Ecobank Ghana Forecasts Sustained Profit Growth on Lower Costs
Ecobank Ghana Forecasts Sustained Profit Growth on Lower Costs
(Bloomberg) -- Ecobank Ghana Ltd. is counting on an increase in deposits and rising use of its digital services to lower costs and help sustain profit growth after a knockout 2018 for earnings.
The West African country’s second-largest lender is reaping the rewards of what the International Monetary Fund predicts will be the world’s fastest expanding economy this year. Lower interest rates are set to spur lending, while a regulatory cleanup that weeded out weaker banks has bolstered confidence in the industry after the balance sheets of remaining lenders were strengthened.
“We expect to benefit strongly from growth in the economy,” said Edward Nartey Botchway, the finance director at the Accra-based unit of Ecobank Transnational Inc. “We have developed a healthy loans pipeline spanning various sectors, including mining, energy and telecommunications.”
The increased acceptance of digital-platforms, even in remote villages, will help Ecobank to reduce operating expenses, with 80 percent of customer transactions now going through electronic channels, compared with 50 percent three years ago, he said.
‘More Intense’
“We expect competition to be more intense and for margins to continue to shrink, hence the need to be able to lower the cost of serving clients,” Botchway said. Deposits will probably grow faster than the 18 percent recorded last year, helping to cut funding cost, he said.
That will aid Ecobank Ghana in posting pretax profit growth in 2019 that could exceed the 3 percent average estimate of two analysts’ data compiled by Bloomberg, Botchway said. Pretax earnings accelerated 41 percent in 2018, boosted by smaller impairment losses on loans compared with the prior year. Non-performing loans as a percentage of total credit may ease to below 10 percent this year, compared with 11.5 percent in 2018, as interest rates decline and lending criteria tightens up, he added.
Industry-beating loans growth of 54 percent in 2018, versus 6 percent across the sector, however, is unlikely to be repeated, Botchway said. The adoption of Basel II by the central bank as the framework for supervising banks this year, will also drag on loan-book growth, he said.
A switch to a new IT platform will also help improve cross-selling opportunities and lift income from fees and commissions and trading, he said. The unit contributed almost a quarter of the pretax profit of Lome, Togo-based Ecobank Transnational in 2018.
“Based on the various actions we implemented in 2018 and continue to implement in 2019 we expect growth,” especially in non-interest revenue, Botchway said.
To contact the reporter on this story: Moses Mozart Dzawu in Accra at mdzawu@bloomberg.net
To contact the editors responsible for this story: Alastair Reed at areed12@bloomberg.net, Vernon Wessels, Andre Janse van Vuuren
©2019 Bloomberg L.P.