Ecobank sets sights on 100m customers in Africa

When we meet Ade Ayeyemi, the CEO of Ecobank, he checks with his team when his next appointment is. We’re at the W Hotel in Montreal where the CEO of Ecobank was taking part in the record-breaking pledging conference of the Global Fund to fight Aids, Tuberculosis and Malaria.

His aide says his next appointment is in an hour, but he is quick to tell me that we should be done in 20 minutes. Fifty minutes into the interview he is still talking passionately about banking. Banking runs through his veins and he is convinced that financial services can play a fundamental role in transforming the continent.

It is exactly this that drives his vision for Ecobank, and his determination to make it work. He feels a sense of responsibility and stresses the importance of working hand in hand with policymakers to avoid unintended consequences.

Problem solver

It soon becomes apparent that he enjoys turning a problem on its head, unpacking it, dissecting it and understanding why past solutions have not worked. To some extent it has been a baptism of fire for the new ceo who took over the helm of the bank a year ago, having to navigate a challenging economic and trading environment.

He has had to face devaluations, economic slowdowns and write-downs due to the sharp fall of commodities, all of which have had an impact on the bank’s profitability. In 2015 the bank took a $532m provision for impairments. It is still in the Top 10 of African Business‘ Top Banks ranking and he is quick to point out that the profits before the impairments ($738m) show the earning capacity of the bank.

These impairments (relating to loans before his time) are more a sign of his cautionary approach and what he calls a prudent reassessment of the bank’s loan portfolio. Is he worried about exposure to the oil sector? Not necessarily; ultimately, he explains, the underlying assets are still performing.

What is impacted is the cash flow, so rather than being repaid over a five-year period, the loan will be reimbursed over eight or ten years. “The valuation has gone down but the underlying asset is still there,” he notes.

Restructuring

Following a strategic review the bank has been restructured into three divisions (consumer banking, commercial banking and corporate and investment banking) and four geographical regions (Nigeria, which due to its size is considered one region; anglophone West Africa; francophone West Africa; and Central, Eastern and Southern Africa). The review will also lead to greater consolidation and centralisation of back office processes.

The bank has a cost to serve ratio in the mid-60s, which he feels will be lowered once some of the bank’s operations are centralised. Technology will also lower costs and be used to better serve customers.

Interestingly the bank’s diversified footprint (in 36 African countries, which to some extent contributed to a higher cost ratio), has worked in the bank’s favour in the last 18 months. Fast growing and oil importing countries tempered the slowdown in commodity dependent markets, thus diversifying the bank’s risk.

He sees the pan-African footprint as a key competitive advantage and capability of the bank. “There will be places where we need to resize our business, and some countries where maybe we have over-lent; we need to pull that back.

But the fundamental proposition of the firm, that it is present in multiple countries, that we can leverage for the purpose of connecting the continent in terms of trade, in terms of payment flows and in terms of donor or commercial flows, is very, very unique and very, very credible. Our being here [at the Global Fund pledging conference] tells you something – that we are in a unique position to be able to leverage that scale and presence across the continent. ”

His ambition is to move the bank from serving 10m customers to serving 100m. And for that to happen, he says, will require a fundamental change in the dimension of the bank’s thinking. It will require considerable leveraging on technology and leveraging on the opportunity that banking presents across Africa. And last but not least, it will require greater collaboration with government.

He truly believes that banks have a major role to play, not only in changing society but in enabling prosperity. For banks to be able to play this transformational role there need to be government-led changes.

“The government has a role in enabling financial inclusion. We need to have governments provide ID cards to all their people: it is a primary foundation in terms of social infrastructure that can enable financial inclusion for everybody. And for the countries that cannot provide those ID cards they need to lower the threshold of identification that is required for opening accounts, and that threshold can be risk appropriate.

If the balance is less than $1,000 then why not allow the SIM card to be the basis of opening accounts. After all those SIM cards have been registered.”

“With M-Pesa in Kenya,” he adds, “the regulation for identification came after it became successful. Had the regulation for identification come before, it would never have been successful.”

Banks have often come under criticism for neglecting the poor. But banks, he says, cannot work in isolation. Fundamentally, he says, the system needs to change; it is often not the banks that are broken bur rather the way the system is structured and this is why ultimately the financial services sector remains small, comparatively speaking. He points out that South Africa, one of the more mature markets, has a loans to GDP ratio of 80%. In Nigeria this is about 20%. This also shows the massive opportunity for banks.

Capturing market share

For Ayeyemi, it is this possibility to scale up and capture market share that makes the sector fascinating. For one, allocation of capital is poor; people are using their savings to purchase property he explains. The ability for businesses and individuals to leverage their assets is low or non-existent.

The domestic household component of lending is much lower than it can be. All of which shows the considerable upside. But unless you have smarter regulation, all you will do is lend to the top segment of society, which can also lead to careless or “lazy” lending as he puts it.

And that is what he fears may happen in Kenya following the decision by the government to cap interest rates – what he calls the unintended consequence of well-intentioned policy. “The price of the loan is not the problem. In the parlance of lending [this policy] means if I only charge 4% as a spread, then I will only lend to the best credits.

People that are poor credits I will not lend to them because the risk-reward equation will not balance. The concern of society is that the interest rate is high. Now interest rates are driven by inflation. Inflation is what central banks need to fight.”

He says that the same sort of unintended consequences happened in Nigeria with the treasury single account policy, which called for government ministries and institutions to hold one single account. This was done to give government greater clarity and transparency and to reduce the risk of fraudulent or corrupt activities taking place.

But it resulted in a sudden and massive change to banks’ balance sheets and liabilities. In other words, it was the equivalent of a rush on the banks by government as they reconfigured their holdings, and this led to a liquidity issue for some of his peers (but not for Ecobank, he is quick to add). Good policy in principle, but in practice it could have led to severe problems for a sector that is critical to the economy.

Responsibility and duty

It is apparent that Ayeyemi feels the strong sense of responsibility and duty; to his clients, to his shareholders, to his employers but above all to society. For him, that’s the big picture. Banks can do more and can be at the forefront of Africa’s transformation. But he is adamant that finance is only part of the solution. He is not against governments encouraging lending to SMEs or the agricultural sector, but they should be careful not to fix the price.

Ultimately, he explains, finance cannot be the beginning of the business proposition. The business proposition and the structures within which it operates need to be at the centre of finance.

Lending will happen but first empower the SMEs or the agricultural sector by giving them the tools, such as title deeds for their land and access to markets. It is no coincidence, he adds, that banks lend to the tea sector and horticultural industry in Kenya; or that the Cocoa Board in Ghana can now borrow more than the government at more attractive rates. “Where we have provided the right frameworks and policies, things are working and banks are lending.”

He says that banking is simple as long as you do not lose sight of what you are there for, which is to serve your clients. And it is this client-centric approach that he is trying to inculcate in the bank’s 17,000 employees.

“When we say we are client focused what we need to do is ask ourselves the question ‘what jobs are they trying to get done?’ What is important? Our clients don’t just do a funds transfer, a client is paying for goods and services.

The banking side of the work should really be one of limited concern to the client. And, therefore, it is about understanding what the client is trying to do and being able to offer services in a way that is convenient.”

If there is one lesson he learnt at Citi, where he spent 27 years, becoming the head of their Africa operations, it is that clients were central to that bank’s survival during the financial crisis when the bank was facing collapse. It is that client-centric approach that Ayeyemi is trying to inculcate throughout the bank, and within the process and the product-led approach he is driving and advocating.

“The world is uncertain and during the period of boom you need to always have an understanding that it may not persist and therefore you don’t overtrade during that period. You always need to make sure that your risk management is secure and you focus on your clients because it’s the client that will take you through. It is the clients of Citi that took Citi through when there were challenges. That’s what we’re trying to do at Ecobank: being client centric and putting the right products in the hands of our clients.”

Has he enjoyed the past year? Absolutely. Ayeyemi seems to have a deep appreciation of the bank’s history and of the bank’s founding mission, which is to serve the people of Africa. The cause he says is one worth fighting for. Like a marathon runner, you have to overcome some barriers, but the exhilaration of reaching the finishing line is worth the struggles on the way.

But the journey is far from over. He says Ecobank should be very proud of its history but that it can still get to a better place. Essentially, it needs to scale up to be a much better organisation.

Does that mean buying new assets, such as Barclays’ in Africa? For the time being that’s not on the agenda. The bank is in a phase of consolidation but his aspiration is to ensure the bank is dominant in the areas it operates in. “We’re not the largest bank into the continent, we are the most diverse. We now need to tie together and leverage our scale to become the largest and to create economic value.” And Ayeyemi is relishing the challenge ahead.

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