Shareholders of Ecobank have taken in their stride the inevitable financial loss incurred in the 2022 financial year due to impairment charges imposed by the Domestic Debt Exchange Programme. Ghana’s biggest banking group, adjudged by total assets (GHc25, 908.025 million as at end 2022) declared pretax losses of GHc27.218 million for 2022, a reversal of its customary strong profitability which indeed had reached a record high of GHc893.732 million for 2021.
However at the bank’s Annual General Meeting, held at the bank’s head office auditorium last week, shareholders in attendance universally commended it for riding the storm created by the DDEP and expressed confidence that the bank will return quickly to its customary profitability this year. Indeed, last week’s AGM was one of the shortest and most cordial in the bank’s three and a half decade history, with one shareholder after another publicly expressing appreciation for the way the bank has navigated the treacherous terrain banks in Ghana now have to navigate created by the DDEP.
Indeed, impairment charges incurred by Ecobank in 2022, due overwhelmingly to the DDEP, amounted to GHc1, 708.126 million for 2022, which instructively was over six times the GHc277.754 million incurred in 2021, and which reflects the situation during normal times. Before the impairment charges were imposed the bank had earned record high net income of GHc2, 968.058 million, which is 40.3 % higher than the GHc2, 115,181 million earned in 2021.
Shareholders are being rewarded for their support and the confidence they have shown in their bank’s board, management and staff with an assurance from the managing director and CEO, Daniel Sackey, that they will not be required to cough up new equity investments to restore the bank’s core capital.
Indeed, despite an after tax loss of GHc15.322 million for 2022, as well as GHc199.982 million paid out as dividends during the year (for 2021 profits – the bank will not pay dividends on its 2022 financial performance) and GHc185, 000 added to statutory reserves and GHc48.123 million in credit risk reserves, the bank still increased its total shareholders’ equity to GHc2, 705.795 million by the end of 2022, up from GHc2, 683.342 million a year earlier. Stated capital remained at GHc416.641 million, throughout the year, which is well above the minimum capital requirement of GHc400 million insisted on by the Bank of Ghana.
Nevertheless, the bank recognizes the need to increase its capital buffers further. The impairment charges provided for 2022 were computed from expectations of the hit it would take from the DDEP before that initiative was actually concluded in February this year. Indeed, the bank had to add on further impairment charges for the first quarter of 2023 due to the actual terms of the DDEP being agreed.
There is another potential hurdle ahead. The bank will inevitably incur further impairment charges on its foreign debt holdings, (particularly Eurobond holdings) when external debt restructuring is completed. Although the bank has made provisions for this based on estimates, the possibility that the actually charges will be higher exists and the actual situation will only become known when that aspect of Ghana’s debt restructuring is completed.
Instructively though, Ecobank, with its customary prudence has made realistic projections with regards to expected impairment charges. While this has made the bank look worse affected than some of its competitors as at now, when the final actual outcome is determined the bank will be rewarded for its realism, while some of its competitors will have to cough up the difference for their under-provisions.
Whatever the outcome, the bank has assured shareholders that it will be ready. Addressing shareholders at the AGM, Daniel Sackey announced that “The bank will prioritize the rebuilding of its capital base and liquidity buffers.”
However the bank is confident it can do this organically, without resort to new capital injections from existing or new shareholders or the need for support from neither government’s financial stability fund nor the BoG’s Emergency Liquidity Assistance; and the bank’s financial standing justifies this confidence.
Affirms Daniel Sackey : “Periodic stress tests carried out during the crisis still confirmed our strong capital position. The bank has taken appropriate measures to maintain a strong capital base given the economic uncertainty and the tight regulatory measures imposed by the central bank.”
For instance, despite the effects of government’s debt restructuring Ecobank’s asset quality is improving. Gross non-performing loans as a proportion of the loan book declined to 9.47% as at the end of 2022, down from 12% a year earlier. The bank’s core capital adequacy ratio is 12.10% and added to its 2.53% tier 2 capital ratio this makes for an overall capital adequacy ratio of 14.63%, which is nearly one and a half times the 10% regulatory minimum and is also still ahead of the 13% minimum capital plus the capital buffers insisted on by the BoG during normal times; before the 3% capital buffers were temporarily suspended because of the peculiar challenges banks in Ghana are currently facing.
Dan Sackey’s confidence is not only shared by the bank’s shareholders – the banking public gave it a ringing endorsement too last year, by increasing their deposits with the bank by 54.4%,to GHc20.4 billion, the highest in the industry. Even Ecobank, with its industry leadership in the most pivotal change in the global banking industry since the beginning of the century – digital banking – is more used to annual increases in deposits of around 20%. But investors, unhappy about the effects of the DDEP on their finances and their belated realization that government is not a riskless haven for portfolio investment after all have turned to bank fixed deposits in particular as a better proposition. Here Ecobank’s digital leadership has won it the patronage of enlightened middle class households and financially empowered upper class ones as well as enterprises of all sizes, having (unexpectedly) led the banking industry’s down market with respect to small, owner-managed businesses.
After Ecobank’s AGM shareholders left reassured, the plans and expectations of the bank’s CEO still ringing in their ears: “Looking ahead, we expect the performance momentum to continue with increased focus on revenue expansion and cost containment while keeping an eye on other downside risks. We remain committed to prioritizing digital services, efficient collections, prudent liquidity management and risk-adjusted credit expansion and recovery.
“Although the DDEP has resulted in significant impairment losses, this is a temporary setback. I remain confident in our capacity to recover and return to profitability by the end of 2023.”
This would cap an exemplary tenure in office of Dan Sackey who will retire in August having cemented Ecobank’s position as the industry leader, its position now revolving around its use of digital technology to provide superior customer convenience for all market segments from elites to the grassroots, and higher efficiency. Quite different from its origins as a high technical capacity wielding merchant bank, but even more successful.
By Toma Imirhe