ETI recovers from goodwill slash, lifts profit 4 times to N143b in 2021

Ecobank Transnational Inc. rode on the back of zero goodwill impairment in 2021 to jerk up profit more than four times to N143 billion. The bank recovered from a major slash of goodwill in the balance sheet that involved throwing off as much as N62.5 billion through the income statement in 2020.

The bank’s unaudited financial report at the end of the 2021 trading shows a complete absence of goodwill impairment in 2021. The development lightened the weight for the bank on the side of costs and powered gain in margins.

Goodwill impairment had led to a plunge of 66 percent in after tax profit in the preceding financial year. Its absence also provided the big turnaround force for the remarkable profit leap of ETI in 2021.

The pan-African bank lifted after tax profit by 324 percent at the end of the year from just 13 percent increase in gross earnings. Two other major cost saving areas helped to reinforce the favourable cost-income balance attained in the year.

These are loan impairment charges that went down by 5 percent to N82.7 billion and operating cost that slowed down to a 4 percent increase in the year.

Strong gains in margins through overall slowdown in costs provided the spur for the profit advance for the bank in its 2021 operations. Improved ability to convert revenue into profit was the key strength in the bank’s earnings story in the year.

It converted 15 percent of gross earnings into profit in 2021, close to four times the 4 percent profit margin the bank recorded in the preceding financial year.

A change of direction from rising to declining credit loss expenses is also a major factor in the elevated bottom line position the bank achieved in 2021. A top record growth of 118 percent in loan impairment expenses in 2020, reversed to a drop of 5 percent to close at N82.7 billion last year.

In the preceding year, loan loss charges consumed as much as 37.6 percent of operating profit before the charges. The ratio dropped to 28 percent in 2021, which enabled an accelerated growth in operating profit at 39 percent to about N212 billion.

A moderated increase of 4 percent in total operating expenses to N418.6 billion provided the third leg of the cost reduction tripod that supports the bank’s enhanced profit capacity for the year under review.

Operating cost had claimed 48 percent of gross earnings in the prior financial year, which went down to 44 percent in 2021. The reduction represents a cost saving of about N39 billion for the bank in the year.

There is also a 33 percent drop in net monetary losses due to hyperinflation to N15.6 billion.

The bank faced a major challenge from rising interest expenses last year. We had placed the cost of funds under development to watch on ETI in the second half of the financial year. As cautioned in our half year review, interest expenses outpaced interest income in the second half.

At roughly N220 billion at full year, interest expenses rose well ahead of interest earnings at 19 percent compared to 13 percent. Cost of funds claimed an increased proportion of interest income at 36.7 percent at the end of the year.

With the encroachment of interest expenses, the bank recorded a slower growth of 9 percent in net interest income to N379 billion than the 13 percent growth in interest earnings.

The 13 percent increase in interest income represents a strong acceleration from only 4 percent improvement in the preceding financial year. At almost N599 billion, interest earnings represent roughly 63 percent of gross income. This is a good record of performance in the core business of lending and investing.

Non-interest income also grew at equal pace with interest earnings at 13 percent to close at N334 billion for the year. An increase of 13 percent in gross earnings to N953 billion in 2021 is a strong upturn from a slight decline in the preceding year.

The improvement in revenue and huge cost saving are the key elevating functions for ETI on the profit track in 2021. Growth leading revenue lines are other operating income, which grew by 63 percent to over N23 billion and fee and commission income — which rose by 26 percent to N204.6 billion over the review period.

ETI closed the 2021 operations with a balance sheet size of N11.6 trillion, an increase of about N1.2 trillion over the closing asset figure in 2020. Its key assets are customer loans and advances of more than N4 trillion, investment securities of N2.7 trillion, cash and bank balances of N1.8 trillion and due from banks of over N936 billion.