Resilient, dogged and strong are about the right words to describe the staying power of Ecobank Transnational Incorporated (ETI), given its stability after its ride across many bumpy terrains. With the enthronement of corporate governance principles, growth barriers have been eliminated, reports SIMEON EBULU.
Two key factors are working in favour of Ecobank Transnational Incorporated (ETI) Plc. One is its widespread in Africa, and the other is its strong-hold on the Nigerian market. It is one of the largest banking groups in Africa due to its Pan-Africa exposure and strong presence across various countries.
About 40 per cent of the bank’s asset base is in Nigeria, providing a substantial upside to the financial institution’s growth given the huge untapped market in the country.
Nonetheless, Ecobank’s continuous foothold on the drivers seat of the continent’s economy and penetration of its key markets, will largely depend on the management’s capacity and resolve to take, not just actions, but decisive steps to address key issues bordering on corporate governance. Interestingly, a great deal of action is already being taken to resolve issues along that corridor.
Its upside
The Ecobank Group is counted among the leading financial institution offering investors the required exposure to the ‘Africa growth story’, promarily due to its extensive network of banks across 33 countries in Sub-Saharan-Africa. This unrivaled niche among its peers, also serves as a risk assurance to over exposure to any one particular country, and its economic cycle.
Added to this is ETIs formidable presence in Nigeria. This made even more intimidating by its acquisition of the erstwhile Oceanic Bank. Undoubtedly, there are huge untapped opportunities for the entity in Nigeria. It’s not an overkill to remind investors, nay, ETI, that being one of the wealthiest African nations on the back of its crude oil exports, sustained Gross Domestic Product (GDP) growth figures, and growing entrepreneurial population, having a strong hold in the Nigerian market gives investors and, indeed, ETI a substantial growth opportunity.
With 44 per cent of its asset-base in Nigeria and 27 per cent of its profit derivable therefrom, there seems more potentials waiting to be harnessed considering the fact that the bank’s profits from Nigeria are below its peers and given the proportion of its assets in the country. There exists, therefore, a gap waiting to be bridged, enabling the bank to up, not only its revenue, but profit growth as well
Regulatory impact
While acknowledging the greater regulatory environment to which the institution is exposed, like every other local bank playing beyond the shores of Nigeria, ETI will fill the pinch of the boisterous Nigeria’s financial regulatory regime. Suffice it to say that the summation of the regulatory framework would be more of positive outlook to the bank, rather than a damper.
The key areas of consideration, or concern to ETI are the required higher Cash Reserve Ratio and capital adequacy. The Nigerian regulator, the Central Bank raised the CRR to 75 per cent very recently jn its bid to rein-in excess liquidity in the system, check inflation and strengthen the naira in the foreign exchange market.
Notwithstanding the initial stress that these measures might cause, they will translate to positive impact on ETI in the long run. Also, the new regulatory regime ( as it affects ETI’s operations in Nigeria i.e Ecobank), signposts a pro-active and strong regulatory presence of the Securities and Exchange Commission (SEC) of Nigeria, which offers customers and investors the assurance of a leading regulator for a multi-jurisdiction entity like ETI.
Corporate Governance
Adherence to Corporate Governance issues is no longer a matter that is left to conjecture. The need to sustain, grow and ensure Return On Investments (ROI) to stakeholders and investors alike, have impressed on management of companies the urgent need to uphold this tenet. ETI is evidently moving on the path of strict adherence to the enforcement of this principle, away from the hiccups that plagued it in the recent past.
It is instructive to note the peculiarity and the complex legal and political environment to which the institution is exposed to be able to appreciate why some of these events have played out in ETI.
As stated earlier, the entity operates in 33 African countries, with Anglophone and Francophone colouration, and is quoted in three exchanges, which also implies exposure to different regulatory regimes. It is common knowledge how jealously nations guard against infringement on their sovereignty. In Africa, particularly, the fact is, it will be near impossible to establish a regulatory agency for the region because of the issue of autonomy.
Most countries will fight it, because they feel that the larger countries, such as Nigeria and South Africa will use the agencies to infringe on their sovereignty, unlike in the developed nations, where agreements have been reached on the administration of issues bordering on common markets and business interests. It is far easier to establish regulatory agencies in the European Union (EU) and the US to monitor corporations and banks. Even at that, respective states in the unions still exercise and exert considerable influences on issues germane to their local environment.
This is as much the case in ETI, as has been noted in other climes. An action by SEC on trading of Ecobank shares in Nigeria would not necessarily be replicated by the authorities in say, Cote d’ Voire, Ghana, Kenya, or Ugand for that matter in their jurisdictions. However at some level, these sovereign regulators have a working relationship that allows them to establish some concordance that ensures a comfort zone for investors.
Besides, ETI grew on the back of acquisitions leading to an inorganic growth that resulted in corporate governance lagging behind operational exigencies. These problems have now been identified, and are being addressed. Expectedly, operating companies and subsidiaries will now be closely monitored under a risk-based and audit enhanced group oversight. If this is executed, investors can rest their fears. The challenges that hitherto plagued the institution must be seen therefore in context and should not be viewed in absolute terms.
Financials
ETI has been growing strongly, with revenues and profitability growing year-on- year, on the back of its continued expansion plan. The group has been able to keep costs in check and improve its margins every year despite different regulations and cost structures in each of the countries it operates in. The company has shown reasonably good return ratios, with Return-On-Equity (ROE) of 11 per cent per cent in 2012. We expect the ROE to improve going forward to 15 per cent in 2015 on the back of better profitability from existing markets, and expansion into new ones.
The company’s balance sheet is also strong, with Non-Performing-Assets constituting only five per cent of the total assets of the bank. The loan to asset ratio is also relatively strong, with a deposit to liability ratio of nearly 74 per cent. This strong balance sheet is expected to help ETI grow without any substantial capital adequacy issues going forward.
Looking forward
After making a high of N18, ETI went down to N14.5.
If ETI delivers a clear breakout-off from the N14.5 level, representing its recent low, then it would open the way towards the N13.5 and 13 level; but if it gives a valid breakout of N15.5 with high volumes, then investors may consider the whole sell-off as a correction and expect a further bullish signal.
