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ETI Strategise for new Financial Year

By Lucky Fiakpa
ETI shareholders express satisfaction with the group’s 2008 performance believing that as the new subsidiaries and branches begin to make meaningful revenue contributions to the group’s bottomline, its fortune will continue to grow brighter, Lucky Fiakpa writes

•Mande Sidibe
•Mande Sidibe

ETI shareholders express satisfaction with the group’s 2008 performance believing that as the new subsidiaries and branches begin to make meaningful revenue contributions to the group’s bottomline, its fortune will continue to grow brighter, Lucky Fiakpa writes

As the shareholders of Ecobank Transnational Incorporated, ETI, met to review the bank’s performance for 2008, one thing was very clear in their mind; it had been a difficult year given the several challenges posed by the global financial crises. Even at that, they were satisfied with the overall performance of the institution.

OPERATING PERFORMANCE
Gross earnings for the bank exceeded $1 billion for the first time during the year. Gross revenue increased by $451.33 million, from $578.77 million in the year ending December 31, 2007, to $1030.10 million in the year under review, representing an increase of 78 per cent. However, profit before tax declined by $29 million due to loan loss provisions and losses posted by new subsidiaries.

Net loan loss provision for the year increased by $94 million or 495 per cent, to $113 million. Ecobank Nigeria contributed 92 per cent of the incremental provisions. All the other regions together contributed the remaining eight percent.

Included in the loan loss provisions was the sum of $54 million for margin loans in Nigeria. Although these loans are fully covered on a mark-to-market basis, the illiquid nature of the market and the inability to easily sell down meant that the bank to adopt a prudent approach.

Profit after tax also went down by $28 million or 20 per cent to $111.14 million. Profit attributable to shareholders dropped by $13 million, to $94 million giving basic earnings per share of 1.39 cents, down 11 per cent.
Total assets increased by $1756 million, representing a growth of 27 per cent. New subsidiaries, both acquisition and start-ups, contributed 15 per cent, amounting to $264 million of this increase.

The bank focused increased attention on deposit mobilization during the year by strongly employing its retail outlets. Despite increased competition, deposit mobilization was enhanced by $1085 million, or 23 per cent to $5799 million. Of this increase, $909 million or 84 per cent was contributed by the retail segments of the business. Wholesale contributed the remaining 16 per cent or $175 million. Retail deposits grew by 29 per cent as against wholesale growth of 11 per cent, emphasizing the bank’s strategy of using retail network to grow liabilities.

Loans and advances rose by $637 million, representing a growth of 20 per cent. Loans and advances under the retail business grew by 24 per cent, and contributed $290 million, or 45 per cent of the total increase in loans and advances to customers.

Shareholders’ funds increased by $506 million, or 78 per cent to $1158 million, largely on account of ETI’s rights issue and public offer in the last quarter of the year. The rights issue and public offer contributed $506 million to the group’s total shareholders’ funds after providing for expenses.

The growth in interest expense was occasioned by the growing competition for deposits in the market place. This resulted in higher interest on customers’ deposits.

FINANCIAL RATIOS

Except for the number times assets were turned over, the ratio were generally depressing. This was mainly due to high operating expenses contributed by new subsidiaries and branches without equivalent revenue growth. It is expected that this trend would reverse as the new subsidiaries and branches begin to make meaningful revenue contribution.
Financial ratios or efficiency ratios are the actual test of performance of any company in a given year.

It measures how well assets were deployed in a given year as well as returns on investment. Are returns this year better than those of the previous year? These are made known from the financial ratios and from the table given below, 2008 performance was better outing than the previous year for ETI.

The profit margin, which measures how much of the gross earnings were retained as net profit inched dipped from 24.01 per cent the previous year to 10.79 per cent. This means that as against 24 cents retained as net profit from every $1.00 earned as gross earnings the previous year, the margin dipped to 11 cents for every $1.00 earned this year, a decrease of 13 cents.

Returns on assets also dropped 2.92 per cent in 2007 to 1.95 per cent during the year. Return on assets measures how efficient assets were deployed in a given year. Return on shareholders’ funds came down from 29.24 per cent to 14.03 per cent. Total asset/gross earning ratio which measures how many times assets were turned over in the cause of the year edged up from 8.84 per cent to 12.40 per cent.

The poor fortune of the efficiency ratio also robbed off on the interest earnings/expenses ratio. At a ratio of 1:2.2, it shows that for every $1 the bank expended in generating deposits, it realized almost $2.2 in return. This is however lower than the ratio attained the previous year.

However, as the bank has said that this trend would reverse as the new subsidiaries and branches begin to make meaningful revenue contribution; shareholders could have something to look forward to.

STRATEGIES

The bank’s vision of building a world class pan-African bank and contributing to the economic and financial development of Africa continued to guide its strategy all through the year.
In 2008, the group added five more countries to its network, increasing its presence in eastern and southern Africa, and bringing the total number of countries in which it has operations to 25 by year end.
The group, indeed, grew its business in 2008. Customer base rose to almost two million and the branch network expanded to over 600 branches and offices. During the year, the bank also launched several new transaction banking products and services designed to add value to its customers. The group remained focused on improving customer service, efficiency and productivity across the group.

The Future
The bank’s management believes the global economy should slowdown in 2009 and it is hopeful that the impact on Africa will not be as severe as feared. With its geographical spread coming to an end, the group intends to focus increasingly on improving controls, customer service, processes, efficiency, productivity and using technology to leverage its unparalleled presence across Africa.
In the last quarter of last year the group raised additional capital to strengthen and support its growth. It intends to continue its strategy of diversification of its business across markets, products and services, and to keep exploring ways of adding value for its stakeholders.
As the group’s chairman, Mande Sidibe, puts it, “The future of the Ecobank Group is aptly captured in our new corporate logo, which embodies our history as a pioneering institution, but also reflects our commitment to Africa. It marks a new phase in the evolution of Ecobank as a pan-African banking group”.

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