Ecobank Transnational Inc.’s [ETI] remained under pressure from rising loan impairment expenses in the second quarter ended June 2020. The rising loan loss expenses gained speed in the second quarter from 49 percent increase in the first quarter to 76 percent growth year-on-year to N36.5 billion at half-year.
With revenue still headed downward, credit loss charges claimed an increased share of gross income at the end of June, and that left profit 18 percent down year-on-year. A 2 percent decline in gross earnings at the end of the first quarter edged up to 3 percent at half-year.
The ability to convert revenue into profit also remained weak with profit margin down from 15 percent to 12 percent year-on-year at the end of June 2020. It was nevertheless an improvement from 10 percent margin recorded in the first quarter.
ETI remains on the downside of a wide swing from a 28 percent advance in profit at the end of 2019 to a falling profit this year. Rising impairment losses on financial assets remain the critical development that underlies the shift. The loan expenses provided a cost-saving centre last year but have turned into a revenue consuming line in the current financial year.
Part of the challenge appears to reflect the impact of economic lockdown due to the Covid-19 pandemic. Loan recoveries were down by 51 percent to N18.5 billion at half-year. The bank carries a net customer loan portfolio of N3.3 trillion, which is slightly down from the closing figure at the end of 2019.
The weakness in revenue is coming exclusively from non-interest earnings, which dropped 14 percent year-on-year at half-year to close at N129 billion. The bank had grown non-interest earnings by 13 percent at the end of 2019.
All the key components of non-interest revenue declined over the review period. Interest income grew by 5 percent at the end of June to about N258 billion, which countered largely the drop in non-interest income.
The cost of funds maintained its favourable turn recorded in the first quarter. It increased its rate of decline from 12 percent in the first quarter to 17 percent at half-year to close the period at N96 billion. The developments enabled the bank to maintain the 23 percent improvement in net interest income recorded in the first quarter to over N161 billion at half-year.
ETI closed its operations for the first half in June 2020 with gross earnings of N392 billion. The figure represents a decline of 3 percent year-on-year. The drop in revenue is accounted for exclusively by the continuing weakness of non-interest income.
A seal on new lending so far this year also limited the growth in interest income, which could not make up for the revenue losses from non-interest earnings.
A big cost saving from the drop in interest expenses made a significant impact on the bank’s income statement over the review period. Interest expenses claimed a reduced proportion of interest earnings at 37 percent, down from 47 percent in the same period last year.
Cost-saving from interest expenses enabled the bank to overwrite the 14 percent drop in non-interest income and raise operating income by 4 percent to over N290 billion at the end of June 2020.
The bank’s management kept operating expenses in check in the face of the disappointing revenue performance. Total operating cost was flat at N186 billion at half-year compared to a growth of 11 percent at the end of last year.
The accelerating growth in net impairment expenses for credit losses turned an 11 percent improvement in operating profit into a drop of 8 percent in pre-tax profit. The bank closed half year operations with an after-tax profit of N48.5 billion, which is a drop of 18 percent year-on-year.
Earnings per share amounted to 136 kobo per share for ETI at the end of half-year, which is a decline from 176 kobo per share in the same period in 2019. The bank closed last year’s operations with earnings per share N2.81.
The outlook for the bank in the second half continues to point to rising loan impairment expenses in the face of revenue challenges as a strong downside factor for the bank this year. Management is expected to continue to apply its cost-saving measures but these will most likely remain insufficient to defend the bottom line.
Comments are closed.