Ecobank Nigeria 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 Ecobank 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: Lagos, 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 Ghana’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 Nedbank 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 France, United Kingdom, 3 Refer to GCR’s 2014 Nigerian Banking Sector Bulletin for a review of United Arab Emirates and China. 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).