ETI lifts profit with cost efficiency gains

Ecobank Transnational Inc saw only a marginal gain in revenue in dollar terms in the first quarter but was able to push up profit impressively with cost efficiency gains. Its functional currencies depreciated against the dollar and therefore local currency gains in revenue could not reflect in dollars when translated at the lower exchange parity. Albert Essien, the bank’s group chief executive officer, said seasonally low client activity in the first quarter and the currency translation impact accounted for the bank’s inability to grow revenue.

Helped by a decline in the cost-income ratio and the resulting substantial gain in profit margin, ETI raised after tax profit by 64% year-on-year in the first quarter. The bank is looking confident to keep profit growing after a major advance of 179% in 2014.

Essien is counting on the competitive advantage of his bank’s diversified pan-African business model. This, he said, has continued to serve with encouraging underlying performance in the line of business across markets. For him, the bank is on course towards realising the defined strategic targets.

At the time of his appointment, Essien was introduced by the bank’s chairman as the man who has got the experience and knowledge the bank needs to deliver long-term shareholder value and improve returns. The man himself then assured that he is going to put in place a detailed governance action plan that would surmount the challenges standing in the way of achieving the bank’s vision. He now takes the credit for implementing measures to improve controls and systems and for internal and external reviews that have resulted in improved ability of the bank to convert revenue into profit.

The bank ended first quarter operations with an after tax profit of N24.48 billion at the end of March. This represents an increase of 64% year-on-year – a reassuring performance in the light of a difficult operating climate. Full year outlook indicates a net profit in the region of N82.1 billion for ETI in 2015. This will be an increase of 25% over the closing figure of N65.68 billion in 2014. This is indicating that profit growth will be uneven across the quarters. The bank had raised net profit by 179% in 2014 from a 45% drop in 2013.

The strength for the profit growth in the first quarter came mainly from cost moderation, which was led by operating cost. Operating expenses increased by 10% to N65.70 billion year-on-year compared to a 24% improvement in gross income. That lowered operating cost margin from 54.3% in the same period last year to 48.2% at the end of the first quarter.

Some cost savings were also made on impairment losses on risk assets during the period but interest expenses claimed part of the revenues saved from the other key cost centres. Interest expenses grew by 33% to N29.81 billion and claimed an increased share of revenue during the period.

The increase in interest expenses happened against a year-on-year increase of 17.6% in the bank’s total deposit liabilities to N3,329.29 billion. The bank therefore paid an increased interest cost per naira of outstanding deposits during the review period. Despite that, it still succeeded in reducing the cost-income ratio from 69.2% in the same period last year to 62.7% in the first quarter. Net profit margin therefore improved significantly from 13.6% to 18% over the review period.

Revenue growth was modest at 2% in dollar terms but the value in naira shows a substantial growth of 24% year-on-year to N136.22 billion. Interest income led revenue growth with an increase of 21% in net credit to customers. Based on the first quarter growth rate, gross income is projected at N547.5 billion for ETI at the end of 2015. This will be an increase of 12% over the 2014 figure of N489.25 billion, a likely slowdown from the 19% growth posted in 2014.

The bank earned 97.92 kobo per share at the end of the first quarter, slightly down from 98.20 kobo in the same period last year. The growth in profit did not lead to an increase in earnings per share in the first quarter due to additional shares issued and loan to equity conversions exercised during the review period.

The bank earned N3.05 per share at the end of 2014 and a significant improvement is not anticipated in 2015. The bank has proposed a bonus of 1 for 15 to shareholders for its 2014 operations. The register of shareholders will close on 25th June 2015.