Ecobank Ghana has reported robust PAT growth of 23.6%y/y to GHS549.87 million in FY2020 from GHS444.95 million in the previous year despite higher cost-to-income ratio. Earnings were mainly driven by sustained revenue growth and lower cost of risk in 2020.

Gross revenue grew by 15.7%y/y to GHS2.09 billion in FY2020 on the back of recovery in business and consumer confidence in that second half of year to boost banking business. Interest income saw strong growth of 25.4%y/y to GHS1.59 billion in FY2020 despite 7.7%y/y decline in the loan book to GHS4.98 billion as banks became risk averse in light of the disruptions caused by the coronavirus pandemic. Interest income was driven by significant investment in risk-free government securities (captured as “non-pledged trading assets” in balance sheet), which grew by 55.0%y/y to GHS5.30 billion in FY2020 from GHS3.42 billion in FY2019.

However, there was deterioration in the operating efficiency of the bank in 2020 as operating expenses grew by nearly 22%y/y to GHS885.89 million in FY2020. This translated to a higher cost-to-income ratio of 47.9% in FY2020 from 45.8% in FY2019, representing an increase of about 210bps, which eroded some earnings.

Luckily, Ecobank’s lower cost of risk in 2020 helped to preserve some margins to boost earnings. The bank’s cost of risk dropped by 40bps to 3.6% in FY2020 from 4.0% in the previous year as a result of 16.8%y/y decrease in impairment charges to GHS180.25 million in FY2020. However, the bank still has asset quality issues that needs to be addressed in 2021 given that the Non-Performing Loans (NPL) ratio rose by 60bps to 6.3% in FY2020 from 5.7% in FY2019. It is likely that a desire to control the bank’s asset quality may have influenced management’s decision to slowdown the growth of its book, which contracted by 7.7% in FY2020