earlier.
It would be easy to simply ascribe this monumental feat to recapitalization, which resulted in the bank’s stated capital increasing from GHc226.641 million to GHc416.641million. However, the growth in assets was brought about by much more than that – it was in part financed by an increase in customer deposits by 12 percent from GHc6,4447.818 million to GHc7,627.083 million.
Most importantly, Ecobank has not only become bigger; it has become even more financially solid too, with its capital adequacy ratio rising to 14.60 percent by the end of 2018 – nearly one and a half times the statutory minimum – up from 12.80 percent a year earlier. This makes Ecobank one of the safest havens for customers deposits in Ghana’s financial intermediation industry. The bank has been rewarded with 11.2 percent of the total deposits held by Ghana’s banks as at the end of 2018, giving it the second largest deposit base in the banking industry.
However, the banking public has never doubted the bank’s financial solidity, even during the darkest days of the industry during 2018 when it seemed on the brink of meltdown. Indeed, it is the sheer superiority of the products and service the bank offers, and the exemplary convenience with which they are offered that has attracted more customers and bigger deposits.
Here digitization has been key. About 77 percent of all transactions customers do through the bank are consummated through digital channels. Indeed, Ecobank has remained the pioneer in this aspect for the past two decades; in 1998, it pioneered internet banking in Ghana with its Econet product, and 20 years later it is still leading the way, revolutionizing online merchant payments with its scan and pay platform and introducing the opening of bank accounts through the customer’s mobile phone among other novel products and services.
This has had a major impact not just on the size of Ecobank’s revenues, but on their structure as well. Even as the bank generated more revenues than any other bank in Ghana last year, of GHc1,302.702 million, up from GHc1,115.831 million made in 2017, it also had the most diversified revenues too, between funded and non-funded revenues. In 2018 more than one third of Ecobank’s net income came from non-funded activities, primarily fees and commissions, which amounted to GHc 183.270 million.
This means that a large chunk of the bank’s profits and consequent profits are derived from activities that do not carry the risk that lending or even investment in debt securities does. Rather it earns substantial income from consummating customers financial transactions – from bills payments and financial transfers to opening letters of credit for international traders- using primarily digital processes that are more convenient — and in many cases significantly cheaper – than what its competitors can offer.
However, at the same time Ecobank is putting its excellent skills in risk management to good use. Instructively the bank grew its loan portfolio by 67 percent from GHc2,460.060 million to GHc4,123.153 million during 2018, giving it the largest loan portfolio in Ghana’s banking industry with 13 percent of total loans outstanding as at the end of last year. Importantly it matches its superior loan book size with equally exemplary asset quality; by the end of last year the bank’s non-performing loans ratio was just 11.50 percent, which was barely half of the industry average as at that time. Only five of Ghana’s 23 currently licensed banks have better risk asset quality.
All this has served as an indication of things to come. Already, during the first quarter of 2019, the first full year in which Ecobank has been able to deploy its increased capital base, its growth in both size and income has accelerated further. Total assets as at the end of the first quarter of 2019 were 22 percent higher than a year earlier. Loan book size was 57 percent bigger, deposits 12 percent bigger, and most importantly, pre- tax profits for the first quarter of 2019 were 51 percent more than they were for the first quarter of 2018.
Ecobank’s shareholders should derive a lot of satisfaction from the financial performance figures being unveiled at this year’s AGM, even though the sharp fall in share prices across the Ghana Stock Exchange have prevented this from translating into the capital gains they deserve. Eventually, a rising share price for Ecobank Ghana shares is inevitable, more so as this year’s performance so far is even better than last year’s.
Certainly, this has been well worth the sacrifice made last year by forgoing dividends.
