As shareholders of Ecobank Transnational converge on the bankâ€™s headquarters in Lome, Togo for the bankâ€™s extra ordinary general meeting tomorrow to resolve the boardroom crisis bedeviling the pan-African institution for almost a year, analysts believe the greatest challenge facing the bank is that of best practice in view of its presence in over 33 jurisdictions with different banking rules and regulations, writes Festus Akanbi
It is not a coincidence that less than few hours to tomorrowâ€™s extra-general meeting of Ecobank Transnational in Lome, the Togolese capital, a number of reports making their ways into the public realm are puncturing arguments in favour of pan African banking model.
The meeting, which was ordered by the Nigerian Securities and Exchange Commission, is on the heels of the recent crisis on the bankâ€™s board.
Last week Wednesday, the international investment and financial advisory firm, Renaissance Capital, published a report titled, â€œSub-Saharan Banks: The pursuit of the Pan-African Dream,â€ where it argued, based on recent realities, that a number of challenges may have diminished the importance of pan African banking model.
â€œOur analysis indicates that there has been limited value creation across the board from pan-African strategies. In most instances, the returns generated in subsidiaries are either negative or fall short of the value created in the home market,â€ the report said.
For ETI, it has been a trying time given the prolonged period of boardroom crisis in the bank since last year but financial analysts beleive ETI has what it takes to resolve the crisis and once again assert itself as a truly Pan African bank.
Nigeriaâ€™s SEC investigated the bank after Laurence do Rego, group executive director of risk and finance, told the regulator in August last year that former Chairman Kolapo Lawson and Chief Executive Officer Thierry Tanoh planned to sell assets below market value. Do Rego said she was pressured to write off debts owed by a business headed by Lawson and manipulate the bankâ€™s results. Both Tanoh and Lawson deny any wrongdoing.
However, unlike the Rencap report which called to question, the rationale behind a pan African banking platform, a Nigerian-based financial and investment advisory firm, Proshare Nigeria, strongly believes the ETI experiment is a success despite the recent crisis. It however see tomorrowâ€™s EGM as a make-or-break intervention that should afford all shareholders the opportunity to discuss these issues and take steps to rectify same.
ETI remains one of the frontier banking groups to provide investors with exposure to the â€˜Africa growth storyâ€™, due to its extensive network of banks across 33 countries in Sub-Saharan-Africa. No other banking group provides such extensive exposure to so many countries across Africa. This geographical spread also serves as a risk assurance to over exposure to any one particular country, and its economic cycle.
Proshareâ€™s analysts in the report titled, Ecobank Transnational Incorporated: Governance Issues Being Addressed, Banking on Growth, said, â€œIn our view, the major causes for these issue(s) is the inorganic nature of the companyâ€™s growth, with different subsidiaries having different internal and external policies and having to follow different regulatory policies. This combined with a lack of clear and strong oversight by the group management and possible vested interests of various board members has caused these issues,â€ it said, adding however that the majority of the issues were behind the bank now, and that once tomorrowâ€™s EGM was completed, the bank would have started the process of cleaning up its internal issues, and start the process of growing its asset base on the back of substantiated facts.
According to the report, the company is currently trading at a P/E of 9x TTM as compared to the industry average P/E of 13x.â€ We believe that the company has been undervalued due to various issues faced by it, and that it should trade at higher multiples going forward,â€ it said.
Poor Coordination between Central Banks
Discussing some of the challenges before the bank which has presence in virtually all the regions of Africa, Proshareâ€™s report listed lack of coordination between central banks as one of the reasons for the crisis in ETI. The report noted that there was no cohesive Pan-Africa policy among the various central banks, and given that ETI operates in several countries each with its own set of rules and regulations, it creates some level of inter-operability risk as a wholesale entity. It is also true that since the capital adequacy requirements differ from country to country, one of its subsidiaries may need to recapitalise if new legislations come in, thus resulting in some of ETIâ€™s subsidiary companies being cash rich while others require fresh capital. This is unlike what obtains in the EU where there exists one central bank for the union, with all banks conforming to these regulations â€“ making it easier for the banks and the government(s) as well.
According to Proshare, although the governance issue appears to be more of a struggle for the â€˜soul of the enterpriseâ€™, the outcome of tomorrowâ€™s meeting will go a long way to decide the future of the bank. â€œA fait accompli meeting should see an onward push for the necessary changes needed in the group while a hung or convoluted outcome would signal more heady days ahead. In the event that a new board of directors are elected, and a clear vision is then articulated for the bank after the resolution of such issues as the Nedbank stake holding, PICâ€™s interest, the sell-off of AMCONâ€™s 10 per cent (14 per cent with preferential stakes) holding and the appointment of a substantive chairman; then the bank is empowered to push forth with its rebuilding plans. If an unfortunate development occurs, around the resolutions proposed, then the governance issues can continue to plague the bank and will pose a systemic risk,â€ the report said.
The discussion also centered on the fact that with the overall global economic slowdown, the lesser developed and developing economies are bound to face the brunt of the financial crisis. Bank intermediation rates continue to remain lower even now, just as operating costs continue to grow (though not at the rate it delivered in previous years), blocking the central banksâ€™ monetary policies from efficiently progressing. If this continues, it could pose an issue for the banking system as a whole in countries with a high risk of vulnerability.
Improving Regulatory Policies in Nigeria
Looking at the anticipated impact of a number of policy reviews in Nigeria, Proshare explained that since the majority of ETIâ€™sâ€™ income is derived from one entity, viz. Ecobank Nigeria – these policies are likely to benefit the bank in the long term. â€œSome of these policy issues might have a short term negative impact on the bank in terms of higher capital adequacy norms, higher cash reserves, etc. But we believe that these will have a positive impact on ETI in the long run.
â€œFurther, the pro-active and strong regulatory presence of the Securities and Exchange Commission (SEC) of Nigeria offers customers and investors the assurance of a leading regulator for a multi-jurisdiction entity like ETI,â€ the report said.
Road to Recovery
Proshareâ€™s analysts said ETIâ€™s major issue is about to be put behind it, with a long road ahead to recovery of its brand image and investor confidence; indicating that the bank is likely to do well in the medium to long term. The analysts expect the board and shareholders of the bank to take far-reaching decisions in order not to lose its market shares, saying â€œThe stock has underperformed the broader index over the past year, but we believe that the managementâ€™s focus and determination to decisively act by making the hard choices needed to address the various issues confronting it will give the stock a much needed boost.â€
The Proshareâ€™s report noted that ETI has managed to maintain a strong balance sheet, a healthy NPA level, and relatively good asset quality overall, despite being present in several geographical locations â€“ each with its own set of rules and regulations.
The report also observed that the bank had been grappling with corporate governance issues, which resulted in loss of investor confidence, closer regulatory monitoring, and reshuffling of the board.
The resilience of the bank is underscored by the fact that it has been growing strongly, with revenues and profitability growing year on year, on the back of its continued expansion plan and according to Proshare, the group has been able to keep costs in check and improve its margins every year despite different regulations and cost structures in each of the countries it operates in. The company has shown reasonably good return ratios, with ROE of 11 per cent in 2012. â€œWe expect the ROE to improve going forward to 15 per cent in 2015E on the back of better profitability from existing markets, and expansion into new markets,â€ the company said in the report.
Ecobank Transnational Incorporated (ETI), Africaâ€™s leading independent Pan African banking group with a presence in 32 west, central, eastern and southern African countries, is a holding company for various financial entities (viz. Banks, investment banks, asset managers, etc.) that operates in different locations across Africa. All the companyâ€™s (majority owned) subsidiaries operate in the various African countries under the Ecobank name. The companyâ€™s main area of operations is Nigeria, which constitutes the majority of its assets and profits.
ETI was established as a bank holding company in 1985 under a private sector initiative spearheaded by the Federation of West African Chambers of Commerce and Industry with the support of ECOWAS. In 1984, Ecopromotions S.A. was incorporated. Its founding shareholders raised the seed capital for the feasibility studies and the promotional activities leading to the creation of ETI. ETI has two specialized subsidiaries: Ecobank Development Corporation (EDC) and eProcess International (eProcess). EDC is the investment banking arm of the company, and also operates brokerages in most major African stock exchanges.
Although stakeholders in the bank and the entire banking public in the African sub-region are anxious over tomorrowâ€™s meeting, Proshare believes that the stakes could not be any higher and that the more rational decision would be for an approval of the resolutions proposed as a momentum changer that would deliver the results needed to enter into a recovery phase.
It said, â€œWe look forward to a complete board revamp with a bold commitment to addressing the salient and substantive issues that had been raised thus far, albeit in more congenial manner befitting the corporate standing of the institution.â€