ETI’s profit slows to N117bn on Q3 drop

Ecobank Transnational Inc. suffered a profit drop of 4.4 percent in the third quarter of operations in the 2022 financial year from roughly N42 billion in the same quarter in 2021 to N40 billion. This is a further downswing from a profit slowdown in the second quarter from 26 percent growth in the first quarter to less than 22 percent.

The bank’s unaudited financial report for the nine-month ended September 2022 shows a further slowdown in profit growth year-on-year from 23.5 percent at half year to 12.3 percent to N117.4 billion at the end of September.

Slowing incomes and increasing costs explain the loss of profit the bank encountered in the third quarter. The main income line – interest earnings dived from 12 percent growth quarter-on-quarter in the second quarter to 4 percent increase to N168.6 billion in the third.

Non-interest earnings followed the same pattern, slowing down rapidly from 13 percent growth in the second quarter to 4 percent improvement to N84.9 billion in the third quarter. The weakness reflects a drop of 22 percent in trading income in the quarter to N24.8 billion and also a drop in other operating income by about 53 percent.

On the side of cost, the biggest hit is the occurrence of N10.5 billion expended as a non-conversion premium on bonds. This is followed by a 63 percent advance in net monetary loss due to hyperinflation to N4.4 billion for the quarter.

The last straw came from a 19 percent upshot in tax expenses to N19.6 billion that turned a 2 percent increase in pre-tax profit to N59.7 billion for the quarter into a profit decline of 4.4 percent in after tax profit.

The bank did register some operating strengths in the third quarter that helped to moderate the impacts of slowing earnings and rising costs. These include a sustained firm grip on the cost of funds, which has happened for the second quarter in the course of the financial year.

Interest expenses ended slightly down in the third quarter from the flat position in the second quarter and down from 30 percent growth in the first quarter. The cost saving pushed net interest income by 6.5 percent to N106 billion – ahead of the 4 percent increase in interest earnings in the third quarter.

Another major cost saving is net impairment charges for credit losses, which dropped by over 50 percent to N8 billion in the third quarter. This is a change of direction from 30 percent growth in credit losses to N27 billion in the second quarter.

The bank’s closing after tax profit of N117.4 billion for the nine months of operations represents an increase of 12 percent year-on-year, which is a sharp slowdown from 23.5 percent growth at half year. The slowdown reflects the decline in profit in the third quarter.

Management’s low cost and margin improvement approach that permitted growing profit well ahead of revenue in the preceding quarters could scarcely by maintained at the end of the third quarter. At N761 billion at the end of the third quarter, gross earnings grew by 11 percent year-on-year, slowing down from 15 percent growth to N503.6 billion at half year.

On the other hand, profit slowed down much faster than revenue from 23.5 percent growth at half year to 12 percent improvement year-on-year to N117.4 billion at the end of September 2022. This reflects slowing revenue against growing costs, which could erode profit margin if the trend sustains in the final quarter.

ETI therefore managed to balance costs and incomes at the end of the third quarter, which enabled management to defend profit margin at 15.4 percent.

Cost savings were retained in loan impairment expenses, which extended from a moderated increase of 8 percent at half year to a drop of 6 percent to N56 billion at the end of the third quarter.

The bank also extracted some cost savings from interest expenses, which changed its position from growing ahead of revenue at half year to growing below it at the end of the third quarter. At N174 billion at the end of the third quarter, interest expenses slowed down from 14 percent growth at half year to 8 percent year-on-year.

Operating costs also moderated at an increase of 7 percent to N321 billion at the end of the third quarter. That has reduced the operating cost margin from 43.8 percent in the same period last year to 42 percent at the end of the third quarter.

The full year earnings outlook for the bank has improved with contained credit loss and interest expenses subject however to a possible change of direction in the expense lines in the final quarter.