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Nigeria Bank Analysis | Public Credit Rating
Ecobank Nigeria Limited Nigeria Bank Analysis May 2017
Financial data:
(USDm comparative)*
31/12/15 31/12/16
NGN/USD (avg.) 197.9 256.0
NGN/USD (close) 198.9 305.5
Total assets 8,965.1 5,826.2
Primary capital 1,145.2 722.7
Secondary capital 393.5 371.7
Net advances 4,109.3 2,847.4
Liquid assets 2,981.9 1,610.5
Operating income 862.4 714.0
Profit after tax 57.1 22.6
Market cap.β N161.8bn/USD529.5m
Market share** 5.6%
*Central Bank of Nigeria (“CBN”) exchange rates. βFor ETI shares listed on The Nigerian Stock
Exchange (“NSE”) at 8 May 2017 (exchange rate at
USD/N305.25).
**Based on industry assets at 31 December 2016.
Rating history:
Initial rating (November 2006)
Long-term: A+(NG)
Short-term: A1(NG)
Rating outlook: Positive
Last rating (October 2016)
Long-term: A(NG)
Short-term: A1-(NG)
Rating outlook: Rating Watch
Related methodologies/research: Global Criteria for Rating Banks and Other
Financial Institutions, updated March 2017 Nigerian Banking Sector Bulletin, 2016
Ecobank rating reports (2006-16)
Glossary of Terms/Ratios, February 2017
GCR contacts:
Primary Analysts
Femi Atere/Julius Adekeye
Credit Analyst/Senior Credit Analyst
Committee Chairperson
Dave King
Analyst location: Lagos, Nigeria
Tel: +234 1 462-2545
Website: www.globalratings.com.ng
Summary rating rationale
The ratings of Ecobank Nigeria Limited (“Ecobank”, “the bank”) largely
reflect its moderating competitive position, and subdued financial
performance in recent years. However, the level of technical and financial
support provided by the bank’s parent, Ecobank Transnational Incorporated
(“ETI”), coupled with the ability to leverage off the strong brand name, was
favourably considered. Ecobank’s status as a systemically important bank in
Nigeria (in terms of asset size and client base), further underpinned the
ratings.
Ecobank’s asset quality remained under pressure in FY16, with the gross
non-performing loan (“NPL”) ratio remaining elevated at 9.1% at FY16
(FY15: 10.2%). While the gross NPL ratio declined relative to FY15, this
position was largely supported by a significant N68.6bn (FY15: N24.4bn)
loan write-off during the year, as the bank took advantage of CBN’s loan
write-off window; as well as the sale of impaired assets totalling N80bn to
Ecobank Specialised Finance Company (a fully owned Special Purpose
Vehicle of ETI). Although, the bank has shifted focus to loan recovery, with
muted loan growth prospects and strict selection process, GCR envisages
additional impairments in the current year, given the unfavourable operating
conditions. The NPL ratio stood at 9.5% at 31 March 2017 (“1Q FY17”).
The bank’s risk weighted capital adequacy ratio (“CAR”) decreased to
16.7% (FY15: 18.7%) at FY16 (although still above the prudential floor of
15%), due to currency translation effects subsequent to the devaluation of
the Naira, which led to a significant increase in the risk weighted assets.
Ecobank has highlighted various initiatives to shore up capitalisation
through additional capital injection by ETI and/or issuance of new shares
which may dilute ETI’s shareholding in the entity.
Ecobank displayed a sizeable liquid balance sheet at FY16, with an average
liquidity ratio of 46.6% over the 12-month period (above the regulatory
minimum of 30%). However, foreign currency exposure was evidenced,
given the bank’s high foreign currency denominated credits (50% of loan
book at FY16). The bank is taking necessary mitigating measures which
include portfolio realignment to reduce its risk level by FY17.
The bank posted a net profit after tax (“NPAT”) of N5.8bn for FY16, down
48.9% from FY15. As in the prior year, Ecobank’s profitability was
considerably eroded following a significant impairment charge of N82.8bn
in FY16 (FY15: N55.7bn). Furthermore, the NPAT was supported by
foreign exchange (“forex”) gains of N39bn, which may not be repeated in
the current year. While management has increased focus on loan recovery,
results for 1Q FY17 was subdued further by additional loan loss expenses of
N14.2bn, highlighting continued pressure on profitability.
Factors that could trigger a rating action may include
Positive change: While the current ratings benefitted largely from consistently
demonstrated parental support, a positive rating consideration is dependent on
a rebound to strong asset quality and profitability, with a sizeable improvement
in competitive positioning.
Negative change: The ratings will be sensitive to a further weakening in the
bank’s asset quality, profitability, liquidity and capital ratios, associated with
the highly challenging operating environment and heightened credit losses.
Rating class Rating scale Rating Rating outlook Expiry date
Long-term National A-(NG)
Stable May 2018 Short-term National A1-(NG)
Nigeria Bank Analysis | Public Credit Rating Page 2
Organisational profile
Corporate summary1
Ecobank, a member of ETI2, is a locally registered
commercial bank in Nigeria, offering corporate and
investment banking, commercial banking, and
consumer banking services to its broad customer base.
The bank was incorporated as a public limited liability
company in 1986, but later re-registered as a private
limited liability company in 2012 after ETI acquired
100% interest in the bank. Ecobank has grown
through organic and inorganic initiatives to become
one of the top eight banks in its local market. Nigeria
is ETI’s largest market, contributing over 40% of the
group’s gross earnings for FY16.
Strategy and operations
Ecobank continues to implement its strategic plan,
growing organically and deepening focus within the
retail banking sphere. While the overall strategic
intent is to be among the top three banks in Nigeria in
terms of total assets, profitability and return metrics,
some underlying assumptions were recently reviewed
and updated into the bank’s rolling plan, in line with
the current economic realities.
Subsequent to the implementation of its digital
transformation agenda, designed to shift banking
activities to digital channels (including an enhanced
retail internet banking platform), Ecobank resolved to
shut down 74 of its physical branches across the
country. While regulatory approval has been received,
the branch optimisation process is expected to be in
phases, running through the year. The remaining 405
branches (post-optimisation) will be supported by top
of the range IT applications. Overall, the strategy is
expected to enhance customers’ experience,
strengthen operating efficiency, and support the
bank’s financial inclusion strategy and CBN’s
cashless policy. According to the bank’s management,
staff and other resources from the affected branches
will be redeployed to other ongoing projects.
At FY16, the bank operated with 1,279 ATMs and
479 (FY15: 484) branches, and had a staff
complement of 4,947 (FY15: 5,462).
Governance structure
The bank’s Board of directors (“the board”) performs
its functions through various board committees. In
addition, there are a number of management
committees which ensure good and effective corporate
governance at managerial level. The board has a
satisfactory mix of competencies and experiences.
Subsequent to 2016, Foluke Aboderin (executive
director, corporate bank) and Oladele Alabi (executive
director, finance and control) resigned from
1 Refer to previous GCR rating reports for a detailed background. 2 ETI is one of the largest banking groups in Africa, with a presence in 36
African countries and international offices in France, United Kingdom, United Arab Emirates and China.
Ecobank’s board, and were redeployed to take up new
responsibilities within the ETI Group. Furthermore,
Anthony Okpanachi (the Deputy Managing Director)
also resigned, effective 1 May 2017, to take up an
appointment as the MD/CEO of Development Bank of
Nigeria. The bank is in the process of filling the
vacant positions within the board. Table 1 illustrates
the bank’s adherence to selected aspects of
appropriate corporate governance at 1 May 2017.
Table 1: Corporate governance
Testing description Findings
Size 8
Number of executive director 1 (MD/CEO)
Non-independent non-executive 5 (including the Chairman)
Independent directors 2
Number of board committees 4
Internal audit and compliance function
Yes, independent units
External auditors and rotation policy Deloitte/10 year tenure (renewable annually)
Internal and external practice guides Yes, group wide rules applied
Financial reporting
The financial statements of the bank are prepared in
accordance with all relevant provisions, rules and
International Financial Reporting Standards. The
bank’s external auditor, Akintola Williams Deloitte,
issued an unqualified audit opinion on the FY16
financial statements.
Operating environment3
Economic overview
Nigeria’s macroeconomic fundamentals remained
volatile throughout 2016 owing to low and unstable
international oil prices (which has severely affected
the country’s foreign reserve levels and fiscal
planning capacity), as well as a variety of local and
global challenges. Other factors contributing to the
heightened levels of economic uncertainty include the
significant fall in the value of the Naira against the US
dollar, largely due to the role oil plays in funding
Nigeria’s fiscus. According to National Bureau of
Statistics (“NBS”), the nation’s real gross domestic
product (“GDP”) contracted by 1.5% in 2016
(compared to 2.8% and 6.2% growth recorded in 2015
and 2014 respectively), placing the country in a
recession. The negative trend was exacerbated by the
resurgence of disturbances in the Niger Delta region
(which affected crude oil production outputs) and the
impact of reduced forex earnings on the economy. As
such, inflation rose steadily from 9.5% at end-
December 2015 to 18.6% at end-December 2016,
before dropping to 17.2% at end-April 2017.
In order to mitigate the forex shortages and stimulate
economic activity, CBN implemented a more
restrictive forex policy that denied access to forex
(from the official CBN window) for 41 items, and
3 Refer to GCR’s 2016 Nigerian Banking Sector Bulletin for a review of
relevant economic, regulatory and/or industry developments.
Nigeria Bank Analysis | Public Credit Rating Page 3
removed the exchange rate peg to the USD in favour
of a flexible exchange rate policy in June 2016.
Despite these interventions, the currency remained
under pressure, with the inadequate forex supply from
the official CBN window driving much weaker
exchange rates in the parallel market. While the rate
rose above N500/USD up to mid-March 2017, off
late, it fluctuates between N360-N400/USD following
CBN interventions. During the last Monetary Policy
Committee meeting held in May 2017, CBN
maintained the monetary policy rate (“MPR”) at 14%,
the cash reserve ratio (“CRR”) at 22.5% and the
liquidity ratio at 30%, in line with efforts to combat
inflation and maintain price stability.
Industry overview
At 31 December 2016, Nigeria’s financial sector
comprised twenty-one commercial banks, one non-
interest bank, four merchant banks and over 4,000
other financial institutions. The commercial banks
include ten international, nine national, and two
regional banks (SunTrust Bank Nigeria Limited and
Providus Bank Plc, licensed in November 2015 and
May 2016 respectively). Keystone Bank Limited, the
only bridge bank under the management of Asset
Management Corporation of Nigeria (“AMCON”)
since 2009, was sold to Sigma Golf Nigeria Limited
and Riverbank Investment Resources Limited (Sigma
Golf–Riverbank consortium) in March 2017. The
other two banks, Enterprise Bank Limited and
Mainstreet Bank Limited, formerly under AMCON,
have since been sold to Heritage Bank and Skye Bank
Plc respectively. Nigeria’s eight largest banks
(including Ecobank) accounted for about 70% of total
industry assets at FY16.
The banking sector witnessed downward pressure on
core earnings in 2016, driven by deteriorating asset
quality, moderating forex volumes and margin
compression. Per CBN statistics, the dominant sectors
with high credit exposure at end-December 2016
include: oil and gas (29.6%), manufacturing (13.4%),
public (8.4%) and general commerce (6.3%). The
banks’ aggregate gross NPL ratio rose to 12.8% at
end-December 2016 compared to 4.9% at end-2015,
exceeding the prudential tolerable limit of 5.0%. The
position was largely skewed by outliers recorded
within some banks. Although CBN has allowed banks
to write off fully provisioned NPLs since July 2016,
GCR expects the industry NPL ratio to remain high,
and above the regulatory limit in 2017, given the
continuous rise in delinquencies within some sectors.
Furthermore, the industry risk weighted CAR stood at
14.8% at end-December 2016 (June 2016: 14.7%).
While some players are already falling short of the
required threshold, additional Naira devaluation could
increase pressure on banks’ moderated capital buffer.
A major shift in banks’ lending focus to the middle
market segment was noticeable in 2016, raising
concern about a possible rise in delinquent assets,
considering the segment’s over-reliance on forex for
business. Similarly, exposures to the power sector
(which continues to face high debt burdens and low
capacity to generate sufficient cash flows due to poor
infrastructure and management issues) may also raise
credit risk.
The year 2017 is expected to remain challenging for
Nigerian financial institutions, given the persistent
macroeconomic uncertainties. However, CBN is
poised to drive monetary policy in such a way as to
enable fiscal policy to foster public investment in
infrastructure. In view of the current pressure on
capital adequacy, banks are likely to raise additional
capital (via debt or equity issues) to absorb additional
losses and meet regulatory capital requirements.
Factors that will shape the industry performance in the
current year include individual and collective
institutional development in the areas of product
innovation, proactive risk management, ability to
employ cutting edge technology, and improved
competitive advantage in the area of mobile and retail
banking.
Competitive position
Ecobank competes favourably with peers in terms of
product offering (including digital channels), but lags
in performance metrics, particularly in profitability
and asset quality. Notwithstanding this, key
Table 2: Competitive position* FirstBank UBA Access GTBank Ecobank
Ecobank vs. selected banks
Year end 31 December 2016
Capital (N’bn) 747.6 525.5 666.2 491.0 334.3
Total assets (N’bn)† 4,398.4 3,457.9 3,423.4 3,090.3 1,779.9
Net loans (N’bn) 2,086.7 1,505.3 1,854.7 1,589.4 869.9
Net profit after tax (N’bn) 11.8 72.3 71.4 132.3 5.8
Total capital/Total assets (%) 17.0 15.2 19.5 15.9 18.8
Liquid and trading assets/Total short-term funding (%) 15.4 17.2 20.5 21.7 22.2
Gross bad debt ratio (%) 24.2 3.9 2.1 3.7 9.1
Net interest margin (%) 11.2 10.2 7.2 10.5 10.1
Cost ratio (%) 45.8 56.3 58.8 33.0 51.5
ROaE (%) 2.3 19.0 17.4 36.6 2.6
ROaA (%) 0.3 2.3 2.4 5.9 0.3
*Ranked by total assets. †Excludes clients’ balances in respect of letters of credit. Source: Audited Financial Statements.
Nigeria Bank Analysis | Public Credit Rating Page 4
competitive strengthens remain its large customer
base and parental support from ETI. Table 2 shows
the bank’s performance indicators relative to selected
peers, at end-FY16.
Financial profile
Likelihood of support
Being ETI’s largest market, Ecobank enjoys adequate
support from its parent company, and additional
support should be forthcoming should such support be
required. Furthermore, given the bank’s systemic
importance within the Nigerian economy, the federal
government of Nigeria’s (“FGN”) willingness to
support Ecobank is also considered strong.
Capital and funding
Ecobank’s assets are funded primarily by customer
deposits. Total deposits constituted 67.1% and 63.3%
of the bank’s total funding base and total assets at
FY16 respectively. Other sources of funds include
capital and borrowings, representing 20% and 12.9%
respectively of the total funding base. These are
discussed extensively in the sections which follow.
Customer deposits and interbank funding
Customer deposits dropped further by 7.5% (FY15:
2.7% reduction) to N1.1tn at FY16 following the
crowding out effect created by FGN’s high yielding
securities (Treasury bills and bonds); forex illiquidity,
which prompted large corporate customers to move
funds to where they can access forex faster; and the
movement of outstanding funds in NNPC accounts to
the FGN’s treasury single account. Supported by the
bank’s retail strategy, the bank recorded 9.7% growth
in low-cost deposits, while term deposits declined
significantly by 25%. Accordingly, the book was
largely short-dated and fairly diversified, with the
single largest deposit constituting 5.3% of total at
FY16.
Table 3: Deposit Book Characteristics
By type (%):
Demand 39.9 Term 40.3
Savings 19.8
By maturity (%):
<1-month 71.8 3-12 months 7.5
1-3 months 14.2 >12-months 6.6
Concentration (%):
Single largest 5.3 Ten largest 20.9
Five largest 14.4 Twenty largest 27.7
Source: Ecobank AFS.
While the bank’s management has forecast about 20%
growth in deposits for FY17, results at 1Q FY17
indicate a reduction of 3.3%, as the crowding-out
effect lingers. Ecobank remains poised, expecting
higher customer acquisition from its digital channels
(including its Ecobank Mobile app), which enables
customers to open accounts, and do instant payment
and transfers across 33 countries in Africa. However,
GCR considers the attainment of the target unlikely.
Capital and other borrowings
Shareholders’ funds declined slightly (3.1%) to
N220.8bn at FY16, following a recognition of net fair
value loss on available for sale financial assets. The
shareholders’ funds, combined with Tier 2 capital
(N113.6bn), resulted in total capital level of N334.3bn
at FY16. GCR notes that Ecobank's total regulatory
capital (see Table 4) is lower than the balance sheet
figure, due to differential classification of certain
reserves, and regulatory limits on the relative Tier 2
capital quantum eligible for regulatory CAR purposes.
The Tier 2 capital, as shown in Table 5, comprised
USD denominated borrowings, indicating exposure to
forex risk.
Table 4: Capitalisation FY15 FY16
N'bn N'bn
Tier 1 186.8 188.5
Tier 2 67.3 67.2
Total regulatory capital 254.1 255.8
Total risk weighted assets 1,357.1 1,527.9 CAR (%) 18.7 16.7
Source: Ecobank AFS
The bank’s risk weighted CAR decreased to 16.7%
(FY15: 18.7%) at FY16 (although remaining above
the prudential floor of 15%), following a significant
increase in the risk weighted assets due to currency
translation effects subsequent to the devaluation of the
Naira. Given the moderated CAR position, Ecobank
has highlighted various initiatives to shore up
capitalisation through additional capital injection by
ETI and/or issuance of new shares which may dilute
ETI’s shareholding in the entity.
Table 5: Borrowings FY15 FY16
N'bn N'bn
Representing Tier 2 capital 78.3 113.6
IFC Tier 2 capital loan 12.3 13.4
Subordinated Tier 2 Note 50.8 77.3
FMO Entrepreneurial Dev. Bank 15.1 22.9
Other borrowings* 88.8 62.8
Bank of Industry 52.0 44.3
CBN Agricultural Loans 3.2 3.0
CBN Intervention fund 0.3 0.3
Standard Chartered Bank 33.3 -
African Export-Import Bank - 15.3
Total 167.1 176.4
*Excluding Tier 2 capital loan and Note. Source: Ecobank AFS.
Excluding the borrowings which represent Tier 2
capital, other outstanding borrowings declined by
29.2% at FY16. This was driven by settlement of the
Standard Chartered Bank borrowing, despite securing
additional facility from African Export-Import Bank.
Overall, only 8.6% of total borrowings were short
dated at FY16, while about 73% was foreign currency
denominated.
Liquidity positioning Ecobank’s liquidity profile continued to reflect the
constraints within the Nigerian financial sector. The
Nigeria Bank Analysis | Public Credit Rating Page 5
bank displayed a sizeable liquid balance sheet in
FY16, ending the year with a liquidity ratio of 47.5%
(FY15: 51.6%), which averaged 46.6% over the 12-
month period. Similarly, the liquid and trading assets
ratio relative to total short-term funding reduced to
22.2% (FY15: 31.5%). While the bank continues to
support liquidity shortfalls through its short-term
marketable securities and credit lines from other
financial institutions, the tough regulatory
environment will continue to pose challenges to the
liquidity position.
Operational profile
Risk management
Ecobank witnessed challenges within its risk
management framework in the year under review,
largely due to some legacy loans acquired, post-
acquisition of Oceanic Bank International Plc in 2011.
These loans were previously sold to AMCON, but
were later clawed back. However, the bank continues
to enhance its risk management practices including:
stricter risk control measures, enhanced loan recovery
mechanisms and enhanced risk monitoring software
(to monitor various risks assumed in the course of
lending and trading, and adherence to risk limits).
Asset composition
The bank’s total asset base has remained relatively flat
at N1.8tn in the last three years, impacted by the
moderated deposit base. Asset mix displayed further
decrease in cash and liquid assets, following a
significant reduction in money market securities.
However, net advances rose by 6.4% in view of the
currency translation effect. Available for sale
investments remained relatively flat, comprising state
government bonds, corporate bonds and Euro bonds.
Ecobank also disposed of its promissory notes,
bringing loans and receivables to 1.7% of the asset
base. At FY16, 60.9% (FY15: 68.6%) of the total
investment portfolio constituted risk free FGN’s
Treasury bills and bonds. Credit and forex risks are
key risks for the bank, given the size and currency
structure of the loan portfolio.
Table 6: Asset mix* FY15 FY16
N'bn % N'bn %
Cash and liquid assets 593.1 33.3 492.0 27.6
Cash 38.4 2.2 26.8 1.5
Liquidity reserve deposits 171.8 9.6 205.6 11.5
Treasury bills and bonds 273.8 15.4 181.1 10.2
Balances with other banks 109.0 6.1 78.5 4.4
Customer advances 817.3 45.8 869.9 48.9
Other Investments 125.5 7.0 116.1 6.5
Available-for-sale inv. 84.0 4.7 85.9 4.8
Loans and receivables 41.6 2.3 30.2 1.7
Fixed assets 56.6 3.2 77.4 4.4
Other assets 190.6 10.7 224.4 12.6
Total 1,783.2 100.0 1,779.9 100.0
*Excludes client balances held in respect of letters of credit. Source: Ecobank AFS.
Loan portfolio
On 30 December 2016, Ecobank entered into a loan
sale/swap agreement with Ecobank Specialised
Finance Company (a fully owned Special Purpose
Vehicle of ETI), and sold selected identified eligible
assets amounting to N80bn, in exchange for non-
recourse USD denominated assets. Total consideration
for the impaired assets sold was N81.3bn (comprising
USD200m/N61bn cash balance, and transfer of
ownership of property of N20.3bn). Accordingly,
gross loans and advances grew marginally by 3.7% to
N918.1bn at FY16, despite the significant impact of
the currency translation on the bank’s loan book.
While the loan book remained diversified across all
sectors, exposure to the oil and gas sector, totaled
37.2% of gross loans at FY16. Oil and gas exposures
comprised oil and gas - upstream (22.4%),
downstream (12.4%) and services (2.5%).
Concentration risk by largest exposures remained low,
with the single largest obligor constituting 3.9% of
total loans at FY16 (16.4% of shareholders’ funds). At
FY16, 29.4% of loans were due within one month,
while 56.2% had a maturity profile of more than one
year.
Table 7: Loan book characteristics
By sector (%): FY14 FY15 FY16
Agriculture 8.2 8.5 8.4
Oil and gas 17.6 21.6 37.2
Construction 4.9 4.5 2.0
Whole sale and retail trade 16.3 11.5 7.2
Public sector 6.4 4.2 5.3
Manufacturing 11.0 15.1 11.4
IT and Communication 3.9 3.2 5.2
Transportation 2.9 1.8 0.9
Individual 6.3 6.9 3.5
Other 22.5 22.6 18.9
Largest exposures: % By product: %
Single largest 3.9 Overdrafts 25.9
Five largest 17.9 Term loans 73.9
Ten largest 33.1 Others 0.2
Twenty largest 51.1 Source: Ecobank AFS.
Going forward, management has committed to
undertake a comprehensive review of lending
activities including restraining lending to the oil and
gas sector, and placing lending on short credit cycles,
until a balanced and sound portfolio is attained.
Foreign currency exposure
Ecobank remains susceptible to forex risk given its
forex denominated borrowings, deposits and loans
(50% of total loans and advances at FY16).
Table 8: Net FCY position (FY16)
USD EUR Other* Total
N'bn N'bn N'bn N'bn
Financial assets 566.9 9.3 5.7 581.9
Financial liabilities (566.6) (35.3) (5.6) (607.6)
Net assets/(liabilities) 0.3 (26.1) 0.1 (25.7)
* Including CFA Franc and Ghana Cedi. Source: Ecobank AFS.
Nigeria Bank Analysis | Public Credit Rating Page 6
GCR envisages that prevailing forex scarcity in
Nigeria, together with Naira volatility, will continue to
impact the bank’s exposures and CAR position.
Ecobank’s management has advised of an effective
matching of related assets/liabilities to mitigate forex
risk.
Contingencies
The bank’s contingent liabilities comprised letters of
credit (22.4%), bonds and guarantees (35.9%) and FX
contracts (41.7%) at FY16. Contingencies rose by
13.5% in FY16, and constituted 25.9% (FY15: 23.5%)
of total balance sheet assets (including contingencies),
with the related credit risk amounting to N152.5bn.
Asset quality
Ecobank’s asset quality remained under pressure in
FY16, with the gross NPL ratio registering at 9.1% at
FY16 (FY15: 10.2%), well above CBN’s tolerable
limit of 5%. While gross NPL ratio decreased relative
to FY15, the position was largely supported by a
significant N68.6bn (FY15: N24.4bn) loan write-off
during the year, as the bank took advantage of CBN’s
loan write-off window; as well as, the sale of impaired
assets to Ecobank Specialised Finance Company.
Unlike the prior years (see Table 9), the FY16 write
offs, according to the bank’s management, were not
related to the fully provisioned legacy NPLs
(including the clawback of loans previously sold to
AMCON), but were mainly due to the tough operating
environment, and the weakened debt serviceability of
obligors.
Table 9: Asset quality FY15 FY16
N'bn N'bn
Gross advances 885.7 918.1
Neither past due nor impaired 730.2 780.6
Past due but not impaired 65.4 53.8
Impaired 90.1 83.6
Provision for impairment (68.4) (48.2)
Individually impaired (59.0) (26.8)
Collectively impaired (9.3) (21.4)
Net NPLs 31.1 56.9
Selected asset quality ratios:
Gross NPL ratio (%) 10.2 9.1
Net NPL ratio (%) 3.8 6.5
Net NPLs/Capital (%) 10.2 17.0
FY11 FY12 FY13 FY14 FY15 FY16
Write-offs (N’bn) 82.8 6.2 11.4 38.1 24.4 68.6
NPLs (N’bn) 24.9 26.4 39.2 43.6 90.1 83.6
Gross NPL ratio (%) 5.8 4.6 5.9 4.7 10.2 9.1
Source: Ecobank AFS.
Furthermore, the current provisioning level is
considered low, with arrears coverage (by specific
provisions) of 32.1% at FY16 (FY15: 65.5%). ‘Past
due but not impaired’ loan levels is also considered
high, raising concern of higher future credit losses.
Positively, Ecobank has shifted focus to loan
recovery, with muted loan growth prospects and strict
selection process. However, GCR envisages additional
impairments in the current year, given the current risk
level and unfavourable operating conditions. The
gross NPL ratio stood at 9.5% at 1Q FY17, indicating
sustained pressure on the bank’s asset quality.
Due to the cumbersome judicial process for realisation
of security and the associated time lags, collateral was
not given primary consideration in this analysis.
However, the bank’s management advised that 96.9%
of gross loans were secured in one form or another
(including by shares, real estate, or otherwise), while
the remainder were unsecured.
Financial performance and future prospects
A five year financial synopsis, together with three-
months unaudited management accounts to 31 March
2017, is reflected at the back of this report,
supplemented by the commentary below.
The bank’s net interest income remained relatively
stable in FY16 as interest income and expenses
remained unchanged. However, non-interest income
recorded a 27.4% growth, driven by forex gains of
N39bn, which may not be repeated in the current year.
Growth at the total operating income level stood at
7.1% (FY15: 6.2%). While operating expenses
reduced by 9.1%, underpinned by decrease in staff
cost and administrative expense. Loan impairment
charges rose sharply by 48.5% to N58.8bn,
moderating pre-tax profit to N5.8bn. Consequently,
ROaA and ROaE fell to 0.3% and 2.6% in FY16
(FY15: 0.6% and 5.3%) respectively. In view of the
lower operating expense, the bank’s operating
efficiency improved, as indicated by the cost/income
ratio of 51.5% (F15: 60.7%).
Table 10: Budget vs. interim results
Actual FY16
Budget FY17
Actual 1Q FY17 % of
budget* N'bn N'bn N'bn
Statement of comprehensive income
Net interest income 124.0 126.8 27.5 86.9
Other income 58.8 49.3 12.9 104.8
Total income 182.8 176.1 40.5 91.9
Impairment charge (82.8) (45.1) (14.2) 126.1
Operating expenses (94.1) (95.6) (22.4) 93.8
Profit before tax 5.8 35.4 3.8 43.1
Statement of financial position
Advances to customers 869.9 959.7 852.9 88.9
Customer deposits 1,125.9 1,364.9 1,088.9 79.8
Tier I Capital 220.8 326.0 229.9 70.5
Total assets 1,779.9 2,272.3 1,776.1 78.2
*Annualised. Source: Ecobank.
Ecobank has forecast a pre-tax profit of N35.4bn for
FY17, driven by lower credit costs, while other
earnings drivers are expected to remain relatively
stable. However, results as of 1Q FY17 were
negatively impacted by a higher loan impairment
charge. Alluding to the above, and taking cognisance
of the high ‘past due but not impaired’ assets, as well
as the tough operating conditions which continue to
constrain debt serviceability of obligors, GCR
considers the full year budget unlikely to be achieved.
Nigeria Bank Analysis | Public Credit Rating Page 7
Year end: 31 December
Statement of Comprehensive Income Analysis 2012 2013 2014 2015 2016 1Q 2017*
Interest income 118,492 132,931 152,355 190,513 189,864 47,858 Interest expense (45,110) (44,532) (53,227) (65,967) (65,869) (20,328) Net interest income 73,382 88,399 99,128 124,546 123,995 27,530 Other income 38,484 40,158 61,508 46,122 58,778 12,925 Total operating income 111,866 128,557 160,636 170,668 182,773 40,455 Impairment charge (12,342) (32,606) (32,994) (55,740) (82,783) (14,217) Operating expenditure (94,297) (85,418) (98,979) (103,548) (94,148) (22,419) Net profit before tax 5,227 10,533 28,663 11,380 5,842 3,819 Tax 2,578 1,125 1,070 (76) (62) (38) Net profit after tax 7,805 11,658 29,733 11,304 5,780 3,781 Other comprehensive income / (expenses) 10,578 (8,658) (4,767) 23,634 (12,793) 5,335
Total comprehensive income for the year 18,383 3,000 24,966 34,938 (7,013) 9,116
Statement of Financial Position Analysis
Subscribed capital 125,202 125,202 142,002 142,002 142,002 142,002 Reserves (incl. net income for the year) 28,426 31,426 56,392 85,785 78,773 87,888 Hybrid capital (incl. eligible portion of subordinated term debt) 9,532 9,856 58,439 78,261 113,565 112,053 Total capital and reserves 163,160 166,484 256,833 306,048 334,340 341,943
Bank borrowings (incl. deposits, placements and REPOs) 21,489 61,919 111,200 92,590 154,796 186,690 Deposits 1,038,316 1,116,251 1,246,118 1,212,674 1,118,431 1,081,435 Other borrowings - 531 28,079 33,339 15,265 15,549 Short-term funding (< 1 year) 1,059,805 1,178,701 1,385,397 1,338,603 1,288,492 1,283,674
Deposits 4,897 2,150 4,897 4,897 7,437 7,437
Other borrowings 49,351 47,735 60,135 55,471 47,572 45,769
Long-term funding (> 1 year) 54,248 49,885 65,032 60,368 55,009 53,206
Payables/Deferred liabilities 38,170 58,513 56,448 78,133 102,068 97,282 Other liabilities 38,170 58,513 56,448 78,133 102,068 97,282
Total capital and liabilities 1,315,383 1,453,583 1,763,710 1,783,152 1,779,909 1,776,105
Balances with central bank 91,540 150,180 215,402 171,828 205,550 206,359 Property, Plant and Equipment 59,387 56,134 57,281 56,621 77,447 77,589 Derivative financial assets - - 22,436 7,193 20,802 27,797 Receivables/Deferred assets (incl. zero rate loans) 156,568 247,074 232,986 183,369 203,633 208,509 Non-earnings assets 307,495 453,388 528,105 419,011 507,432 520,254
Short-term deposits and cash 28,595 42,515 36,538 38,427 26,808 27,136 Loans and advances (net of provisions) 546,873 625,907 892,721 817,348 869,872 852,888 Bank placements 102,334 90,535 85,534 108,999 78,502 78,964 Marketable/Trading securities 77,445 89,211 138,471 273,836 181,146 183,457
Other investment securities 249,795 149,181 82,341 125,531 116,149 113,406
Investment in subsidiaries 2,846 2,846 - - - -
Total earning assets 1,007,888 1,000,195 1,235,605 1,364,141 1,272,477 1,255,851
Total assets† 1,315,383 1,453,583 1,763,710 1,783,152 1,779,909 1,776,105
Contingencies 163,260 407,286 850,316 549,134 623,465 -
Ratio Analysis (%)
Capitalisation
Internal capital generation 12.0 1.9 12.6 15.3 2.6 6.6
Total capital / Net advances + net equity invest. + guarantees 17.0 14.1 14.1 20.5 20.8 35.4
Total capital / Total assets 12.4 11.5 14.6 17.2 18.8 19.3
Liquidity ‡
Net advances / Deposits + other short-term funding 51.4 53.0 64.2 60.8 67.1 66.1
Net advances / Total funding (excl. equity portion) 49.1 50.9 61.5 58.4 64.7 63.8
Liquid & trading assets / Total assets 15.8 15.3 14.8 23.6 16.1 16.3
Liquid & trading assets / Total short-term funding 19.7 18.9 18.8 31.5 22.2 22.6
Liquid & trading assets / Total funding (excl. equity portion) 18.7 18.1 18.0 30.1 21.3 21.7
Asset quality
Impaired loans / Gross advances 4.6 5.9 4.7 10.2 9.1 9.5
Total loan loss reserves / Gross advances 3.9 5.3 4.1 7.7 5.3 7.1
Bad debt charge (income statement) / Gross advances (avg.) 2.5 5.4 4.2 6.3 9.5 1.6
Bad debt charge (income statement) / Total operating income 11.0 25.4 20.5 32.7 45.3 35.1
Profitability
Net income / Total capital (avg.) 14.8 1.8 11.8 12.4 n.a. 2.7
Net income / Total assets (avg.) 1.5 0.2 1.6 2.0 n.a. 0.5
Net interest margin 11.0 11.1 9.9 10.3 10.1 9.3
Interest income + com. fees / Earning assets + guarantees (a/avg.) 8.4 7.9 5.9 6.4 6.7 1.8
Non-interest income / Total operating income 34.4 31.2 38.3 27.0 32.2 31.9
Non-interest income / Total operating expenses (or burden ratio) 40.8 47.0 62.1 44.5 62.4 57.7
Cost ratio 84.3 66.4 61.6 60.7 51.5 55.4
OEaA (or overhead ratio) 7.9 6.2 6.2 5.8 5.3 1.3
ROaE 6.8 7.5 16.7 5.3 2.6 6.7
ROaA 0.7 0.8 1.8 0.6 0.3 0.9
Nominal growth indicators
Total assets 21.2 10.5 21.3 1.1 (0.2) (0.2)
Net advances 33.3 14.5 42.6 (8.4) 6.4 (2.0)
Shareholders funds 103.9 2.0 26.7 14.8 (3.1) 4.1
Total capital and reserves 92.0 2.0 54.3 19.2 9.2 2.3
Deposits (wholesale) 17.2 7.2 11.9 (2.7) (7.5) (3.3)
Total funding (excl. equity portion) 16.6 10.3 18.1 (3.5) (4.0) (0.5)
Net income 33.7 (83.7) 732.2 39.9 (120.1) 619.9
*3-months unaudited management accounts to 31 March 2017, with annualised ratios.
†Excludes bank's balances held in respect of letters of credit.
‡ Please note that for these ratios, liquid assets exclude the statutory reserve balance.
Ecobank Nigeria Limited(Naira in millions except as noted)
Nigeria Bank Analysis | Public Credit Rating Page 8
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The information received from Ecobank Nigeria Limited and other reliable third parties to accord the credit ratings included the latest audited annual financial statements as at 31 December 2016 (plus four years of comparative numbers), latest internal and/or external reports to management, full year detailed budgeted financial statements for 2017, most recent year-to-date management accounts to 31 March 2017, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or
industry was also received.
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