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ECOBANK  Nigeria :The Toughest Headache  of ETI . 

 The appointment of  Jubril Mobolaji Lawal  last December ,2021 by  Ecobank Group  as the  Managing Director designate   and   regional executive  of its Nigeria operations after the exit of his immediate predecessor ,Patrick Akinwuntan ,was ,indeed , greeted with high  optimism and deep  enthusiasm .  The reason for this may not far to seek.   Ecobank Nigeria is ETI’s toughest headache and like a problem child among the four regions into which  ETI is classified ; and there is  an  urgent need to turn it  around make it highly competitive   .   Lawal  is believed to have the joker with his familiarity with a deleterious clime like Nigeria  ; no doubt,  he is believed to be fully armed with  a bundle of experience and expertise appropriate for a  transformation of  Ecobank Nigeria  . Some observers noted he was poked from  Guaranty Trust bank for this purpose  .He joined   Ecobank having been a versatile senior banking executive and digital transformation specialist for over 28 years with Guaranty Trust Bank Plc. He has deep involvement and experience in digital and retail banking, corporate and commercial banking, credit risk management and corporate finance ; he was formerly  an executive director at GTBank Plc Nigeria,  Non-Executive Director roles at both GTBank Ghana Limited and Nigeria Interbank Settlement Systems Plc. 

But this hope is currently petering off  . Few months to the end of the financial year 2022, the   enthusiasm created by the appointment  of Lawal  is gradually    becoming   a mirage .He  has failed to live up to the above expectation of a quick turnaround of his bank ,particularly when the results  of the Ecobank  Nigeria are bench marked with other regions navigated by the group ;  he has failed to change the lame duck performance left by his immediate predecessor as Ecobank Nigeria   remains  toughest headache  and a clog in the wheel given the  Group a tough time.

 Truly ,from its historical perspective ,Ecobank Nigeria delivered impressive results in the first half of 2022 compared to its performance in the corresponding period of 2021 . The bank’s net revenue of $118 million increased 11% or 14% at constant currency. Also, its  net interest income increased by 54% at constant currency to $69 million, benefiting from NIM expansion, improved pricing of earning assets, and a modest increase in the loan portfolio ..

However , the bank’s  non-interest revenue, on the other hand, fell 17% at constant currency as systemic FX illiquidity and higher rates negatively impacted our trade business—additionally, the net impact on non-interest revenue of CBN’s directive on fees on electronic banking operations.  Despite this its  profit before tax of $18 million for the first half of 2022, increasing by 74%; excluding the net impact of currency translation effects, its  PBT increased by 78%.

 But the above impressive historical metrics are nothing but deceptive .   When this profit  and all other performance indicators achieved in the first half of 2022   are benchmarked with its counterparts in the other regions operated by the Group ,the results are not only miserable but confirmed some analysts view that Ecobank Nigeria performance is a  clog  in the wheel of the Group’s progress and competitiveness  . This circumstance could be traced to its higher of cost of its operation and less competitive spread gained from its earning assets and cost of funds  that weaken its net interest margin . Not only those two things  , outcome of Ecobank Nigeria’s credit risk battle  remains less inspiring . These circumstances exerted pressures on the bank profit margins and other profitability ratios .  Its return on equity was down to  4.7%  from  7.2% while  its return on assets stood at 0.52% in the first half of 2022 ; its pretax margin also is less impressive . When these are compared with other regions ,it could be asserted the Ecobank Nigeria is indeed a clog in the wheel of the Group competitiveness .

 The  Group’s pan-African operations  is categorized  into four geographical regions. These reportable regions are  Francophone West Africa (UEMOA), Nigeria, Anglophone West Africa (AWA), and Central, Eastern and Southern Africa (CESA)   However , Nigeria is the least performing  among the . Ecobank  Nigeria contributed the least  revenue to the group $118m of the total $909.79m compared to $282m  by UEMOA ,$268m by AWA  and $281 by CESA ; its profit after tax at $16.79m indicates  just 9% of the group total at $185.42m  as other regions contributed $106.02m ,$89.06m and $78.99m each . Also ,its ROE at 4.7% is the least compared  to 24.7%,28.3% and 23.8% by UEMOA ,AWA  and  CESA  respectively ;its cost to income followed the same trend as Ecobank Nigeria recorded the worst at 81.1% compared 50.7%,45% and 47.7% ,indicating their better efficiency  over  Ecobank Nigeria .Ecobank Nigeria also registered miserable performance in terms asset quality relative to the rest regions . Its non performing loan ratio stood at 15.5% compared to 2.05,2.4% and 3.7% of the rest regions .

 What could be responsible for this lame duck performance of Ecobank Nigeria ? . There is no doubt that Ecobank Nigeria is well positioned relative to other regions in terms of resources  ;its total assets $6.41b ,slightly below the  second largest among the regions by asset size with $6.47b .Its equity size  at  $721 m  is second to the group’s region with  highest amount at $820   .The cause of the worry is that its   contribution to the revenue volume did not reflect the above resources at its disposal .

 A cursory look at ETI’s component  regions and countries in the first half of 2022 shows the differential impacts of external environments on its  profitability  growth ; the  strategic compass  steered by ETI  is a mixed bag of fortunes and misfortunes; the voyage is littered with opportunities and threats, dark and deleterious spots .  While countries   under Anglo-West Africa, AWA remain  its toughest headache  , countries in  the Central, Eastern and South Africa (CESA) as well as  Francophone Africa   are  its soothing balm . Anglo-West Africa seems to be on the back foot as operations remain weak here   .  In the just released half year results released by the bank, in the English-speaking West Africa, (AWA),  it  recorded 8% growth in profit  between H1 2021 and H1 2022   against the growth of 37% in Central, Eastern and South Africa (CESA) and 48% in Francophone Africa . While Anglo West Africa countries are posing the same threat relative to others  ,  the continental spread of ETI’s operations has helped it hedge against the poor performance   as the economies of Ghana, Nigeria, Sierra Leone and Liberia fizzle .    

  Incidentally , Nigeria remains   the  hardest  nut  for the bank to crack  . With over 200m people, a gross domestic product (GDP) of over US$400bn and a population growth rate of 2.6%, the country remains a primary African market, even with disposable income ripped by an inflation rate of 19.6% for July 2022.     This  perennial sick baby  called Nigeria  is where  Ecobank is buffeted  with relatively high CIR, high Cost of Risk (CoR) and low Loan-to-Deposit Ratio (LDR)and these are  weighing heavily on the lending group’s bottom line in the country ;its  business segment has lagged others concerning profitability even as less  than a fifth of its gross operating revenues comes  from Nigeria    .      

 To prevail on the above environmental threats and turn the table round  ,Lawal was ,no doubt , relentless    . He ,indeed, made frantic efforts to better the lot of the bank  in the last few months to make the bank under his territory  highly competitive and justify the confidence reposed on him .  . Under his leadership the bank supported businesses by growing Loans and advances. Its gross loans and advances to customers  stood at  $2.75b  at the end of the last six months in 2022 . This is figure made Ecobank Nigeria loans  ,the second largest by gross loans  after Francophone West Africa (UEMOA)    ,another region out of the   four geographical regions into which  Group’s pan-African operations was divided  into  which deployed $3.57b at the end of the same period .   Lawal also displayed a  bigger heart for risk in the first half of 2022. While its net  loans and advances  grew  by 10%  year on year  deposits from customers grew by 9% .However , despite the fact that deposit grew slightly slower than its loans to customers  the bank’s  loan deposit ratio still grew faster  to 67.7%  against 66.4%  in the corresponding period of 2021.   The bank under Lawal also  grew its haul of deposits to $4.07b to occupy the third slot among the four regions  .

      One implication this is that the bank is assuming more risk than it did the year before. But then again, a pre condition for better return is by taking on more risk. This explains the reason for the bank’s improvement on   net interest income.  Net interest income increased by 54% at constant currency to $69 million, benefiting from NIM expansion, improved pricing of earning assets, and a modest increase in the loan portfolio, partially offset by an increase in funding costs, partly due to protracted excess CRR debits from the CBN.

 Lawal ,however , failed to repeat the same feat in the non-interest income segment . Non-interest revenue, on the other hand, fell 17% at constant currency as systemic FX illiquidity and higher rates negatively impacted our trade business—additionally, the net impact on non-interest revenue of CBN’s directive on fees on electronic banking operations.

To avert the negative impact of the damage done to the from  non-interest income  segment ,the bank  ensured it achieved an  increase of  11% or 14% at constant currency  in its Net revenue  at  $118 million  . 

But this achievement , no doubt , proved too feeble to save the bottom line and achieve a competitive profit after tax when benchmarked with the achievements of other regions . This drawback could be situated on its cost to income ratio which was not only the worst among the four regions of the group but horrible .Its  cost-to-income ratio 81.1%  compared to the other three regions  which stood at 50.7% , 45.0% and  47.7%  for  UEMOA , AWA and CESA respectively .

Also ,its operating expenses of $96 million increased by 10% or by 13% at constant currency, primarily driven by inflationary pressures, higher energy costs (for example, diesel costs rose 400% in the period), and statutory charges, such as AMCON charges and deposit insurance costs.   

The   less impressive  and miserable performance  of Ecobank Nigeria are mostly exposed by the inability of the management to control costs and achieved good asset quality during the period under review .

 Despite the fact its Net impairment charges on loans came down to  $4 million compared to $7 million in the prior-year period, mainly due to lower gross impairment charges in the current period., the bank still suffered for   its choice of  big heart for risk which manifested in its loan to deposit ratio and increase in the loans deployed. Its nonperforming loans stood at $427.95m or  69% of the total non-performing loans $619.16m of the group  ;this  shows  a non-performing loan ratio of 15.5% relative to the group gross loans

Analysts believe the weak performance  of Ecobank Nigeria could be situated on the quality of its management .This may not farfetched .  People are at the heart of strategy ;the knowledge and experience of people can be the key factors enabling or hindering the success of strategies ; Moreover, while possession of resources is fundamental , it does not guarantee strategic success. What determines a strategic success is the strategic capability or  how these resources are deployed, managed ,controlled and in the case of people motivated to create competencies in those activities and business processes needed to run the business. Analysts believe Ecobank Nigeria would  have to learn to survive the brutal Nigerian reality by cutting down its CIR and CoR, raising its LDR and reducing its cost of funds.

Moreover , following the CBN’s policy rate rise to 14%  the management of Ecobank Nigeria  could exploit this to grow  its net interest income as well even as it is being speculated that the  policy rate may rise 100basis points to 15% as the regulator tries to stem domestic inflation.

Some banks in Nigeria exploited this opportunity .Sequel to this policy change ,Nigerian banks have climbed a performance escalator from the beginning of H1 2022, and the gains look reliable. The banking sector has seen a sustained rise in gross earnings and after-tax incomes.    To survive and succeed, a leader is expected to understand forces which influence or   have to be taken into account in the development of strategy.  Such leaders believe strategy development is about fit; about identifying opportunities in the environment and building strategy by matching resource capabilities to those opportunities      

      To turn round  Ecobank Nigeria , the management  is expected  to adjust the bank’s internal strengths to the environmental opportunities    Also , by identifying  , combining , re-combining , and managing the resources, competencies and capability  it could as well  explore  its  potential and perform better than the competitors on the customer needs, preferences ,and desires satisfaction.  

The reason for this may not be far to seek.  The advantage of an organization consists in identification of the internal core competences, mainly based on knowledge assets and intellectual  capital, that align with the key success factors of the market that gives competitive advantage, better performance and better market position .

 Beyond the identifying differential opportunities in different markets  and    matching resource capabilities to those opportunities  , Ecobank Nigeria is expected by analysts to focus  on its resources and competencies , taking  a  stretch view of strategy to deliver value money advantage .

This may not be farfetched  .  Both resources and competences  influence a company strategic success, explain differences between organizations, potential uniqueness and therefore superior performance . This could be achieved by building strategy on its unique competencies and resources , seeking  out markets where competencies have special values or try to create new markets on the basis of such competencies .   

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