Ecobank Bolsters Earnings, Sees Double Digit Profit Growth
Following a successful implementation of its ‘Execution Momentum Strategy’; Ecobank Transnational Incorporation (Ticker: ETI) has recorded a strong earnings performance in the first half of 2022, its latest financial statement filed on the Nigerian Exchange (NGX) shows.
The Pan-African financial service group’s before tax printed at $261 million, representing a 24% increase from $210 million reported in the prior-year period, its unaudited financial statement released today shows. The group said if adjusted for the impact of foreign currency translation (or at constant currency), its pretax profit increased by 53%, driven by positive operating leverage.
In the first half of the year, Ecobank sees its net revenue rising by 10% to $910 million from $825 million 12-month earlier, a performance level driven by a 13% growth in non-interest revenue and an 8% growth in net interest income.
The group said in a statement that its revenue growth reflects growing success in the group revenue expansion goals stated in its ‘Execution Momentum’ strategy. Overall, it said revenues benefited from rising interest rates, higher spreads on buying and selling currencies for clients, increased card spending, and cash management-related fees.
The financial statement for the first half of 2022 shows that Ecobank’s net interest income (NII) hit $493 million, rising by 8% year on year or 21% at constant currency from $455 million in the comparable period. Management said net interest income benefited from higher interest rates as several Central Banks increased their benchmark interest rates to curb inflationary pressures.
“As a result, net interest spread, the difference between the average rates we charge on our interest-earning assets and the average rates we pay on our interest-bearing liabilities, increased by 12 basis points”, the group said.
Consequently, the financial service group’s net interest margin (NIM) expanded by seven basis points to 5.1%, its financials show. In the first half of 2022, Ecobank group’s non-interest revenue (NIR) inched up by 13% to $417, reflecting strong client and customer activity from $370 million in a similar period last year.
The Pan African lender’s net fees and commission income of $231 million rose 12%, driven by significantly higher spending on cards, cash management fees, and credit-related fees. READ: Ecobank Share to See 21% Upside, Gets Buy Rating
Net trading income jumped by 24% to $164 million, driven by solid client activity in the trading of currencies, partially offset by lower fixed-income trading income. As a result, the NIR ratio, which measures the share of NIR of total net revenue, improved to 45.8% versus 44.8% in the prior year, according to the management.
Ecobank reported that its operating expenses jumped to $509 million, rising by 5% following headline inflation pressures across its key markets. The breakdown of the group operating expenses showed that employee-related expenditures increased by 5% to $222 million and other operating expenses rose 5% to $237 million.
In the first half, the group said its revenue expansion and stringent cost containment measures improved the cost-to-income ratio to a record 56.0% compared to 58.7% a year ago. Read Also: Premium Trust Bank Opens for Operation in Nigeria
Also, it said the cost-to-assets ratio, which measures costs to average assets, was 3.7%, flat on the previous year. Impairment charges on loans, net of loan recoveries and impairment releases settled at $92 million compared with $87 million a year ago.
“Our results for the first six months of 2022 reflect not only the benefits of the firm’s diversification but also our resilience and capabilities to continue serving our clients and customers in a challenging environment and still generate adequate returns responsibly for our shareholders.
As a result, we delivered a return on tangible equity of 19.5%, a record, and increased earnings per share for shareholders by 24% year-on-year. In addition, profit before tax increased by 24% to $261 million and by 53% if you adjust the increase for the significant depreciation of some of our critical African currencies to the US dollar, says Ade Ayeyemi, CEO, Ecobank Group.
Ayeyemi said, “We performed well because of our investments, including in technology, and Ecobankers’ continued dedication to meet customers’ financial needs, despite a challenging operating environment of high inflation, weakening African currencies, worsening government fiscal balances and lowering economic growth.
“In our Consumer Banking business, pre-tax profits increased 43% on higher deposit margins, loans, and debit card spending. In Corporate and Investment Banking, profits rose 33%, as we gained share in the letters of credit market, payment volumes increased by 43% on Omniplus, and FX volumes grew by 25% as client activity rebounded from the pandemic.
“In addition, an increase in SME activity and growth in the payment business lifted profits in Commercial Banking by 15%.” Ecobank’s chief said the group investments in technology and digital capabilities have contributed to a reduction in cost-to-serve.
“Along with revenue growth, the outcome is our record cost-to-income ratio of 56%. In addition, we increased impairment charges to reflect heightened credit risks.
“More importantly, we have proactively built central impairment reserves of $206 million, which we can deploy in a stressed credit environment. At the same time, our balance sheet remains liquid and adequately capitalised, providing us with the capacity to serve our customers better”, Ayeyemi said. #Ecobank Bolsters Earnings, Sees Double Digit Profit Growth
