Ecobank Group has announced unaudited first quarter of 2022 profit before tax increase of 25% to $125 million.
Ade Ayeyemi, Group CEO said “We delivered strong 1Q 2022 results with profit before tax increasing by 25% to $125 million, diluted earnings per share up 29% to 0.27 US cents and net revenue growth of 7% to $436 million. Returns on tangible shareholders’ equity of 18.9% was a record compared to 15.7% a year ago.”
According to him, they have achieved these results in a difficult operating environment characterised by the strengthening of the US dollar against their operating currencies, high inflation, high interest rates and tight labour markets across Africa as the Russia-Ukraine conflict continued to take its toll.
He says despite these challenges, they continued to support their customers effectively, which paid off as their businesses grew their revenues and profits.
“These were driven by trade, cash management, FICC and payments, while we also achieved modest loan growth with support from higher interest rates. As a result, pre-tax profits increased by 13%, 26% and 59% in our Corporate and Investment Banking, Consumer Banking and Commercial Banking businesses respectively. It is important to note that it is the bold strategic decisions and our investments in people, systems and processes over time that have resulted in the record returns for our shareholders today. We are unrelenting in our focus on driving returns towards our medium-term goal of approximately 20%.”
“We have continued to run the company with expense discipline, while growing earnings and investing in improvements to the customer experience. So, despite increased expenses – largely due to inflation – our cost-to-income ratio improved to 58.0%, compared to 59.3% a year ago. Our credit portfolio is in good shape, and we continue to drive down the non-performing loans ratio towards our near-term goal of under 6% while we maintain adequate impairment reserves as a buffer for possible downside risks.”
Ayeyemi said they have ample liquidity on their balance sheet and continue to generate healthy levels of customer deposits while maintaining satisfactory levels of capital above internal and regulatory minimums.
“As a result, we are confident in the company’s positioning for growth, and will continue to invest in our digital offerings and payment capabilities while enhancing our core technology. In summary, we are pleased with our progress, and I would like to thank our customers for their trust, and all Ecobankers for their hard work towards realising our vision and remaining the bank that Africa and friends of Africa trust.”
According to the report, period ended 31 Mar 2022 versus period ended 31 Mar 2021, profit before tax (PBT) was $125 million, increasing by 25% or $25 million from the prior-year period. If adjusted for the impact of foreign currency translation, PBT increased by 29%. Additionally, positive operating leverage and efficiency gains achieved in each of the business lines benefited PBT growth, with Corporate and Investment Banking (CIB), Consumer Banking (CSB) and Commercial Banking (CMB), growing PBT by 13%, 26%, and 59%, respectively in the first quarter of 2022.
The bank says their net revenue was $436 million, increasing by 7% or $27 million or 16% on a constant currency basis.
“The increase in revenue was primarily driven by a 15% growth in non-interest revenue (NIR) and a 1% growth in net interest income (NII). Also, revenue expansion, a critical strategic imperative of our ‘Execution Momentum’ strategy, was substantial in each of our business lines. For example, CIB revenues were higher by 8%, CSB by 9%, and CMB by 11%, on a year-on-year basis, driven by deepening client relationships and increased household and business activity.”
The report shows that net interest income was $239 million, increasing by 1% or $1 million, or 9% on a constant currency basis. Interest rate increases in some of bank’s markets provided the catalyst by helping to drive interest income on customer loans and treasury bills by 15% and 20%, respectively.
“However, the growth in interest income was offset by an increase in the interest cost on customer deposits and borrowed funds by 38% and 18%, respectively, with the former primarily driven by a disproportionate growth in term deposits within CIB. As a result, net interest spreads, the difference between the gross yields on our earning assets and the interest costs on our funding sources, compressed by 20 basis points and hence the net interest margin (NIM) decreased to 4.9% from 5.1% a year ago. On the other hand, the average interest rate paid on all funding sources increased to 2.3% versus 1.9% in the first quarter of 2021.”
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It was also revealed that non-interest revenue was $198 million for the first quarter of 2022, increasing by 15% or $25 million, or by 25% on a constant currency basis, boosted by the continued robustness in client and customer activity following the lifting of most of the Covid-19 pandemic-induced restrictions.
As a result, net fees and commission income increased by 16% or $16 million to $116 million, with fees generated on Cards rising by 30% to $24 million, credit-related fees increased by 17% to $37 million, and cash management fees rose by 9% to $54 million. Additionally, NIR benefited from net trading income, which increased by 12% or $8 million to $72 million, predominantly driven by a 216% increase in fixed-income trading to $34 million, partially offset by a decrease in client-related foreign-currency sales of 29% to $38 million. As a result, the contribution of non-interest revenue to total net revenue (the NIR ratio) was 45% versus 42% in the year-ago period.
Data indicates that operating expenses were $253 million, increasing by 4% or $10 million, or 11% on a constant currency basis. Employee-related expenditures increased by 4% to $113 million, while other operating expenses rose 6% to $115 million, predominantly driven by higher inflation. The depreciation and amortisation charge fell by 2% to $26 million.
“Despite higher inflation, the cost-to-income ratio improved to a record 58.0% compared to 59.3% in the year-ago period, driven by higher revenue growth and continued expense discipline in an inflationary environment. Also, the cost-to-assets ratio, which measures costs to average assets, improved to 3.7% compared with 3.8%.”
“Impairment charges on loans (provision for credit losses), net of loan recoveries and impairment releases was $42 million compared with $48 million a year ago. Gross impairment charges were $64 million, down 4% from a year ago, reflecting an overall reduction in the credit risks within our loan portfolios as borrowers’ credit conditions improved on relatively improved economic conditions. Partially offsetting gross impairment charges were $22 million, up 17% from the year-ago period, in loan recoveries, collections on past-due loans and releases of previous impairment charges. In addition, the current period’s loan recoveries include $2.2 million from the Resolution Vehicle (RV). However, with the fragility of the economic recovery due to the ongoing geopolitical tensions, we increased further the central macro-overly provision buffer of $164 million held as of year-end 2021 by $20 million in the first quarter of 2022 to a total of $184 million. Overall, the Bank’s credit quality remains solid, reflected in the cost-of-risk, which improved further to 1.66% in the first quarter of 2022 compared with 1.69% at year-end 2021 and 1.97% in the year-ago period.”
Accordingly, income taxes were $33 million compared with $26 million in the prior-year period. The effective income tax rate (ETR) was 26.4% versus 25.7% in the prior-year period, primarily driven by higher profits in different tax jurisdictions.
Central, Eastern and Southern African Region (CESA)
Report indicates that CESA delivered a profit before tax of $59 million for the first quarter of 2022, an increase of 72% compared to the prior-year period, driven by positive operating leverage and lower impairment charges and net monetary losses.
Also, net revenue was $138 million, increasing by 18% or $21 million, or by 30% on a constant currency basis, reflecting higher net interest income and fee-related income. Net interest income increased by 16% on a constant currency basis to $69 million, driven by higher interest income on loans and investment securities supported by an expansion in net interest spreads and NIM. Non-interest revenue increased by 48% on a constant currency basis to $68 million, partly driven by fees generated on episodic deals in some of our markets related to the investment banking deals and higher levels of letters of credit issuances.
Operating expenses of $65 million were 7% or $4 million higher than the year-ago period but were 14% higher on a constant currency basis. Accordingly, the increase was primarily driven by the impact of inflation and investments in building capacity. The cost-to-income ratio was 47.6% compared with 52.5% because of the significantly higher growth in revenues compared with operating expenses in the period.
Net impairment charges on loans were $4 million compared with $11 million in the prior-year period. The comparable lower net impairment charges for the period were due to lower gross impairment charges and a modest increase in loan recoveries in the current period compared to the prior-year period.
