Ecobank’s reputation took a battering last year as it became mired in a well-publicised corporate governance crisis. Its new chief executive, Albert Essien, has restored some calm, and he tells Paul Wallace how he hopes to make the kind of returns that will entice more international investors to buy its stock.

Ecobank has always had grand ambitions. Launched in Togo in 1988 by a pioneering group of west Africans, it was meant to challenge the foreign and state-owned lenders that dominated the region, as well as foster economic integration by supporting cross-border trade.

It has since proved to be trailblazer. After expanding within west Africa, it moved into other areas of the continent at a time when few African banks were venturing outside their home markets. Today, it has $23bn of assets, full banking licences in 33 countries and representative offices in another three, making it easily the biggest bank in Africa by geographical spread.

Spread too thin?

Yet for all Ecobank’s success at breaking into new markets, it has long been dogged by concerns that it has spread itself too thin and that its governance structures have not developed as quickly as its balance sheet.

Sceptics seemed to be proved right last year when the bank became mired in a corporate governance crisis that was played out in the international media and led to an investigation by Nigerian regulators. The most serious allegations came from a senior Ecobank whisteblower who claims she was pressurised to manipulate the full-year accounts for 2012 and to write off loans to a company chaired by Kolapo Lawson, the bank’s chairman. Mr Lawson has since been cleared of any transgressions by Nigerian authorities, and the debt owed to Ecobank has been repaid.

Boardroom divisions eventually led to Thierry Tanoh, the chief executive, and Mr Lawson – both of whom denied any wrongdoing – losing their jobs.

Calm was restored at the beginning of this year with the appointment of new board members, a new chairman and a new chief executive in the shape of Albert Essien, who was previously deputy chief executive.

Mr Essien, a Ghanaian who started his career at Ecobank in 1990, began his tenure by meeting staff, shareholders, regulators and major clients to try to reassure them that the crisis was over. He is seen within the bank as a more emollient figure than Mr Tanoh, an outsider who joined in mid-2012 from the International Finance Corporation, the World Bank’s private sector investment arm.

Ecobank results

No more palpitations

Mr Essien admits that Ecobank’s reputation has been badly damaged, but says that the board and senior management are once again unified. “We took a knock,” he tells The Banker. “There was a breakdown of trust and confidence. People don’t want to wake up every morning and find their bank in the news for the wrong reasons. But it’s over. The fire has been doused. There is some peace. I don’t see Google alerts anymore and get palpitations.”

He stresses, however, that the business performance and capital position of Ecobank, which is listed in Nigeria, Ghana and Côte d’Ivoire, remained strong throughout its period of tumult. “Don’t forget that in 2013, despite all the challenges, we broke through the $2bn revenue barrier for the first time,” he says. “We’re among the best [listed companies] in terms of sub-Saharan African revenue growth.”

The events of the past 18 months have forced Ecobank to reform its governance practices. Some of its major investors were adamant that changes be made. South African state pension fund PIC, its largest shareholder, said that it had “grown too fast” and that it should have “taken stock at some point and thought about internal issues instead of focusing on the expansion programme only”.

Ecobank has launched a 'corporate governance plan' based on recommendations by the Nigerian Securities and Exchange Commission and consultancy firm KPMG. It will lead to changes in how the bank deals with related-party transactions and pays its senior staff.

Analysts have generally been impressed by the progress so far. “You could easily argue that Ecobank now has one of the strongest corporate governance structures in sub-Saharan Africa,” says Adesoji Solanke, a banking analyst at Renaissance Capital.

Much of Mr Essien’s focus will be on cutting Ecobank’s cost-to-income ratio, which was 68% for the first six months of this year (see table), higher than that of most of its peers. This will involve more centralised processing and automation, as well as greater use of electronic banking channels as opposed to physical branches. “Now it’s about consolidation and extracting efficiencies,” says Mr Essien. “We need to optimise costs. We want to tackle cost containment. When we do that, we’ll definitely be able to sustain the upward trend in revenues.”

No more acquisitions

Mr Essien also says the bank will shift its stance on expansion and acquisitions. Under the leadership of Arnold Ekpe, who was chief executive for most of the period from 1996 until 2012, Ecobank was more or less indifferent about whether it grew organically or through takeovers. As such, it bought numerous banks as it moved into countries for the first time, which used up plenty of capital and was one of the main reasons, according to investors, that its returns lagged those of other similarly sized African lenders.

Since July 2013, the bank has launched full banking operations in South Sudan and Mozambique. It is in the final stages of getting a licence for Angola, where it currently has a representative office, and will apply to upgrade its representative office in Ethiopia to a full bank once officials there allow foreign institutions to do that.

But Mr Essien emphasises that Ecobank’s days of geographical expansion are largely over, however. “We need to pause and ask ourselves: ‘How do we make returns?’,” he says. “In the past, shareholders were happy to hear the story. Now they’re saying: ‘Show us the money!’.

“Whether you are in 35 countries or two, they want a return on equity that’s higher than our cost of capital [of roughly 16% to 17%].”

Even among frontier market specialists, few funds in Europe or the US hold Ecobank shares. Those interested in sub-Saharan equities outside of South Africa tend to prefer banks such as Guaranty Trust Bank and Zenith Bank of Nigeria, or Kenya Commercial Bank and its local rival Equity Bank – all of which mainly stick to their home markets and, when they do venture abroad, tend only to go to nearby countries.

The reason non-African investors mostly shun Ecobank is that they are yet to be convinced pan-African banking generates good returns. With levels of intra-regional trade in sub-Saharan Africa being so low (about 15% of total trade, according to most estimates), they say there are few gains to be had from operating in markets as far apart and different as, say, Nigeria and Zambia. “We’re a bit sceptical of banks that are in so many countries,” says David Mcilroy, chief investment officer at London-based Alquity Investment Management, which owns shares in Nigerian, Ghanaian and Kenyan lenders, but not Ecobank.

He adds, however, that Ecobank’s less acquisitive approach will make its stock more attractive, even though it will continue to face challenges that come with being so geographically diversified. “It’s bound to help that management is likely to be focused on what it’s got rather than looking for the next target or virgin territory to conquer,” he says. “But even without going into new markets, [Ecobank still has more than] 30 countries to look after.”

Ecobank shareholding structure

Get Nigeria right

Ecobank’s success over the long term will hinge on whether it can increase its returns from Nigeria, which overtook South Africa to become the continent’s biggest economy earlier this year.

The Nigerian subsidiary accounts for more than 40% of Ecobank’s assets, but last year it made just $9m of pre-tax profits, a small portion of its parent’s total of $222m. This was in large part because of impairments on loans, some of which Ecobank Nigeria took on when it bought Oceanic, a mid-tier lender, in 2011.

Mr Essien says the decision to make the impairment charges, which dragged down the bank’s overall earnings, was difficult. But he insists it was necessary to wipe the slate clean in Nigeria and adds that there will be no more scares relating to legacy assets in the country. “I said: ‘Look, let’s take the hit – we can absorb it – so that we can move on’,” he says. “It wasn’t the most palatable thing to do. I had some sleepless nights thinking about whether I could do it and still stay on as chief executive. But I was prepared to stake my job on that.”

Ecobank Nigeria has performed strongly this year, its profits before tax rising 50% year on year in the first six months to $86m. Mr Solanke of Renaissance Capital says it will have to keep improving if Ecobank’s overall earnings are to reach the level that will impress international investors. “For it to raise its return on assets, Nigeria must deliver,” he says. “It’s not a question of 'if'. It has to happen. The bulk of management’s time must be spent on getting Nigeria right.”

Mr Essien says that in Nigeria Ecobank will grow not just its retail operations, but its corporate activities too. He says the bank’s presence in neighbouring countries is helping it win business from firms involved in the cross-border trade of products such as crude oil. “In Nigeria there are some big companies going regional,” he says. “We ride on that wave. Nigeria has several borders. We are in all these countries. That helps us.”

He wants to win more market share, but rules out another Nigerian acquisition. “We won’t do it during my time,” he says, arguing that Ecobank’s strategy in the country is working and will ensure the subsidiary contributes more to the group’s overall returns. “Nigeria is critical. It needs to come up the curve. The measures we’ve taken will make that happen. We took a hit last year. But I’m confident that this year the Nigeria subsidiary will make a really big contribution to the group, not just in terms of revenues, but also profits.”

Beyond west Africa

Beyond west and central Africa, where its subsidiaries tend to be among the five biggest local banks by assets, Ecobank has far less clout. It has only $1.7bn of assets in all of eastern and southern Africa. In Kenya, east Africa’s key economy, it was the 20th largest lender by assets at the end of 2013. Mr Essien wants to change this, in line with Ecobank’s broad long-term aim of being a top three bank by assets in all the countries it is in. He says that banks in Africa struggle to make high earnings when they lack scale.

Kenya, where Ecobank was recently granted an investment banking licence, is one of his priorities, and he is keen for the bank to grow there. But Mr Essien insists that he will probably do this organically, rather than via a takeover. “We’ll scale up,” he says. “Doing it organically could be painful and take time. But it means that we won’t carry baggage along the line.

“People have been speculating that we need to do an acquisition. But what is even available in Kenya? It’s very difficult [to find targets].”

Even if it avoids major takeovers in the next few years, Ecobank’s ambition to win greater market share will probably mean that it has to raise more capital. It tapped the international capital markets for the first time this August when its Nigerian arm issued a $200m seven-year subordinated bond with a 9% yield.

Mr Essien implies there are no immediate plans for the holding company to follow suit with its own debut Eurobond. Instead, it will keep relying on development finance institutions (DFIs), which it has long got funding from. Since last November, it has taken on $250m of loans from the African Development Bank and Proparco, the French development agency. “We love the DFIs,” says Mr Essien. “They take a long-term view, they are developmental and they are patient.”

No more listings

Ecobank has board approval to sell its shares on another exchange. Mr Ekpe told The Banker in 2012 that it was considering Johannesburg and Nairobi, but that London would likely be the preferred choice if it opted to list outside Africa.

That would not be feasible at the moment, given the well-publicised governance problems, says Mr Essien, who reaches Ecobank’s retirement age of 60 in 2015. “It’s not on the cards,” he says. “After what we’ve gone through, we need to pause and stabilise the ship. We need to make sure all the governance issues are behind us.”

In the near term, Ecobank could see its shareholder base change. South Africa’s Nedbank, with which Ecobank signed a partnership agreement in 2008, has until November to take the option of a 20% stake through the conversion of a loan and purchase of shares. It has hinted that it will do so, even though it has yet to make a decision.

Analysts say that having a large shareholder in the form of Nedbank, which is South Africa’s fourth biggest lender and has a reputation for high standards of governance, could boost Ecobank’s appeal to other equity investors.

What will be more crucial, however, is generating the type of returns that not only rival those of its peers, but prove once and for all that pan-African banking is lucrative.


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