Tumbling oil prices remaining low for a sustained period could hurt pan-African lender Ecobank in 2015, Chief Executive Albert Essien said on Wednesday.
Oil prices that have fallen by about 60 percent since June are wreaking havoc on economies that depend on exports, such as Nigeria, Angola or Ghana — all in sub-Saharan Africa where Ecobank is one of the most prominent financial institutions.
“As of end 2014 we have not seen a real negative knock-on effect. But as we slip further down and the price gets stuck, we believe that we could have some challenges,” Essien told Reuters in an interview in London.
“On the macro level, if the economies of the countries suffer some shocks there will be a knock-on effect on us.”
In the three quarters of 2014, Ecobank generated 43 percent of its net revenue in Nigeria — Africa’s biggest oil exporter.
The negative effect could come from a loss in business in general, but also more specifically lost opportunities in upstream oil business, said Essien, adding the bank is stress testing for the impact of oil trading at US$40 a barrel.
Ecobank, formally known as Ecobank Transnational Incorporated, has not yet reported full-year results. It has a presence in almost 40 countries across Africa, with its business roughly split between retail and investment banking.
Ecobank’s top shareholders are South Africa’s Nedbank, which acquired a 20 percent stake in October shortly after Qatar National Bank (QNB) took a 23.5 percent stake, pared down to 16.9 percent at the end of Q3 2014.
Both Nedbank and QNB see Ecobank as a vehicle for plans to expand on a continent that has enjoyed rapid economic growth in recent years. Yet some analysts have questioned if the two institutions will have competing visions — a notion Essien rejected.
“So far so good. They have a complementary interest, and the complementary interest is that the bank is run well,” he said, adding neither institution had indicated to him any intention of increasing their holdings above 20 percent.
Overall, Essien said he is hoping for more consolidation among banks across Africa, though it is up to the regulators to instigate this process.
“We still need bigger institutions,” he said. “If you have bigger banks, they can participate meaningfully in the country’s development agenda.”
Essien added he has had no contact with former Barclay’s boss Bob Diamond, who wants to see his investment vehicle Atlas Mara become Africa’s leading bank and has made a number of significant acquisitions since launching in 2013.
Essien also said he will continue to focus on existing businesses after a period of rapid expansion, and pledged to cut costs further. He forecast the bank’s cost-to-income ratio will fall to just above 60 percent this year and around 55 percent by 2017. The cost-to-income ratio stood at 66.6 percent in the third quarter of last year.