Ecobank Nigeria Profit Contribution to Group Earnings Sinks to 0.9%

Ecobank Nigeria Profit Contribution to Group Earnings Sinks to 0.9%

Ecobank Nigeria Limited’s net profit fell by 87% year on year to $3 billion in the financial year 2024 as the struggling local lender reduced appetite for credit creation as it battles asset quality challenges and weak capitalisation.

The amount the local subsidiary contributed to the group earnings fell to about 1% year on year in the financial year 2024, a significant drop when compared to the 8% contribution in 2023.

The group profit after tax settled at $333 million in 2024, while Ecobank Nigeria contributed $3 billion as against $288 million in 2023, when the local lender contributed $23 million.

In 2024, Ecobank Nigeria’s profit after tax decreased by 87% year on year to $3 million from $23 million amidst constant debit by the Central Bank for failing to meet the loan-to-deposit ratio.

The bank had earlier told ratings analysts of an intention to cut back activities as part of an effort to derisk the balance sheet. The decision to halt lending dealt a strong blow to earnings, and non-interest related revenue also declined sharply.

Investors’ metrics crashed as the bank’s return on equity fell by 340 basis points, or 3.40%, year on year to 1.1% versus 4.5% in 2023.

With the aim to de-risk balance to optimise its weak capital ratio ahead of further injection, Ecobank Nigeria’s foreign currency loans dropped sharply, while Naira loans was advanced to existing high-quality obligors. 

Due to low credit creation, income from its interest-yielding assets fell by 39% year on year, and non-interest income also plunged, reducing the profit contribution to the group to $3 billion in 2024.

This happened despite elevated yield on Nigerian government fixed interest securities used by its industry rivals to boost earnings significantly. Since the past few years, Ecobank Nigeria Limited has continued to impact the group earnings performance negatively; analysts have highlighted that this will probably continue in 2025.

The group’s audited report revealed that Ecobank Nigeria’s net revenues settled at $126 million in 2024, representing a 46% year-on-year decline from $234 million reported in 2023.

Ecobank Nigeria’s net interest income dropped by 39% to $84 million, underperforming its rivals despite a higher interest rate environment. The bank’s non-interest income plunged by 56% year on year to $42 million from $97 million in 2023 as a result of strong business activities in the year.

This happened while its industry rivals boosted their respective earnings performance with higher interest rates on investment securities. The bank’s operating expenses, however, reduced to $100 million in 2024 as against $176 million in overhead spending in the preceding year.

Near zero appetite for lending caused the bank to face a huge debit from the Central Bank of Nigeria’s cash reserve ratio.  The audited report revealed that Ecobank Nigeria’s cost-to-income ratio deteriorated to 79.4% from 74.9% in the prior year.

Amidst efforts to derisk the balance sheet, impairment charges on loans and other financial assets slumped to $21 million, dropping by 36% year on year from $32 million in the prior year.

In the latter part of 2024, GCR Rating downgraded Ecobank Nigeria ratings to reflect the sustained decline in capital adequacy levels due to the impact of foreign currency translation on risk-weighted assets, as well as lower group support.

In September 2024, the bank received USD5 million in tier 1 capital and USD5 million in additional tier 1 capital from its parent company to help remedy the deficit capital position, subject to regulatory approval.

“We expect the GCR capital ratio to remain low at about 8% to 10% over the next 12 months as the bank continues to seek more additional tier-1 capital to boost the capital position”, GCR Ratings said. The bank’s risk position is noted to be considerably weaker due mainly to the bloating effect of the weaker Naira on stage 2 and 3 loans relative to gross loans.

In September, Ecobank Nigeria stage 2 loans increased to 66.0% of gross loans, and stage 3 loans increased to 9.8% from 9.1% in 2023. Loan loss reserves also declined to 28.1% of stage 3 loans from 49.3% in 2023 and 76.4% in 2022. Pension Fund Assets Grows to N23.366 TrillionThe post Ecobank Nigeria Profit Contribution to Group Earnings Sinks to 0.9% appeared first on MarketForces Africa.