Ayeyemi: Digital Channels Now Preferred Banking Method


The Group Chief Executive Officer, Ecobank Transnational Incorporated, Mr. Ade Ayeyemi, in this interview speaks about the pan-African bank’s recently released nine-month results, his expectations from the African Continental Free Trade Agreement as well as his expectations for the rest of the year. Obinna Chima presents the excerpts:

Can you take us through the numbers in your recently released nine months results?

Our 2020 nine months results for the period September ending printed $91 million year-to-date profit before tax. That profit before tax of $91 million was as a result of specific one-off that we took. The first one was the question of the goodwill that we are holding in the book of the holding company, relating to the acquisition of Oceanic Bank that ETI did in 2011, which is almost nine years. At the point of acquiring Oceanic Bank in 2011, the goodwill that was in our book was about $387 million. As at the beginning of this year that goodwill that we were carrying in our books was $159 million. Normally, by policy and standard you assess goodwill on an annual basis based on the asset that created that goodwill in the first instance. So, when we did the assessment at the beginning of the year, the macro-parameters in Nigeria at that time also concurred with our auditors that the goodwill was not impaired. That is something you are supposed to do annually. However, because of the change in events, because of the COVID-19 which is one in a 100-year event, we are supposed to also do another assessment of the goodwill.

You don’t assess the goodwill itself, you assess it indirectly by looking at the macro-parameters of the country in which the investment is kept. So, when we looked at the macro-parameters of Nigeria, it has shifted between December 2019 and September 2020, around inflation, expected growth rate of the country. Of course, that growth rate will affect the growth rate of all the firms in the country. A large component of the calculation of the value is the terminal value that you discard and a small shift, even a two per cent shift in those numbers, is that affected the value you are holding as an asset. So, that affected the value of the Nigerian assets we were holding. That mandated that we needed to write off the goodwill. That good will write-off of $159 million impacted our numbers on a year-to-date basis. The second factor that impacted our number is because in Zimbabwe where inflation accounting, we incurred a monetary loss of $33 million due to hyperinflation.

If you all remembered, two years ago or so that Zimbabwe dollar was one-to-one at the beginning of the year, it letter went to about 16 to one, right now it is about 81 to one US dollars. So when you convert those things, they required that we convert the books at the current rate and when you do that you incur a net monetary loss. We also during the period did take a one-off restructuring charge to reduce people both at the head office, to close some branches in Nigeria and also reduce people elsewhere. All of these one-off issues came to about $205 million. But the one that is most impactful to the number is the $159 million goodwill write- off. Now, a goodwill write-off does not affect the capital of the firm, because before you arrive at the capital you always deduct the tangibles from the equity. So it is a non-cash item, it does not affect the capital of the firm. In fact, the capital grows through the earnings that we have through this period. And it is something that is non-recurring, it is not cash and therefore it is something that we wanted to put behind us. With the setback, we remain very comfortable with the progress the institution has made that has resulted in our earnings.

You will see in the numbers that we printed that revenue of the firm continues to be strong, the cost has gone down, and we actually have a positive operating leverage or positive of 400 basis point. The other point is that our deposit across the firm has grown year-to-date by about $1.1 billion. So, we have a deposit base of about $17.3 billion. One other point I want to make is the fact that the write-off of the goodwill has no impact on Ecobank Nigeria, because the goodwill is carried in the books of the holding company and not in the books of Ecobank Nigeria. As we continue to manage that asset, we expect Nigeria to recover from its recession and in the future for Nigeria to be doing much better than it is doing before. But if you look at the 2020 year inflation for Nigeria, it is not single-digit. The believe was that Nigeria will get to seven per cent, nine per cent and 10 per cent growth rate, that has always been factored into the long-term development plan of Nigeria. But that is now muted. And because of that muting those are the things that affected the long-term expectation that drove impairment of the goodwill.

So with this first nine months results, what are you looking at in terms of projection for the rest of the year?
For the rest of the year which is one quarter, of course we can’t be writing of goodwill every quarterly, because the goodwill is now zero. So, the performance should be consistent without a goodwill write off. Which means that without a goodwill write-off our number will been about $80 million for the quarter and therefore you should expect that range of number for the fourth quarter.

I am particular of your operations out of Nigeria. Of course COVID-19 was not only limited to Nigeria, and we all saw the damage COVID-19 did in the last couple of months. Now, there is this fear of a second wave. Now out of Nigeria, how has this development actually affect your operations?
I think if you exclude Nigeria from our numbers you will see that all other countries and then there is the Zimbabwe issue that I have mentioned, but we actually picked up a lot of new businesses for all our countries. Our deposit increased significantly and it is there in the numbers that we published. Our francophone West Africa, we actually had more opportunities to respond to some of the needs of our clients, so that is pretty good. In Anglophone West Africa anchored out of Ghana, we are able to respond again to the needs of our clients where we have seen increases in our businesses and our performance. Remember in all those countries we are the leading banks in those banks in those countries. So, when there is run to safety the deposit comes to us.

When a customer needs specific solutions, we get approached, when the government need solutions, we get approached in those countries. If you look at the central, eastern and southern Africa, if you take out the impact of $33 million net monetary loss, again we were able to do very good in those 18 countries that formed those clusters. So, across the board we are actually able to substitute the losses that we expected as a result of COVID-19 with other income streams that we were able to get and a large build-up of our deposit base. And the impact of our technology which is the same across board allows our customers irrespective of where they are domiciled to continue to operate.

Earlier you talked about closing some branches in Nigeria, what informed that decision?
Yes, we closed 114 branches. We still have about 250 something branches still remaining. So, 250 branches are big and it is massive when you consider the branch network that the rest of our competitors have. That is the first thing. The second is the idea of using agency network as a means of being able to distribute banking services to people. The third thing is the idea that digital platform is now going to continue to be the preferred method of delivering banking services to people as we go forward into the future. Those are the things that informed our decision, and some of these branches were not profitable. So of them were weak and that was the basis on which we made the decision to close those branches and merge their activities with some other branches that is existing in agreement with our regulator – the Central Bank of Nigeria.

What then happened to your staff while you decide to close these branches, what is their fate?
Well, you see the management of the staff of the firm continues to be what we do, in moving people around and in making decisions on how many staff we need to be able to run the business because we cannot keep a branch open when there is no profitability attached to that branch. Because ultimately if you do that, then the bank is going to really go down and then the question is not just going to be what happens to the staff, is actually going be what happens to the depositors? So in working with the central bank, we take so many things into consideration in making a decision to reduce the number of branches. And all those presentations were made to central bank before they approved. And they were made to the board before the decisions were made. We don’t take them in isolation. But remember if you keep the staff you need to be able to continue to pay them. So, from management point of view, we need to be fair to the staff, if we are going to let people go, we need to pay them to go. We need to make sure that we are fair to them which is something that we do. When I said we took $12.5 million restructuring charge, it is to make sure that we are fair to people. For example, when we met let drivers go, we supported them.

Looking at Ecobank as an African brand are you doing anything specifically in the area of corporate social responsibility to support the continent especially in this time of COVID-19?
The way we approached the issue was that in all the countries where we are present, we actually gave specific donations for the palliatives when this matter started. We gave over $3 million in form of donations in the countries where we do business. We also understood that one thing is to have palliatives, the other is to make sure that the people are aware of what they need to do to be able to avoid catching COVID-19 in terms of radio, television and other awareness programme. Again, we participated in ensuring that, that is done, to be able to engage people to make they don’t contract COVID-19. The third thing was stepping back and working with our client because in the developed world the government was able to provide money to the corporations, the government was able to follow up, where people get paid for sitting at home.

But in our part of the world the government couldn’t do that and therefore we had to work with our clients to restructure their facilities so that they don’t have to pay and then they can support their staff. The fourth is making sure that we work with the African Union around the concept of micro, small and medium scale enterprises (MSMEs), where we usually put a lot of money aside to be able to support MSMEs across the continent. And we actually did training in these countries grooming a lot of people that will be able to have access to, not just finances but access to organisational structure and training. So all of those things were things we felt we needed to do as a player in the continent. And of course some of our governments wanted to put money in the hand of the poor and they didn’t want to give cash to them because cash became vehicle of transmission and we were able to quickly create accounts for those people and be able to transmit money into those systems.

The African Continental Free Trade Agreement (AfCFTA) will take off in January, what opportunities do you see for Pan-African banks specifically for Ecobank and how your bank being positioned to take advantage of the opportunities therein?
For the AFCFTA, we are one of the key supporters in trying to make sure that, which is done because it is something that is good for the continent and is good for our customers. So, because of our Pan-African presence, we have been discussing with the governments and our customers to start to take another look at their businesses and understand that the market is bigger than what it used to be before. So, if your job in Aba is to manufacture bags for the Nigerian market, if you now start thinking about, how you can expand your manufacturing capacity to be able to export across West Africa and also other African countries not just looking at Nigeria as market alone. And as you change your demand forecast, then you need to now improve your capacity to produce and that will mean importing new machinery, which will mean expanding your manufacturing base and being able to develop the market and hire people.

The same for people in Aba manufacturing is also applicable to people producing sugar, they can now produce and send to other places. So, there is a whole range of clientele that we are working with that will enable that to happen. And we then work with the likes of Afreximbank on how we can make sure people can now make payments in West Africa in a very smooth way because we are the platform that connects 33 countries today. It means that if you are in Nigeria and if the regulator allows you, which is what we do in other places by the way, if you want to send money from Ghana to Gambia today, you can use Ecobank Rapid Transfer and the money goes there.

It is only in Nigeria because of the exchange rate rules that doesn’t allow that to happen instantly unless you are remitting out of a domiciliary account. So, the whole range of these, both at the institutional level, working with clients, repositioning our portfolio and making funding available to our customers will enable us to deal with the AfCFTA in a way that creates good opportunity for Africans. Because there is no need for Nigeria to import rubber from Malaysia when rubber is being exported by Côte d’Ivoire and the distance is not that long. It is better within the African space. So there is a whole range of business that we are having conversation with, the customers, with the governments and the African Union because of our pan-African presence.

Don’t you think the issue of border closure will frustrate that?
It is our expectation that border closure will be temporary and my understanding is that it was put in place as a security measure. Nigeria has always played a key role in the continent whether when it was the Organisation of African Unity. Nigeria and Togo were the two countries that spearheaded the creation of ECOWAS and we think that Nigeria understands its key role as enabler of Africans coming together.

What is your projection for Nigeria’s economy for the rest of the year?
So the Nigerian economy will contract in 2020 which means Nigeria is in recession because it has had two quarters of contraction. We think the economy will revamp in 2021 and that is the basis in which we are out planning activities for Nigeria. Nothing should be taken for granted, the government and the people still need to act in a way that is supportive of those growth expectations. So we think that Nigeria will go back to growth in 2021.


So, because of our Pan-African presence, we have been discussing with the governments and our customers to start to take another look at their businesses and understand that the market is bigger than what it used to be before