Ecobank Limited

Nigeria Bank Analysis October 2015

Rating class Rating scale Rating Rating outlook Expiry date Long -term National A (NG) Stable September 2016 Short-term National A1-(NG)

Financial data: Summary rating rationale

(USDm comparative)  The accorded ratings reflect Nigeria Limited’s (“Ecobank” 31/12/13 31/12/14 or “the bank”) status as one of the systemically important banks in NGN/USD (avg.) 159.3 165.1 Nigeria, accounting for 6.4% (FYE13: 6.0%) of total industry assets NGN/USD (close) 161.1 182.6 at 31 December 2014. In addition to the implied likelihood of Federal Total assets 9,021.2 9,657.8 Government of Nigeria (“FGN”) support, if necessary, Ecobank also Primary capital 972.1 1,086.4 enjoys adequate support (both financial and technical) from its parent, Secondary capital 61.2 320.0 Ecobank Transnational Incorporated (“ETI”). Net advances 3,884.5 4,888.4  The bank’s capital level improved by 54.3% to N256.8bn at FYE14, Liquid assets 1,868.7 2,135.5 underpinned by an injection of N16.8bn in Tier 1 capital by ETI, the Operating income 807.1 973.1 issuance of a subordinated Tier 2 note of USD250m (N47bn), and Profit after tax 73.2 180.1 strong internal capital generation. Despite the notable growth in Market cap.* N346.8bn/USD1.7bn capital, higher growth in the bank’s risk weighted assets during the Market share** 6.4% year saw the total capitalisation ratio reduce to 16.0% (FYE13: *For ETI shares listed on The Nigerian Stock Exchange (“NSE”) as at 28 September 2015. 17.4%), albeit remaining above the prudential threshold of 15%. **Based on industry assets as at 31 December 2014.  Ecobank reported a lower non-performing loan (“NPL”) ratio of 4.7% at FYE14 (FYE13: 5.9%). The improvement was largely supported Rating history: by loan write-offs of N38.1bn. At 1H F15, the ratio reduced further to

Initial rating (November 2006) 3.1%. While management expects further improvement in asset Long-term: A+(NG) quality indicators by FYE15, through enhancement of its risk Short-term: A1(NG) management process and recovery mechanisms, together with modest Rating outlook: Positive loan growth, the operating environment challenges remain major constraints to achievement of this objective. Last rating (September 2014)  The bank is vulnerable to liquidity risk, especially considering its Long-term: A-(NG) structurally short-dated funding profile (though typical of Nigerian Short-term: A2(NG) banks) and the persistent liquidity constraints triggered by Central Rating outlook: Positive Bank of Nigeria’s (“CBN”) monetary policy stances. This is

Related methodologies/research: evidenced by the steady reduction in the bank’s liquidity ratio, which Global Criteria for Rating Banks and Other was 40.0% at FYE14 (FYE13: 45.0%, FYE12: 68.3%). Financial Institutions, updated March 2015  Ecobank has recorded consistent and increasing profitability in the Nigerian Banking Sector Bulletin, 2014 last three years. The bank delivered an improved net profit after tax Ecobank rating reports (2006-14) (“NPAT”) of N29.7bn and N24.5bn in F14 and 1H F15 respectively, despite post-acquisition challenges, particularly credit losses on Glossary of Terms/Ratios, February 2015 certain legacy loans. However, note is taken of the foreign exchange

GCR contacts: gains reported in the periods, which may not be repeated in future Primary Analysts years. According to management, performance is expected to Femi Atere/Julius Adekeye improve further by full-year F15, as the bank optimises costs. Credit Analyst/Senior Credit Analyst [email protected] Factors that could trigger a rating action may include [email protected] Positive change: While the current ratings benefitted largely from

Committee Chairperson consistent and improved performances over the years, as well as parental Dave King support (as demonstrated during the last capital raising exercise), the [email protected] bank’s market position relative to the top five banks in Nigeria limits the likelihood of a rating upgrade in the medium term. However, a Analyst location: , Nigeria substantially enhanced market share would be positively considered.

Tel: +234 1 462-2545 Negative change: The ratings would be sensitive to asset quality stress, a Website: www.globalratings.com.ng weakening in profitability (particularly arising from credit losses), a declining liquidity profile, a reduction in the assessment of shareholder support, and further deterioration in operating conditions.

Nigeria Bank Analysis | Public Credit Rating

Organisational profile Treasury). At FYE14, Ecobank operated with 484

Corporate summary1 branches, 1,396 Automated Teller Machines (“ATMs”), and an average staff complement of 5,727 Ecobank, a member of ETI2, is a locally registered (FYE13: 6,874). commercial bank in Nigeria, offering domestic and corporate banking services to its broad customer Governance structure base. The bank was incorporated as a public limited The composition of Ecobank’s board of directors liability company in 1986, but later re-registered as a (“the board”), and its governance structure, is in line private limited liability company in 2012 after ETI with the requirements of CBN and Securities and acquired 100% interest in the bank. Ecobank has Exchange Commission (“SEC”), as well as relevant grown through organic and inorganic initiatives to standards of ETI. The board performs its various become one of the top eight banks in its local market. functions through its standing committees. In Nigeria is ETI’s largest market, contributing about addition, there are a number of management 43% to the group’s gross earnings as at 31 December committees which ensure good and effective 2014. corporate governance at the various managerial levels. The board has a satisfactory mix of Ownership structure competencies and experiences. The bank is a wholly owned subsidiary of ETI. As at 31 December 2014, about 82.2% (FYE13: 74.8%) of Key changes to the board during the review period ETI’s shareholding is listed on the NSE, while 10.7% include the exit of the Chairman, Olor’ogun S.F. (FYE13: 16.0%) is listed on ’s Stock Exchange Kuku, and the subsequent appointment of Mr John (“GSE”), and 7.1% (FYE13: 9.2%) on the Bourse Oche Aboh as the new Chairman of the board. With Regionale des Valeurs Mobilieres (“BRVM”). Table reference to the redesigned operating structure, the 1 highlights major shareholders of ETI. bank’s board size reduced from fifteen (15) to ten

% Holding (10) members, comprising six non-executive Table 1: Major shareholders of ETI FYE13 FYE14 directors (including the Chairman) and four executive Group Limited - 20.7 directors (including the Managing Director). The Qatar National Bank - 17.4 table below illustrates the bank’s adherence to International Finance Corporation - direct 14.1 14.5 selected aspects of appropriate corporate governance. and managed funds Public Investment Corporation 18.2 13.8 Testing description Findings Social Security and National Insurance Trust 5.2 4.0 (SSNIT) Tenure of non-executive directors 3 years each/max. 3 cycles Asset Management Corporation of Nigeria 10.4 - Independent directors Yes, 2 (“AMCON”)* Number of board committees 4 Free float (all <5%) 52.1 29.6 Internal audit and compliance Yes, independent units Total 100.0 100.0 function *Taken over by Qatar National Bank in September 2014. External auditors and rotation policy Deloitte/10 year tenure Source: Ecobank Group AFS. (renewable annually) Internal and external practice guides Yes, group wide rules applied Strategy and operations The bank continued to strengthen its strategic plans, Financial reporting growing organically and deepening focus within the The financial statements of the bank are prepared in retail banking sphere. In a bid to further reduce its accordance with all relevant provisions, rules and funding cost, strengthen margins, and ultimately International Financial Reporting Standard (“IFRS”). improve the bottom line, Ecobank is maintaining its The bank’s external auditor, Akintola Williams strategic focus on mobilising cheaper deposits. An Deloitte, issued a clean audit opinion on the financial increasing portion of the expensive term deposits has statements as at and for the year ended 31 December been replaced with low-cost deposits. 2014.

Ecobank made certain changes to its organisational Operating environment3 structure in 2014, focusing on its various business Economic and industry overview segments, and strengthening its operations. The bank The successful conclusion of the general elections in has transitioned from a geography-focused structure Nigeria and the sustained offensive against the ‘Boko (i.e. North, South and East) to a business-focused Haram’ sect (a terrorist group) by the military in the structure (Corporate Banking, Business Banking, early months of 2015 appears to have diminished the Personal Banking, Public Sector Banking and apprehension created by insurgent activity in the northern part of the country, and the election related 1 Refer to previous rating reports issued by GCR for a detailed tension at the beginning of the year. The subsequent background. 2 ETI is one of the largest banking groups in Africa, with presence in 36 African countries and international offices in , , 3 Refer to GCR’s 2014 Nigerian Banking Sector Bulletin for a review of and . relevant economic, regulatory and/or industry developments.

Nigeria Bank Analysis | Public Credit Rating Page 2

stable political climate is expected to restore investor capitalisation stood at 33,457 points and N17.0tn, confidence in the economy and fuel economic growth representing a YoY decline of 21.3% and 10.9% and stability in the immediate future. respectively, albeit an improvement from the levels of 31,745 points and N16.3tn at end 1Q F15. The A significant reduction in US dollar inflows into naira continued to fall against the USD, averaging an Nigeria from low crude oil sales and foreign direct all-time high of N198/USD at 30 June 2015 in the investment (“FDI”), against a relatively inelastic interbank market (and widened to N217/USD in the demand for US dollars, has led to a marked parallel market). The CRR for both public and private depreciation in the value of the Naira, fuelling sector deposits were equalised at 31% during the inflationary pressure in the economy. Although the period, but later reduced to 25% in September 2015. Federal Government has unveiled plans aimed at shoring up its non-oil revenues to reduce the The number of players in the Nigerian commercial sensitivity of the country’s revenue to oil prices, the banking segment stood at 19 (made up of 10 benefit of the initiatives are unlikely to manifest international, seven national, and two regional banks) immediately, making a downscaling in capital at the end of 2014, down from 21 at the beginning of expenditure across all government levels inevitable in the year. This follows the successful acquisition of the short term. two of the three rescued banks under the control of AMCON. In this regard, Enterprise Bank Limited Banks’ substantial level of credit exposure to the oil and Mainstreet Bank Limited, were sold to Heritage and gas, and public sector is concerning, considering Bank and Skye Bank respectively during 2014, the likelihood of rising default rates in these sectors. leaving Keystone Bank Limited as the only bridge A similar challenge is anticipated in the power sector, bank currently under AMCON management. The on the back of low revenue generation capacity, eight largest banks in the country (including underpinned by major operational challenges facing Ecobank) accounted for over 70% of the industry’s key players in the sector. CBN has responded total assets in 2014. appropriately to these risks, publishing policies (via circulars/press releases) on bank recapitalisation, Competitive position foreign exchange management, oil and gas industry The bank continued to leverage its enlarged network, credit risks, and the closure of the Retail and and consolidate prior years’ achievements in Wholesale Dutch Auction Sale foreign exchange enhancing competitive positioning. As of FYE14, windows to defend the value of the Naira. Another Ecobank’s customer base and market share have measure put in place by CBN in 2014 to regulate increased to 7.3 million and 6.4% (FYE13: 6.0%) liquidity in the financial system was the upward respectively. Table 2 illustrates the bank’s key adjustment of the cash reserve requirements (“CRR”) operating performances against a selection of its on public and private sector deposits – a development peers at year-end F14. that is expected to constrain banks’ asset creation capacity and profitability in the near term. Financial profile

While in the post-election period, activity levels in Likelihood of support the Nigerian banking industry have improved, the Nigeria (serviced by the bank) is considered to be its macroeconomic environment remained challenging largest market by ETI, and as such, additional in 1H F15. In particular, inflation rates grew steadily support from its parent should be forthcoming. from 8.0% in December 2014 to 9.2% at June 2015, Furthermore, given the bank’s systemic importance while the monetary policy rate remained unchanged within the Nigerian economy, the FGN’s willingness at 13.0%. The NSE all-share index and total market to support Ecobank is also considered strong. Table 2: Competitive position* UBA GTBank Access Diamond Ecobank Ecobank vs. selected banks Year end 31 December 2014 Shareholders’ funds (N’bn) 265.4 374.3 277.4 209.0 198.4 Total assets (N’bn)† 2,741.4 2,331.0 2,095.0 1,917.0 1,763.7 Net loans (N’bn) 1,120.0 1,281.4 1,122.9 791.1 892.7 Profit after tax (N’bn) 47.9 94.2 47.1 25.5 29.7 Total capital/Total assets (%) 12.6 16.1 13.2 12.6 14.6 Liquid and trading assets/Total short-term funding (%) 21.8 14.0 17.7 28.8 12.6 Gross bad debt ratio (%) 1.5 2.9 2.2 5.1 4.7 Net interest margin (%) 7.7 10.1 8.4 10.0 10.8 Cost ratio (%) 67.4 43.3 62.2 64.6 61.6 ROaE (%) 19.7 30.5 16.7 14.5 16.7 ROaA (%) 1.8 4.8 2.2 1.5 1.8 *Ranked by total assets. †Excludes clients’ balances in respect of letters of credit. Source: Audited Financial Statements.

Nigeria Bank Analysis | Public Credit Rating Page 3

Funding composition reduced to 16.0% at FYE14 (down from 17.4% at At FYE14, the bank’s assets were largely funded by FYE13) due to a significant increase in risk weighted customer deposits, accounting for 73.3% of the total assets. For the current year, the bank plans to issue funding pool. Other funding sources include total additional Tier 1 capital (through a private capital (15.0%), interbank takings (6.5%), and placement) and subordinated debt before year-end borrowings (5.2%). These are discussed in the F15 to further strengthen its capitalisation. sections below. FYE13 FYE14 Table 4: Capitalisation Customer deposits and interbank funding: N'bn N'bn Customer deposits grew by 11.9% to N1,251.0bn at Tier 1 149.3 183.1 FYE14, supported by the introduction of new Tier 2 16.5 56.1 products within the domestic banking unit. The bank Total regulatory capital 165.7 239.3 continued to slow down term deposit takings, to Total risk weighted assets 953.3 1,492.4 reduce its cost of funding. Thus, the deposit mix CAR (%) 17.4 16.0 tilted in favour of low cost deposits, which rose from Source: Ecobank AFS 67.7% (FYE13) to 75.8% of total deposits at FYE14. In F14, Ecobank secured an additional facility (a The book is fairly concentrated, with the single syndicated short term borrowing arranged by largest depositor constituting 6.1% of total deposits. Standard Chartered Bank) amounting to N27.7bn. In terms of maturity profile, the book is largely short- The facility attracts interest of 90-day LIBOR plus dated, with 71.1% maturing in the ‘less than one 3%, payable quarterly, while the principal repayment month’ maturity band. The bank’s management has forecast slight growth in deposits for F15 due to is at maturity date. Thus, total outstanding borrowings increased to N88.2bn (FYE13: N48.3bn), management’s deliberate shift from expensive with about 31.8% maturing in the ‘less than one year’ deposits to a lower cost deposit base. This strategy is bucket. evident in the bank’s half year customer deposit figures, which declined by 4.8% to N1,190.8bn. FYE13 FYE14 Table 5: Borrowings Global Credit Rating and Co (“GCR”) foresees a N'bn N'bn further decline in the deposit book by FYE15, as IFC 1.4 0.4 FGN implements its directives on the Treasury Single Bank of Industry 45.1 56.1 Account (“TSA”) – a development which could see CBN Agricultural Loans 1.8 4.1 over N1tn in public sector (Federal ministries, Standard Chartered Bank - 27.7 departments and agencies) funds being withdrawn Total 48.3 88.2 from the system. However, recent initiatives of the Source: Ecobank AFS. bank to optimise its value chain banking Liquidity positioning opportunities within the public sector provide some The bank displayed a fairly liquid balance sheet in degree of comfort. F14, ending the year with a liquidity ratio of 40%,

Table 3: Deposit Book Characteristics which averaged 38.3% over the 12-month period. Its liquid and trading assets ratio relative to total short-

By type (%): term funding dropped further to 12.6% (FYE13: Demand 24.6 Term 16.0 12.8%). While note is taken of the liquidity Savings 51.2 Banking institutions 8.2 By maturity (%): constraints within the Nigerian banking sector, <1-month 71.1 3-12 months 9.7 triggered by the persistent monetary policy stances of 1-3 months 11.3 >12-months 7.9 CBN and the FGN’s directives on TSA, GCR Concentration (%): considers the maintenance of a comfortable liquidity Single largest 6.1 Ten largest 23.0 position as vital, considering Ecobank’s structurally Five largest 17.3 Twenty largest 28.7 short term funding. Source: Ecobank AFS.

Operational profile Capital and money market funding: Ecobank’s shareholders’ funds grew by 26.7% to Risk management N198.4bn at FYE14, underpinned by earnings Ecobank continued to strengthen its risk management retention and an additional capital investment of framework and recovery mechanisms, mitigating the N16.8bn made by ETI during the year. This, various risks assumed in the course of lending and combined with a subordinated Tier 2 note of trading, and ensuring adherence to its risk appetite. In USD250m (N47bn) raised in August 2014 and an line with CBN directives, the bank established the outstanding Tier 2 debt of N11.5bn from office of the Chief Compliance Officer, and this is International Finance Corporation (“IFC”), saw total expected to further enhance compliance with various capital rise to N256.8bn, translating to a 54.3% internal and external regulations, to the extent that growth over the FYE13 balance. Nevertheless, the they affect the bank’s operations. bank’s risk weighted capital adequacy ratio (“CAR”)

Nigeria Bank Analysis | Public Credit Rating Page 4

Asset composition facilities. The bank’s single largest obligor amounted The bank’s total assets increased by 21.3% to N1.7tn to 4.6% of the total portfolio, representing 21.7% of in F14, with the asset mix tilting in favour of cash shareholder’s funds at year end-2014 (exceeding and liquid assets, and advances to customers. Cash CBN’s single obligor limit of 20%, and for which the and liquid assets constituted an increased 22.1% of requisite approval has been obtained). For the rest of the total asset base, propelled by the incremental F15, the bank is maintaining its conventional sectors, increases in CRR, which saw mandatory deposits with decreasing focus to the oil and gas sector. with CBN rise by 43.0% to N215.4bn. Another Moreover, the loan book is expected to grow only growth trigger is the balance held for trading marginally as focus is shifted to collection and investment securities, which comprised treasury bills recovery, in order to strengthen asset quality. (31.4%) and FGN bonds (68.6%). Available for sale investments include treasury bills (73%), bonds Table 7: Loan book characteristics (17.3%) and equity (9.7%). On the other hand, loans By sector (%): FYE13 FYE14 and receivables investments comprised investment in Agriculture 7.4 8.2 treasury bond protected investment corporation Oil and gas 29.5 17.6 Construction 3.0 4.9 limited and a promissory notes issued by ETI for the Whole sale and retail trade 5.9 16.3 acquisition of International Plc’s Public sector 6.4 6.4 (“Oceanic”) non-core assets in 2011. Overall, total Manufacturing 9.2 11.0 investment securities amounted to N220.8bn, IT and Communication 7.2 3.9 representing a decline of 7.4% over the FYE13 Transportation 2.8 2.9 position. Individual 8.4 6.3 Other 20.2 22.5 FYE13 FYE14 Largest exposures: % By product: % Table 6: Asset mix* N'bn % N'bn % Single largest 4.6 Overdrafts 25.9 Cash and liquid assets 301.1 20.7 390.0 22.1 Five largest 17.2 Term loans 72.6 Cash 42.5 2.9 36.5 2.1 Ten largest 29.0 Others 1.6 Liquidity reserve deposits 150.2 10.3 215.4 12.2 Twenty largest 44.6 Held for trading inv. 17.9 1.2 52.5 3.0 Source: Ecobank AFS.

Balances with other banks 90.5 6.2 85.5 4.8 Customer advances 625.9 43.1 892.7 50.6 Foreign currency exposure Other Investments 404.7 27.8 360.0 20.4 Ecobank is exposed to foreign exchange risk via its Available-for-sale inv. 163.0 11.2 117.1 6.6 foreign currency (“FCY”) denominated portfolios Loans and receivables inv. 57.6 4.0 51.2 2.9 (including deposits and borrowings). The risk is Inv. in subsidiaries 2.8 0.2 - - considered high at end-F14, as evidenced by the bank Pledged assets 181.4 12.5 191.7 10.9 having net FCY liability positions in all major FCYs. Fixed assets 56.1 3.9 57.3 3.2 These mismatches expose the bank to the risk of loss Other assets 65.7 4.5 63.8 3.6 in the event that the Naira devalues against other Total assets 1,453.6 100.0 1,763.7 100.0 currencies. However, management expects an *Excludes client balances held in respect of letters of credit. Source: Ecobank AFS. improvement in FCY risk levels by FYE15, through effective matching of related assets/liabilities. Pledged assets increased by 5.7% to N191.7bn, comprising: treasury bills (52.2%) pledged against Table 8: Net FCY USD EUR Others* Total position (FYE14) counterparty transactions; and federal government N'bn N'bn N'bn N'bn Financial assets 534.7 10.0 5.2 549.9 bonds (47.8%). Credit risk is the most significant Financial liabilities (697.6) (17.7) (5.6) (720.9) financial risk to which the bank is exposed (given the Net assets/(liabilities) (162.9) (7.7) (0.4) (171.0) size of the loan book), although foreign exchange risk * Including CFA Franc and Ghana Cedi. Source: Ecobank AFS. is also present. Contingencies Loan portfolio Contingencies constituted 32.5% (FYE13: 21.9%) of With increased demand from customers, Ecobank’s total assets (including contingencies). The portfolio is gross loans and advances rose significantly by 40.9% more than double the F13 position, ending the year to N931bn at FYE14. The loan book remained F14 at N850.3bn, comprising bonds and guarantees diversified across all sectors, and in line with the (24.8%), letters of credit (21.5%), foreign exchange bank’s risk appetite. Following the persistent decline transactions (39.5%) and others (14.3%). in oil prices, and the attendant impact on the Nigerian economy, Ecobank continued to moderate lending to Asset quality the oil sector, most especially within the upstream Underpinned by write-offs amounting to N38.1bn segment. This accounted for the significant reduction during F14, the bank’s NPL ratio reduced from 5.9% in the proportion of exposure to this sector in F14 at FYE13 to 4.7% at FYE14. The write-offs related to (Table 7). Lending to the downstream oil segment has fully provisioned legacy NPLs, including the been strictly restricted to short term, self-liquidating clawback of loans previously sold to AMCON.

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Despite the write-offs, impaired assets grew by While management had advised of their expectation 11.3% to N43.6bn in F14, driven by the bank’s rising of lower impairment charges in F14, the F14 loan risk profile. However, the current provisioning level loss expenses remained high at N33bn. Like the prior is considered satisfactory, with arrears coverage of year, the rising impairments were attributed to legacy 66.1% (FYE13: 71.9%). loans absorbed from the acquisition of Oceanic. Total operating expenses (“TOE”) increased by 15.9% to Due to the cumbersome judicial process for almost N99bn, mainly driven by rising information liquidation of security and the associated time lags, technology and advisory expenses. However, growth collateral was not given primary consideration in this at TOI level absorbed that of TOE, leaving the bank’s analysis. However, the bank’s management advised operating efficiency improved to 61.6% (F13: that about 89.8% of gross loans were secured in one 66.4%). Ecobank enjoyed N1.1bn in tax credits in form or another (including by shares, real estate, or F14, posting NPAT of N29.7bn (translating to almost otherwise), while the remainder were unsecured. 1.6x the F13 result). Consequently, the bank ended the year with higher ROaA and ROaE of 1.8% and FYE13 FYE14 Table 9: Asset quality N'bn N'bn 16.7% (F13: 0.8%, 7.5%) respectively. Gross advances 660.7 931.0 Performing 621.5 887.3 Future prospects

Impaired 39.2 43.6 As highlighted in Table 10, management expects a

Provision for impairment (34.8) (38.2) 14.0% growth in TOI, to be driven largely by growth Individually impaired (28.2) (28.8) in non-interest income, while net interest income is Collectively impaired (6.6) (9.5) expected to decline due to the bank’s deliberate

Net NPLs 11.0 14.9 decision to reduce the loan book. Impairment charges are anticipated to decline by 48.1% as the bank Selected asset quality ratios: focuses on recoveries. However, operating expense is Gross NPL ratio (%) 5.9 4.7 estimated to grow by 16.3% following higher general Net NPL ratio (%) 1.8 1.7 Net NPLs/Capital (%) 7.0 5.8 and administrative expenses. Overall, the pre-tax Source: Ecobank AFS. profit is expected to rise by 77.5% to N50.9bn. For the six month period ending 30 June 2015, the bank Financial performance posted a pre-tax profit of N25.5bn, almost equal the figure recorded in the full year F14, and appears well A four year financial synopsis, together with half positioned to meet its F15 budget. year unaudited management accounts to 30 June 2015, is reflected at the back of this report, Actual Budget Actual Table 10: Budget vs. FYE14 F15 1H F15 % of supplemented by the commentary below. interim results budget* N'bn N'bn N'bn Despite the tough operating environment, including Statement of comprehensive income CBN’s incremental increase in CRR which has Net interest income 99.1 98.9 59.6 120.4 suppressed potential revenue, Ecobank delivered Other income 61.5 84.1 27.3 64.8 growth of 25.3% in gross earnings. The bank’s Total income 160.6 183.1 86.9 94.9 interest income grew 14.6% to N152.4bn, mainly Impairment charge (33.0) (17.1) (8.1) 94.6 supported by higher income from lending activities. Operating expenses (99.0) (115.1) (53.3) 92.6 On the other hand, interest expense rose by 19.5% to Profit before tax 28.7 50.9 25.5 100.2 N53.2bn, driven by growth in borrowings, reflecting Statement of financial position the tight market liquidity and high interest rate Advances to customers 892.7 1,033.1 893.5 86.5 environment. Thus, net interest income recorded a Customer deposits 1,251.0 1,637.0 1,190.8 72.7 reduced 12.1% (F13: 20.5%), impacting the net Tier I Capital 198.4 320.8 220.1 68.6 interest margin (which fell to 10.8% in F14 relative Total assets 1,763.7 2,226.4 1,816.5 81.6 *Annualised. Source: Ecobank AFS. to 12.1% in F13). Non-interest income continued to support the bank’s performance, recording a Given the weakened macroeconomic fundamentals significant growth of 53.2%. The growth was (including the weak naira exchange rate and underpinned by a 21.7% growth at the net fee and depleting foreign reserves), the tight monetary policy commission income level, despite the downward stances of CBN, as well as FGN’s directives on TSA, review of commission on transaction charges by GCR envisages further pressure on banks’ ability to CBN; and an over two-fold increase in ‘other significantly increase earnings by year-end F15. operating income’, propelled by a N22.2bn (F13: However, Ecobank plans to mitigate the prevalent N6.9bn) foreign exchange gain (which may not be headwinds through consolidating year-to-date repeated in future years). As such, Ecobank’s total achievements, enhancing customer experience, and operating income (“TOI”) rose by 25.0% relative to streamlining all cost lines. 14.9% growth recorded in F13.

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Ecobank Nigeria Limited (Naira in millions except as noted) Year end: 31 December Statement of Comprehensive Income Analysis 2011 2012 2013 2014 1H 2015α Interest income 43,656 118,492 132,931 152,355 90,744 Interest expense (21,527) (45,110) (44,532) (53,227) (31,163) Net interest income 22,129 73,382 88,399 99,128 59,581 Other income 24,115 38,484 40,158 61,508 27,272 Total operating income 46,244 111,866 128,557 160,636 86,853 Impairment charge 15,260 (12,342) (32,606) (32,994) (8,107) Operating expenditure (43,481) (94,297) (85,418) (98,979) (53,270) Net profit before tax 18,023 5,227 10,533 28,663 25,476 Tax 1,321 2,578 1,125 1,070 (999) Net profit after tax 19,344 7,805 11,658 29,733 24,477 Other comprehensive income / (expenses) (5,597) 10,578 (8,658) (4,767) 2,774 Total comprehensive income for the year 13,747 18,383 3,000 24,966 27,251

Statement of Financial Position Analysis Subscribed capital 98,759 125,202 125,202 142,002 142,002 Reserves (incl. net income for the year) (23,397) 28,426 31,426 56,392 78,098 Hybrid capital (incl. eligible portion of subordinated term debt) 9,632 9,532 9,856 58,439 62,383 Total capital and reserves 84,994 163,160 166,484 256,833 282,483 Bank borrowings (incl. deposits, placements and REPOs) 10,116 21,489 61,919 111,200 176,772 Deposits 888,707 1,038,316 1,116,251 1,246,118 1,185,901 Other borrowings 436 - 531 28,079 29,504 Short-term funding (< 1 year) 899,259 1,059,805 1,178,701 1,385,397 1,392,177 Deposits 1,718 4,897 2,150 4,897 4,897 Other borrowings 54,341 49,351 47,735 60,135 59,352 Long-term funding (> 1 year) 56,059 54,248 49,885 65,032 64,249 Payables/Deferred liabilities 44,746 38,170 58,513 56,448 77,631 Other liabilities 44,746 38,170 58,513 56,448 77,631 Total capital and liabilities 1,085,058 1,315,383 1,453,583 1,763,710 1,816,540

Balances with central bank 57,690 91,540 150,180 215,402 217,414 Property, Plant and Equipment 67,131 59,387 56,134 57,281 56,358 Derivative financial assets - - - 22,436 13,152 Receivables/Deferred assets (incl. zero rate loans) 48,019 156,568 247,074 232,986 282,509 Non-earnings assets 172,840 307,495 453,388 528,105 569,433 Short-term deposits and cash 21,083 28,595 42,515 36,538 66,590 Loans and advances (net of provisions) 410,149 546,873 625,907 892,721 893,507 Bank placements 124,743 102,334 90,535 85,534 51,884 Marketable/Trading securities 32,812 23,394 17,881 52,519 23,376 Other investment securities 320,585 303,846 220,511 168,293 211,750 Investment in subsidiaries 2,846 2,846 2,846 - - Total earning assets 912,218 1,007,888 1,000,195 1,235,605 1,247,107 Total assets† 1,085,058 1,315,383 1,453,583 1,763,710 1,816,540

Contingencies 199,417 163,260 407,286 850,316 803,601

Ratio Analysis (%) Capitalisation Internal capital generation 18.2 12.0 1.9 12.6 12.4 Total capital / Net advances + net equity invest. + guarantees 9.1 16.1 13.3 13.4 14.8 Total capital / Total assets 7.8 12.4 11.5 14.6 15.6 Liquidity ‡ Net advances / Deposits + other short-term funding 45.5 51.4 53.0 64.2 64.0 Net advances / Total funding (excl. equity portion) 42.9 49.1 50.9 61.5 61.3 Liquid & trading assets / Total assets 16.5 11.7 10.4 9.9 7.8 Liquid & trading assets / Total short-term funding 19.9 14.6 12.8 12.6 10.2 Liquid & trading assets / Total funding (excl. equity portion) 18.7 13.9 12.3 12.0 9.7 Asset quality Impaired loans / Gross advances 5.8 4.6 5.9 4.7 3.1 Total loan loss reserves / Gross advances 4.1 3.9 5.3 4.1 3.0 Bad debt charge (income statement) / Gross advances (avg.) (4.6) 2.5 5.4 4.2 0.9 Bad debt charge (income statement) / Total operating income (33.0) 11.0 25.4 20.5 9.3 Profitability Net income / Total capital (avg.) 8.6 14.8 1.8 11.8 10.1 Net income / Total assets (avg.) 0.9 1.5 0.2 1.6 1.5 Net interest margin 4.5 11.5 12.1 10.8 11.5 Interest income + com. fees / Earning assets + guarantees (a/avg.) 1.9 8.7 8.4 6.2 3.1 Non-interest income / Total operating income 52.1 34.4 31.2 38.3 31.4 Non-interest income / Total operating expenses (or burden ratio) 55.5 40.8 47.0 62.1 51.2 Cost ratio 94.0 84.3 66.4 61.6 61.3 OEaA (or overhead ratio) 5.7 7.9 6.2 6.2 3.0 ROaE 25.8 6.8 7.5 16.7 23.4 ROaA 2.5 0.7 0.8 1.8 2.7 Nominal growth indicators Total assets n.a. 21.2 10.5 21.3 3.0 Net advances n.a. 33.3 14.5 42.6 0.1 Shareholders funds n.a. 103.9 2.0 26.7 10.9 Total capital and reserves n.a. 92.0 2.0 54.3 10.0 Deposits (wholesale) n.a. 17.2 7.2 11.9 (4.8) Total funding (excl. equity portion) n.a. 16.6 10.3 18.1 0.4 Net income n.a. 33.7 (83.7) 732.2 118.3

α Unaudited accounts, with annualised income statement ratios. †Excludes bank's balances held in respect of letters of credit. ‡ Please note that for these ratios, liquid assets exclude the statutory reserve balance.

Nigeria Bank Analysis | Public Credit Rating Page 7

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Nigeria Bank Analysis | Public Credit Rating Page 8