Credit Losses Rise For ETI, Hits N48bn At H1

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Heightened credit risk environment changed the fortunes of Ecobank Transnational Inc in the second quarter, raising credit losses to N48 billion at the half year. The pan African bank shifted its position from a decline of 8 per cent in loan impairment losses in the first quarter to an increase of 30 per cent quarter-on-quarter in the second.

The bank’s half-year interim financial report for the period ended June 2022 shows that loan loss charges expanded from N21 billion in the first quarter to N27 billion in the second quarter.

The bank’s group chief executive officer, Ade Adeyemi, attributed the increase in loan impairment expenses to the heightened credit risk situation the bank faced in the second quarter.

In his comment on the operating results for the half-year trading, he assured of the bank’s preparedness to shield earnings against the development. He said the bank has proactively built a central loan impairment reserve of $206 million meant for deployment in a stressed credit environment.

The impact of rising credit losses was largely tempered by significant cost savings from interest expenses in the second quarter. The bank closed the second quarter with interest expenses flat at N54.8 billion, representing a change of position from a 30 per cent rise to N56.8 billion in the first quarter.

The share of interest earnings claimed by interest expenses went down from 37.7 per cent in the same quarter last year and from 36.4 per cent in the first quarter to 34 per cent in the second quarter.

ETI was, therefore able to step up growth in net interest income by N17 billion or 19 per cent to over N106 billion over the same period. This is an accelerated growth from an increase of only 4 per cent in net interest income in the first quarter.

The increased loan loss expenses were registered by claiming an increased share of net interest income at 25.4 per cent compared to 21 per cent in the first quarter and 23 per cent in the same period in 2021.

Another challenge for the bank in the second quarter came from non-interest revenue, which grew less rapidly at 13 per cent in the second quarter than the 19 per cent growth in the first. Despite the slowdown, non-interest income still grew slightly ahead of the 12 per cent stable growth in interest income across the two quarters. At N91.5 billion for the second quarter, non-interest income contributed 36 per cent of revenue, up from 33.5 per cent in the first quarter.

A sustained moderation in operating expenses came in handy to temper the effects of the increase in cost and revenue slowdown in the second quarter. Operating cost is slowing down for the second year at an increase of 8 per cent quarter-on-quarter in the second quarter to N107 billion compared to the 12.6 per cent increase in revenue to N252.6 billion for the quarter.

The bank recorded a decline in operating cost margin from 44.1 percent to 42.3 per cent quarter-on-quarter over the review period. This improved the profit margin in the quarter to 15.4 per cent from 14.3 per cent in the same quarter last year.

ETI posted an after-tax profit of N39 billion for the second quarter, which is an increase of about 22 per cent quarter-on-quarter. This is a slowdown from the growth of 26 per cent in after-tax profit in the first quarter to N38 billion.

On year-on-year reading, the bank’s after-tax profit added up to a little over N77 billion. This represents an increase of 23.5 per cent from the corresponding figure of N62.5 billion in 2021, slowing down from the first quarter growth rate.

This represents a return on tangible equity of 19.5 per cent and increased earnings per share for shareholders by 24 per cent year-on-year, according to Adeyemi.

Generally, ETI achieved low cost and margin improvement, which enabled it to grow profit well ahead of revenue. At N491 billion at half a year, revenue grew by 13.4 per cent year-on-year, which consists of interest earnings of N317 billion and net non-interest income of N174 billion.

Despite the spike in the second quarter, the bank still achieved cost savings from loan impairment expenses at half a year. The decline in a net loan impairment charge in the first quarter diluted the strong growth in the second.

Cost saving was also extracted from operating expenses, as the operating cost margin went down from 45.4 per cent to 43 per cent over the review period.

At N111.7 billion at the end of half a year, interest expenses grew by 14 per cent year-on-year, slightly ahead of the 13.5 per cent growth in revenue. It is nevertheless a significant slowdown from a 30 percent increase in the first quarter.

The bank earned N2.21 per share at the end of half-year operations, improving from N1.74 per share in the same period last year.