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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. β For 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 [email protected] [email protected] Committee Chairperson Dave King king@globalratings.net 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)

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Page 1: Ecobank Nigeria Limited...its functions through various board committees. In addition, there are a number of management committees which ensure good and effective corporate governance

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

[email protected]

[email protected]

Committee Chairperson

Dave King

[email protected]

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)

Page 2: Ecobank Nigeria Limited...its functions through various board committees. In addition, there are a number of management committees which ensure good and effective corporate governance

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.

Page 3: Ecobank Nigeria Limited...its functions through various board committees. In addition, there are a number of management committees which ensure good and effective corporate governance

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.

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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

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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.

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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.

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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)

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Nigeria Bank Analysis | Public Credit Rating Page 8

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The ratings were solicited by, or on behalf of, Ecobank Nigeria Limited, and therefore, GCR has been compensated for the provision of the ratings.

Ecobank Nigeria Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to Ecobank Nigeria Limited with no contestation of/changes to the ratings.

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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