Ecobank Transnational Incorporated (ETI) has had a mixed season in 2019, an apparent fallout from operational challenges endured in 2018. The bank has sorted out the problems associated with its interpretation of the International Financial Reporting Standard (IFRS) rule 9 concerning the treatment of its impaired loans and it has, fortunately, adopted the use of the IEFX rate of N360/$ rather than the official rate of N307/$, for the translation of its financial performance. However, in the currency of report (US dollar) the banks gross earnings dipped by 10% and its 9 months after tax profit fell by 12% in September 2019.
Income Statement Gross earnings fell -10%, indicating a marginal reduction in continent-wide income especially a fall in business activities in its local Nigerian subsidiary
Profit after tax (PAT) slumped -12%, as net interest income dropped by -23% (even though staff costs fell by -5%) and other operating expenses equally fell by -12%
Impairment losses declined as loan asset quality improved between 2018 and 2019; impairment provisions fell from N275.12bn in September 2018 to N185.04bn in September 2019, representing a fall of -32.74%
Interest Income slumped -5% from $364.20bn in September 2018 to $347.57bn in September 2019
Interest expense climbed +20% from $140.69bn in September 2018 to $169.34bn in September 2019, the sharp rise in Interest expense relative to the decline in Interest income squeezed profits in the groups underlying operations
Net Interest Income dipped -20% as Interest income fell and Interest expenses went up, the consequence was felt in the banking group’s bottom line as profit after tax (PAT) fell by -33% from $78.54bn in September 2018 to $52.76bn in September 2019
Statement of Financial Position Loans and advances to customers fell from $9.17bn in the 9 months to September 2018 to $8.69bn in 9 months to September 2019 or by -5.23%. The fall came at a time the Central Bank of Nigeria (CBN) issued a policy circular that stated that deposit money banks in Nigeria maintain a loan to deposit ratio (LDR) of 60% (which has now been raised to 65% by December 2019). On the bright side ETI’s continental diversity has tempered the impact of the new CBN LDR rule on the group’s statement of financial position, but on a darker Ecobank Nigeria side, the new CBN Rule may adversely affect the local bank’s cash reserve ratio (CRR) and bottom line.