Ecobank Transnational Incorporated Reports N62.5bn PAT in Q2 2021 Results,(Share Price:N5.10k)

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Monday, July  26, 2021 / 2:35 PM / NGX / Header Image Credit: Frontier Africa Reports


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Ecobank Transnational Incorporated released its Q2 2021 Unaudited results for the period ended June 30th, 2021.


 Key Highlights

  • Gross Earnings grew by 13% to N443bn from N392bn in the previous quarter.

  • Profit before tax grew by 33% to N85bn.

  • Profit after tax grew by 29% to N62.5bn.

  • Net Assets declined by -1% from N812bn to N803bn.

  • Share Price Currently Stands at N5:10k


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Ecobank Group Reports Profit before tax of $210 million for the half-year, up 23%, on Revenue of $825 million. ROTE of 16.1% and TBVPS of 5.22 US cents, up 9%.

Ade Ayeyemi, Ecobank Group CEO, said: "We saw continued and sustained resilience in our performance, which is indicative of the success of our 'execution momentum' drive. As a result, we generated a return on tangible equity of 16.1% versus 15.2% a year ago and increased diluted EPS and tangible book value per share by 19% and 6%, respectively. In addition, profit before tax increased 23% to $210 million."


"Group revenues rose 7% to $825 million, despite the challenging operating environment with the third wave of coronavirus infections threatening economic recovery. Our diversified pan-African business model continued to rise to the challenge. Revenues grew 13% and 6% in our Commercial and Consumer businesses, while our focus on growing the trade business led to increased trade assets. The slowly increasing business and spend activity drove a 20% rise in our Payments business's revenue to $90 million. Deposits growth was strong, with total deposits now over $19 billion, an increase of $1.0 billion in the second quarter and $2.4 billion in a year, driven by our omnichannel strategy. Though loan growth remained flat, we are focused on providing support to MSMEs for growth," Ayeyemi added.


"I am proud of the team's hard work in driving efficiency, which continues to reflect in our cost-to-income ratio of 58.7% ahead of guidance and progressing well toward our medium-term goal of approximately 55%. In addition, credit quality continued to be exceptionally strong. As a result, our NPL ratio of 7.4% is a substantial improvement from the prior year's 9.8%, as we also build reserves to insulate the balance sheet with an NPL coverage ratio of 86.7% and pushing towards our near-term target of 90%," Ayeyemi continued.


"We successfully raised $350 million Tier 2 Sustainability Notes in June, the first-ever by a financial institution in sub-Saharan Africa and first to have a Basel III-compliant 10-year non-call 5 structure outside South Africa in 144A/RegS format. The Bond was 3.6 times oversubscribed, demonstrating strong confidence in the Ecobank Group and our commitment to the sustainability of our communities and their social needs. I am deeply grateful to all stakeholders and must thank our clients for continuing to put their trust in Ecobank for their diverse banking needs." Ayeyemi concluded.

 

  • Return on assets (ROA) of 1.2% and return on tangible equity (ROTE) of 16.1% reflects continued success of our 'momentum execution' strategy.
  • Revenues of $825m, up $54m, or 7%, benefiting from growth across all business lines especially in Commercial (up $23m) and Consumer (up $11m).
  • Payments revenue up 20% to $90m, representing 11% of Group revenues.
  • Profit before tax of $210m, up 23%, on higher NIMs, positive operating leverage and efficiency gains, partially offset by higher impairment charges and a net monetary hyperinflationary loss. • Profit available to ETI shareholders increased 19% to $106m. • Record cost-to-income ratio (CIR) of 58.7%, reflecting sustained progress at cost discipline and achieving mid-50s CIR in the medium-term.
  • Cost-of-risk improved to 180 basis points. Includes macro-overlay of $15m, as a proactive buffer against the uncertain economic outlook
  • We continued to generate record deposit growth. Year-on-year (YoY) customer deposits increased $2.4bn to $19.1bn, driven by a strong omnichannel strategy across digital and physical channels. Deposits grew by $1.0bn in the three months ended 30 June (2Q21)
  • Customer loans of $8.6bn increased 3% and were ahead of guidance.
  • The NPL ratio reduced further to 7.4% from 7.6% in 4Q20 and 9.8% in 2Q20
  • NPL coverage ratio of 86.7% improved from 74.5% in 4Q20 and 65.3% in 2Q20 demonstrating efforts to build reserves of NPLs to near 100% in the near term.
  • Book value per share of 5.76 cents, down 4% YoY; tangible book value per share (TBVPS) up 9% to 5.22 cents
  • Total regulatory capital estimated at $2.22bn; Total capital adequacy ratio (CAR) of 14.7%.
  • Successfully raised $350m 10NC5 Tier 2 Sustainability Bond in June 2021
  • Transaction values on digital channels grew by 57% YoY to $27bn and accounted for 35% of total transaction count. Transaction values in branches were up 11% to $42bn and accounted for 6% of total transaction count, following the easing of pandemic-related lockdowns.
  • All our geographical regions recorded significant increases in both digital and in-branch transactions.
  • Our digital platforms and our capabilities to switch payments across 33 African countries is driving symbiotic partnerships with Fintechs, Telcos, and International Money Transfer Organisations.

 

First six months of 2021 vs. First six months of 2020

Profit before tax was $210 million, increasing by $40 million, or 23%, or in constant currency, by 28%, driven by positive operating leverage, efficiency gains, and improving credit quality, partially offset by higher net monetary losses in the current period.


Net revenue (operating income) was $825 million, increasing by $54 million, or 7%, or in constant currency by 9%. Revenue benefited from increases in both net interest income, up 6%, and non-interest revenue, up 8%, driven by multiple factors including moderate economic growth across our markets, an uptick in customer and business activity, and the net impact of lower rates on funding cost. Also, all our business lines grew revenues, especially strong within Commercial and Consumer, where revenue growth was up 13% and 6%, respectively.


Net interest income was $455 million, an increase of $26 million, or 6%, driven predominantly by a 6% decrease in interest expense, and supported by a 2% growth in interest income. Interest income, additionally, benefited from higher investment securities balances. Increasing the generation of low-cost deposits benefited interest expense and helped reduce the cost of funds to 2.2% from 2.6%. However, the net interest margin (NIM) compressed marginally to 5.0% versus 5.1% in the first half of 2020.


Non-interest revenue was $370 million, an increase of $27 million, or 8%. Fees and commission income, net of expenses, increased $16 million, or 9%, to $205 million, driven primarily by substantial gains in funds transfer fees, fees generated on digital transactions including mobile money payments, and current account servicing fees-all of these supported by an uptick in consumer and business activity following the easing of coronavirus restrictions. However, net trading income fell $3 million, or 3%, to $133 million as client-related foreign-currency sales were lower than the prior year, given that continued supply-chain bottlenecks hindered international trade. At the same time, consumer and business overseas travel remained low.


Expenses were $484 million, decreasing by $10 million, or 2%, or 3%, in constant currency. Staff-related expenditures fell by $17 million, or 7%, partially offset by a $6 million, or 3%, increase in other operating expenses. Total expenses continue to decline because of stringent costs management across all our business lines. As a result, the cost-to-income ratio (efficiency ratio) improved by 840 basis points to 58.7% from 64.1% in the prior year. Likewise, the cost-to-assets ratio, which measures costs in relation to average assets, fell and was 3.7% in the first half of 2021 compared with 4.1% in the prior-year period.


Impairment charges on loans (net) were $87 million compared with $83 million in the prior year. The higher impairments in the current period reflected an increase in gross impairment charges of 12%, driven by UEMOA and CESA. However, loan recovery efforts continued to be effective, with recoveries increasing by 12% from the prior-year period and helping to offset, partially, the higher gross impairment charges. Also, included in the period's impairment charges is a macro-overlay of approximately $15 million as a buffer against what is still a fragile economic recovery amid increasing coronavirus infections in recent months. The cost of risk was 1.80% compared to 1.75% in the prior year's period and 1.85% at yearend 2020.


Taxation - Income taxes were $58 million in the first half of 2021 compared with $43 million in the prior-year period. The effective income tax rate (ETR) was 27.4% versus 25.1% in the prior year


Gross loans and advances to customers were $9,454 million, down $344 million, or 4%, year-to-date (YTD), but increased $242 million, or 3%, YoY. Net loans were $8,850 million, down $390 million, or 4% YTD, but up $229 million, or 3%, from the prior year. The YTD decrease in loans reflected tepid loan demand in what still is a fragile economic recovery. Also, the decrease reflected our more cautious credit underwriting approach. As a result, net loans in Corporate decreased by $383 million or 6% to $6,403 million, and in Commercial loans fell $34 million or 2% to $1,331 million, YTD.


Deposits from customers were $19,143 million, up $2,436 million, or 15%, from the prior year. On a YTD basis, deposits increased $846 million, or 5%. All our business lines contributed to driving the increase in YoY growth in deposits. Corporate deposits grew $992 million, or 14%, to $8,171 million, Consumer Bank deposits increased $612 million, or 11% to $6,352 million, and deposits at Commercial increased by $843 million, or 23%, to $4,585 million, on a YoY basis. On a YTD basis, Corporate and Commercial Bank deposits grew 8% and 7%, respectively, while deposits decreased by 2% in Consumer. The YTD growth in deposits outpaces that of the prior-year period, reflecting stickiness in digital adoption trends among customers and the pandemic's continued impact.


The Group estimates Tier 1 CAR and Total CAR at 9.8% and 14.7%, as of 30 June 2021, compared with 9.4 per cent and 12.3 per cent as of 31 December 2020. The increase in CAR is primarily due to internal profit generation and ETI's June 2021 issuance of a $350 million 10-year Subordinated (Tier 2 capital) Sustainability Eurobond. On a fully loaded IFRS 9 Day One basis, the Group estimates Tier 1 CAR at 9.1% and Total CAR at 13.9% as of 30 June 2021.


Equity available (attributable) to ETI shareholders was $1,424 million as of 30 June 2021, compared with $1,503 million and $1,481 million as of 31 December 2020 and 30 June 2020, respectively. The YTD decline in shareholders' equity was driven by unrealised mark-to-market losses of $89 million on debt securities and foreign currency translation reserves losses of $93 million. These losses were partially offset by higher profit available to ETI shareholders of $106 million.


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