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Ecobank profit slumps by 5% to $88m in Q1

ECOBANK Group Plc.’s profit slumped by 5% year on year to $88 million in the first quarter of 2023 from $92 million reported in the comparable period in 2022, according to a document submitted to regulators.

Citing the impact of debt restricting in Ghana, and unfavourable foreign exchange rates movements in its Africa markets, Group Chief Executive Jeremy Awori said Q1 results still reflect the resilience of Ecobank’s diversified business model, efficiency, and stability.

In the period, the financial service group’s net revenue settle at $483 million, representing an increase of 11%, driven by higher rates, market volatility, and underlying client activity in foreign currency sales, trade and cash management.

Detail from its financial scorecard showed that Ecobank group profits available to shareholders also declined to $63 million versus $64 million in the first quarter of 2022.

Management attributes the slight decrease in attributable profits of 2% to the net impact of $26 million on Ghana’s domestic debt financial securities. The deal includes the exchange of old bonds with new ones under the Government of Ghana’s domestic debt exchange programme.

Awori said, “Our results for the first quarter of 2023 showed progress despite the challenging global and regional macroeconomic environment.

“Once again, we have demonstrated the resilience of our pan-African diversified business model, efficiency, balance sheet stability, deep customer relationships and the hard work of our 14,000+ Ecobankers.

“Net revenues grew 11%, or 34% if you strip out the effects of translating the performances of our affiliates in their local currencies into US dollars, with revenue momentum robust across all our businesses.

“As a result, we generated a return on tangible shareholders’ equity of 19.5%. Furthermore, continued efficiency gains catalysed the growth in pre-provision, pre-tax operating profits by 13%, a key metric for assessing the Company’s earnings power.

“However, profits before tax at $125 million were flat due to currency movements but up 31% at constant currency.

“Our balance sheet is stable, liquid and resilient. After a strong fourth quarter, average deposits were up across businesses, albeit modestly, with about 82% of deposits within more stable current and savings accounts.

“In addition, the non-performing loans ratio at 5.2% continues to improve, and our total capital adequacy ratio of 14.2% should provide stability in the current challenging macroeconomic environment,” Awori added.

Speaking further on the result, Ecobank Chief said, “We are advancing with formulating our strategic roadmap for the future, which we plan to communicate to all in the second half of the year.

“At the same time, we are executing important short-term initiatives to drive growth and returns as we perfect our strategies for harnessing identified mature opportunities across our markets.

“We will continue to drive with earnest actions, including group-wide expense discipline, continued generation of low-cost deposits to reduce funding costs further, enhanced alignment of resource allocation and returns, precision in execution, and continued balance sheet and returns optimisation. “Awori concluded.

In the period, Ecobank said its payment revenues increased by 10% to $60 million in the first quarter of 2023 compared with $55 million in the prior-year period.

Higher wholesale payment volumes, particularly on Omni Plus, increased interchange fees, Card spending, and fees generated on biller solutions drove the increase in Payment’s revenue.

As a result, payment revenues accounted for 12% of the Group’s net revenues of $483 million.

For the quarter, the net interest income was $266 million, and the net interest margin was 4.7%, compared with a net interest income of $239 million and a net interest margin of 4.6% in the prior-year period.

The increase in net interest income by 11% or 35% at constant currency was primarily driven by the net impact of higher rates and higher interest-earning asset balances, partially offset by increased interest expenses due to higher rates.

During the quarter, approximately $10 million of group-wide interest earned on the government of Ghana Eurobonds were unaccrued. Group operating expenses for the first quarter of 2023 were $277 million, an increase of 9%, or 26%, at constant currency.

Ecobank said the expense increase was a mix of revenue-enhancing expenses, inflationary-driven costs, and in some instances, regulatory-induced costs.

Despite the increases in costs, revenue growth was higher, resulting in a slight improvement in the cost-to-income ratio to 57.3% versus 58.0% in the prior-year period.

Group income taxes for the first quarter of 2023 were $37 million compared with $33 million in the prior-year period. The associated effective income tax rate (ETR) was 30.0% versus 26.4%.

Assets quality improved strongly at the group level. Rcobank reported that its impairment charges on loans and advances for the quarter printed at $33 million, down from $64 million in the first quarter of 2022.

The lower impairment charge in the current quarter reflected a decline in non-performing loans. In addition, during the quarter, loans recovered, and impairment charges released to earnings were $16 million compared with $22 million in the prior year.

As a result, net impairment charges for the quarter were comparatively lower at $18 million versus $42 million in the first quarter of 2022.

Group gross loans and advances were $11.5 billion for the quarter ended 31 March 2023, compared to $11.5 billion and $10.0 billion for the year ended 31 December 2022 and 31 March 2022, respectively.

The year-on-year increase of 15% or 27% at constant currency reflects strong loan growth in 4Q-2022 within Corporate Banking, particularly in trade loans.

However, year-to-date loan growth was essentially flat, reflecting cyclicality as businesses’ consumption of loans typically declined in the 1Q following heightened activity in the 4Q. The Group’s deposit base was stable, with approximately 82% of customer deposits in ‘sticky’ and less volatile current and savings accounts (CASA).

In Q1, management said equity available to ETI shareholders was $1.35 billion, down 10%, year-on-year, reflecting the negative impact of foreign currency translation effects on capital from depreciating local currencies against the US dollars.

The shareholders’ equity was also exposed to unrealised revaluation losses on fair value through other comprehensive income; financial debt securities, and the payment of dividends in 2022 related to the 2021 financial year.

The Group’s estimated CET1 ratio, Tier 1 ratio, and Total Capital Adequacy Ratio (CAR) in the quarter ended 31 March 2023 were 9.6%, 10.2% and 14.2% compared with 10.0%, 10.7% and 14.8% as of 31 March 2022.

The slight decrease in CAR was predominantly driven by the adverse effects of foreign currency translation differences on Tier 1 capital, carried in local currencies, partially offset by local currency assets within risk-weighted assets.

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