GCR Ratings (“GCR”) has affirmed Ecobank Ghana PLC’s national scale long and short-term issuer credit ratings of A+(GH) and A1(GH) respectively, with a Stable Outlook.
Rated Entity Rating class Rating scale Rating Outlook Ecobank Ghana PLC Long Term issuer National A+(GH) Stable Outlook
Short Term issuer National A1(GH)
The ratings on Ecobank Ghana PLC (“Ecobank Ghana”) reflect a strong business profile supported by leading market shares, stable funding sources and good levels of liquidity. The ratings also factor in improving capitalisation and improving asset quality risk.
The bank’s competitive position is strong, with a cost of funds of less than 2%, benefiting from being part of the broader Ecobank Transnational Incorporated’s (“ETI”) group, which owns 68.93% of the bank’s shares. ETI is a pan-African conglomerate with banking operations spanning over 33 countries. Ecobank Ghana’s approximate market share for deposits in FY21 stood at 13.2% (FY20: 13.1%), while the gross advances market share stood at 11.0% (FY20: 10.4%), supporting its solid domestic footprint. The bank’s revenue is stable, supported by a healthy internal capital generation of 29% in FY21(FY20:35%). Total operating revenue grew from GHC985m in June 2021, to GHC1,186m in June 2022. The growth was mainly driven by net interest income and general banking fees. The cost-to-income ratio stood at 46% in June 2022,
in comparison to 39.6% in June 2021.
Ecobank Ghana is adequately capitalised, with a GCR capital ratio of 20.6% at 31 December 2021 (FY20:18.6%), while also reporting a CAR above the D-SIB minimum regulatory requirement of 15%. However, the bank’s CAR ratio dipped to 16% at June 2022, largely due to the single large dividend paid once a year, albeit it only will reflect in the third quarter of 2022. The GCR capital ratio is expected to be around 20% by the end of the year.
Although the bank’s asset quality has come under pressure due to the COVID-19 pandemic, the NPL ratio improved from 8% at June 2021 to 5% at June 2022. However, 20% of the NPLs have been restructured as certain sectors were hit hard by the pandemic, namely construction, real estate, and hospitality sectors. The bank’s gross loan and advances increased from GHC5.3billion in FY20 to GHC6.2billion in FY21 with loan loss reserves of GHC531.3million. We expect the cost of risk to remain below 10% within the short to medium-term. Concomitantly, the bank’s credit losses have registered at moderate levels of below 5% historically, and we expect them to remain the same in the next 12-18 months. Foreign currency (FCY) loans accounted for 31.9% of gross loans and advances in FY22 (FY20: 34.6%), with most of the facilities extended to the manufacturing sector, constituting 19.2% of the bank’s loan book. We also note the rising risk of the Ghanaian sovereign. In the unanticipated event of a sovereign default and haircut of local currency government debt, there could be significant capital erosion across the banking sector. Positively, sovereign debt accounts for 12.3% of total assets for Ecobank Ghana.
Funding sources are relatively stable, supported by the bank’s strong retail footprint. The GCR long term funding ratio and stable funding ratios were 112% (FY21: 108%) and 88% (FY21: 84%) at 30 June 2022 respectively. A large portion of the funding consists of customer deposits as the core deposit ratio stood at 91% at 31 December 2021. The bank’s liquidity is adequate as the bank has a high liquid asset coverage of wholesale funding of 541.2% at June 2022. The GCR liquid assets over deposits stood at 73% in June 2022.
The standalone ratings are effectively capped by the credit profile of the group, as reflected in the negative adjustment to the standalone risk score.
The outlook is stable due to decent liquidity and its adequate capitalisation. Despite the turbulent operating environment, it is expected that the entity will remain resilient even if the asset quality deteriorates.
We could revise the ratings upwards if Ecobank Ghana raises and maintains a higher GCR capital ratio (above 23%) over the outlook horizon, presuming the group creditworthiness also improves. We could lower the ratings if: 1) credit losses are at levels above 5% in the outlook horizon, including unexpected sovereign debt haircuts; 2) asset quality deteriorates below industry averages; 3) the company records internal capital generation at levels lower or in line with risk weighted asset growth; 4) ETI’s financial profile deteriorates; or 5) liquidity ratio falls within 100bps of the regulatory minimum.
Primary analyst Dimakatso Mothibedi Associate Analyst: Financial Institutions
Johannesburg, ZA Dimakatsom@GCRratings.com +27 11 784 1771
Secondary analyst Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771
Committee chair Vinay Nagar Sector Head: Financial Institutions
Johannesburg, ZA Vinay@GCRratings.com +27 11 784 1771
Related Criteria and Research
Criteria for the GCR Ratings Framework, January 2022
Criteria for Rating Financial Institutions, May 2019
GCR Ratings Scale, Symbols & Definitions, May 2022
GCR Country Risk Scores, August 2022
GCR Financial Institutions Sector Risk Score, June 2022
Ecobank Ghana PLC
Rating class Review Rating scale Rating Outlook Date
Long- and short-term issuer Initial National AA-(GH)/A1+(GH) Stable Outlook December 2013
Last National A+(GH)/A1(GH) Positive Outlook June 2021
Risk Score Summary
Rating Components & Factors Risk scores
Operating environment 6.50
Country risk score 3.50
Sector risk score 3.00
Business profile 2.0
Competitive position 2.0
Management and governance 0.00
Financial profile 0.75
Capital and Leverage (0.25)
Funding and Liquidity 1.00
Comparative profile (1.25)
Group support (1.25)
Government support 0.00
Peer analysis 0.00
Total Score 8.00
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SALIENT POINTS OF ACCORDED RATING
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to the rated entity. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual management meetings, and other written correspondence.
The information received from Ecobank Ghana Limited and other reliable third parties to accord the credit ratings included:
• The audited financial results to 31 December 2021
• Unaudited interim results to 30 June 2022
• Four years of comparative audited numbers
• Other related documents
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