Ecobank Transnational Inc (Investment Analysis)
Francis Kyei, Senior Market Analyst
Introduction
This report provides an overview of Ecobank Transnational Incorporated’s (ETI) financial performance for the first nine months of 2023, highlighting key strengths and areas of concern.
It provides insights into the bank’s ability to generate revenue, maintain financial stability, and navigate challenges. The analysis covers key financial metrics, comparative performance with peers (UBA, Fidelity, and FBNH), credit ratings, and management’s outlook.
The report provides relevant information for investors considering exposure to ETI’s corporate bonds in the sub-Saharan Africa Eurobond market. The aim is to help investors make informed decisions based on ETI’s strengths, weaknesses, and risk factors.
Highlights of ETI’s Financial Performance (9M, 2023)
Strengths:
• ETI’s net interest income increased by 15.6% from 9M, 2022 to 9M 2023 (from $740 million to $855 million), indicating a higher interest margin.
• Non-interest revenue increased by 7.8% from 2022 to 2023 (from $614.6 million to $662.6 million) due to the bank’s diverse and stable sources of income such as fees, commissions, trading, and investments.
• The bank recorded a strong operating profit. Operating profit before impairment charges and taxation increased by 18.6% from 9M 2022 to 9M 2023 ($592 million to $702 million)
• Return on equity increased from 19.4% in 2022 to 24.1% in 2023, demonstrating the bank’s ability to generate healthy returns for its shareholders.
Weaknesses:
• ETI has high impairment charges on financial assets, which shows its exposure to
credit risk and potential losses. Impairment charges increased by 70.2% from 2022 to
2023 (from $133 million to $226 million), indicating a higher provision for bad debts.
• The bank recorded a net monetary loss of $27 million arising from hyperinflationary economies. This reflects the bank’s level of exposure to currency and inflation risk.
Performance Analysis (Comparative Analysis with Peers)
Interest Coverage Ratio (ICR): ETI’s operating income reached $1.5 billion, while total interest expense was $526 million, resulting in an interest coverage ratio (ICR) of 2.9. This means ETI can cover its interest payments 2.9 times with its operating income. The bank’s ICR is higher than Fidelity Bank’s 1.1 and FBNH’s 2.75, but lower than the 4.65 recorded by UBA for the same period.
Debt-To-Equity (D/E) Ratio: With total liabilities amounting to $24.9 billion and total equity at $1.7 billion, ETI’s debt-to-equity ratio (D/E) stood at 14.46. This means ETI has 14.46 units of debt for every unit of equity. ETI’s D/E ratio was the highest for the period when compared to UBA, FBNH, and Fidelity Bank.
Capital Adequacy Ratio (CAR): The Bank’s CAR dropped from 14.8% in 2022 to 13.9% in September 2023. Compared to its peers over the same period, ETI’s CAR is the weakest.
Return on Assets (ROA): An ROA of 1.5% was recorded for the period, whereas its peers, UBA, Fidelity and FBNH recorded 4.45%, 2.9%, and 2.5% respectively over the same period.
Return on Equity (ROE): The ROE for the period was 25.6%. While this is an improvement over previous years, ETI’s ROE is low when compared to its peers (FBNH, Fidelity, UBA)
Net Interest Margin (NIM): The pan-African bank recorded an NIM of 5.2%. On this indicator, the bank performed poorly compared to Fidelity Bank’s 8.4%, UBA’s 6.19%, and FBNH’s 6.2%. This means that the bank earned 5.2 cents of interest income for every dollar of interest-bearing assets.
ETI’s Performance Relative to Industry Peers in the SSA Region
| SSA Banks | Interest Coverage Ratio | Debt-to-Equity Ratio | Capital Adequacy Ratio (%) | Return on Equity (ROE%) | Return on Asset (ROA%) | Net Interest Margin (NIM%) |
| ETI | 2.9 | 14.45 | 13.9 | 25.62 | 1.5 | 5.2 |
| UBA | 4.56 | 8.13 | 36.3 | 44.3 | 4.45 | 6.19 |
| Fidelity | 1.1 | 12.18 | 16 | 33.8 | 2.9 | 8.4 |
| FBNH | 2.75 | 9.52 | 16 | 26.6 | 2.5 | 6.2 |
Note: the highlighted percentages show the best results in each category
Credit Ratings
In July 2023, Fitch Ratings affirmed ETI’s Long-Term Issuer Default Rating (IDR) and Viability Rating (VR) at ‘B-’ and ‘b-’, respectively, with a Stable Outlook. S&P Global Ratings also assigned a ‘B-’ rating to ETI with a Stable Outlook, while Moody’s Investors Service rated ETI at ‘B3’ with a Negative Outlook. These ratings reflect ETI’s leading franchise, diversified business model, improved asset quality, strong funding and liquidity profile, as well as its exposure to challenging operating environments, and foreign exchange risk.
Management’s Outlook
Chief Executive Officer, Jeremy Awori, in a statement on the company’s 9M 2023 results, said the company expects to continue its growth momentum and profitability in the future, driven by its customer-centric approach, diversified business model, technological innovation, and market leadership.
ETI aims to leverage its presence in 33 sub-Saharan African countries to capture significant revenue opportunities in the Consumer and Commercial Banking, Corporate and Investment Banking, and Payments, Remittances, and Fintech segments.
The bank also plans to address the challenges and opportunities in its subscale markets and its Nigerian business, which is undergoing a turnaround. Jeremi Awori expresses ETI’s commitment to deliver value to its shareholders, customers, and employees while adhering to its cultural and ethical values.
Conclusion
The 9M, 2023 financial results present a nuanced picture of both strengths and areas of concern. On the positive side, the bank exhibits a commendable ability to generate revenue and maintain a stable financial footing.
The high net interest income, coupled with a diverse non-interest revenue stream, shows ETI’s resilience in revenue generation. Additionally, a strong and improving operating profit, along with a progressive return on equity, suggests a positive trajectory for shareholder returns.
However, prudent consideration must be given to identified weaknesses. The elevated impairment charges on financial assets and the negative net monetary loss due to hyperinflationary economies underscore potential credit and currency risks. Investors should carefully assess these risk factors and ETI’s risk management strategies to gauge the impact on the stability of cash flows and the ability to service debt obligations.
Comparative performance analysis with peers reveals mixed results. While ETI outperforms in certain metrics, such as the Interest Coverage Ratio, it falls behind in others, notably the Debt-To-Equity Ratio and Capital Adequacy Ratio. Investors should weigh these metrics alongside their risk tolerance and investment objectives.
Credit ratings from reputable agencies acknowledge ETI’s strengths but highlight exposure to challenging environments and foreign exchange risk. Investors should factor these considerations into their risk assessments.
Looking ahead, investors may find assurance in ETI’s commitment to addressing challenges and leveraging its presence in sub-Saharan Africa for revenue opportunities. However, a careful evaluation of the risk factors and management’s strategies is crucial when making investment decisions. While this report provides an analysis of the company’s 9M, 2023 performance, a thorough due diligence and an understanding of the broader economic and geopolitical context are essential for bond investors considering exposure to ETI’s corporate bonds.
GFX Brokers is a securities trading company headquartered in Accra, Ghana. We provide wholesale market participants with prime liquidity services to assess trading availability and successfully execute Sub-Saharan African credit and African FX
Disclaimer: This article has been prepared by GFX Brokers, an African investment firm with its registered office on the 2nd Floor, PWC Towers, Cantonments City, Accra Ghana. This article has been issued for information purposes only. GFX Brokers does not recommend or propose that any security referred to in this article is appropriate or suitable for your investment objectives or financial needs.