* CEO's tenure under scrutiny after governance criticised
* Nigeria's SEC criticised Ecobank hiring, called for new
* Ecobank says to strengthen governance, call shareholder
* Investors disappointed by bank's lack of governance
* Ecobank spokesman says 2013 profits strong, share price
By Matthew Mpoke Bigg
ACCRA, Jan 17 Ecobank's response to criticism of
its corporate governance by Nigeria's financial watchdog will be
seen as a test case for the African banking industry, closely
watched by potential investors tracking the region's fast growth
and heady returns.
Growth in sub-Saharan Africa is rising and is projected at 6
percent this year according to International Monetary Fund
figures, yet only an estimated 20 percent of the adult
population has a bank account, the lowest in the world.
Ecobank , often touted as a pan-African
banking success story, is one of the biggest financial
institutions in the region, outside of South African giants such
as Standard Bank and FirstRand.
But the bank is now under pressure to show it can drive
reform after Nigeria's Securities and Exchange Commission (SEC)
criticised weaknesses in the board's ability to manage its own
activities, monitor management, evaluate performance and oversee
The SEC said in its report last week that there was an
absence of a clear vision and strategy at the bank, inadequate
transparency in recruitment procedures and conflicts of
Ecobank, which has rapidly expanded from its headquarters in
Togo to operate in 33 African countries, is listed in Nigeria
and Ghana, two of Africa's foremost frontier markets. Its pretax
profit for the first nine months of 2013 grew 56 percent from a
year ago. Its assets rose to nearly $20 billion in 2013 from
$8.3 billion in 2008, according to its website.
"Our view is not positive. It is quite disappointing that
this is happening in such a big listed stock," said Thabo Ncalo,
portfolio manager at Stanlib Africa Equity Fund. "I would expect
existing shareholders to be up in arms calling for reform."
The SEC began its probe into Ecobank after former finance
director Laurence do Rego, who the bank had suspended, told
regulators she was pressured to misstate 2012 financial results.
The bank denies her allegations.
Ecobank, led by chief executive Thierry Tanoh, a former vice
president of the World Bank's International Finance Corporation,
said in a statement changes have already been made. The
statement did not spell out the changes but the bank said it
took the criticism of its governance seriously.
As Africa's economic potential attracts new players to the
banking industry, central bankers say improved regulation must
accompany the deepening of financial markets needed to power
economic growth in the region.
One measure already taken by Nigeria's central bank was to
require lenders to sell all non-core businesses and form a
holding company if they intend to carry out insurance, asset
management and capital market activities.
Two senior African financial officials, who asked not to be
identified, welcomed the SEC release as a sign that regulators
are flexing their muscles at a time when central bankers are on
a drive to tighten regulation of the fast-growing banking
industry on the continent.
"We think this is very positive because it shows that the
SEC is doing its job. Ecobank has responded in a very positive
manner," said Sven Richter, a Johannesburg-based fund manager
for Renaissance Asset Management, a top 10 Ecobank shareholder.
One central banker spoke of the possibility of establishing
a College of Supervisors for Ecobank because its cross-border
listing poses a particular challenge to regulators.
Ecobank pledged to call a shareholder meeting in a few weeks
once it has received external reports on its governance from
consultants EY and leading Swiss business school, the
International Institute for Management Development.
Ecobank needs to appoint a new chairman after the previous
incumbent stepped down in October, saying it was inappropriate
for him to remain given the ongoing governance reviews.
The SEC has called for Ecobank's shareholder meeting to take
place by the end of February. Bank executives said they expected
to comply with that timeframe, wishing to avoid any suggestion
that waiting for the additional reports could appear defiant.
Ecobank officials said Tanoh is working to clean up lapses
in governance that predate his one-year tenure.
Mwambu Wanendeya, spokesman for Ecobank Transnational
Incorporated, as the bank is officially known, said management
was meeting the firm's top 100 executives and sentiment was
supportive of the leadership.
"We have had very full and frank exchanges. There are
obviously concerns," Wanendeya said.
"People are now understanding that questions of internal
governance don't affect the value of the bank," he said, adding
that the SEC release had not impacted the bank's share price and
that 2013 profits were strong.
The governance allegations, however, could potentially
impact Fitch's credit rating on the bank, the agency said.
"In the event that recent allegations of weak corporate
governance are proven and materially alter the risk profile of
the group, this could lead to a review of the ratings," said
Mahin Dissanayake, a director at Fitch.
The need for stronger regulation became apparent during the
region's most prominent banking scandal in 2009 when Nigeria's
central bank sacked eight CEO's and spent $4 billion bailing out
financial institutions close to collapse due to bad debts
accrued lending to speculators without adequate collateral.
Total banking assets in sub-Saharan Africa stood at $709
billion in 2010, according to French development finance
South African bankers already factor in lower standards of
corporate governance in the rest of Africa's banking sector
compared to their own country, one analyst in Johannesburg said.
One institution that will be watching Ecobank closely is
Nedbank, which holds an option to acquire up to 20 percent in
Ecobank under the terms of a $285 million loan which it has the
right to convert into equity.
"Ecobank forms the thrust of their expansion plan. The
(financial) exposure is on the margin. The bigger risk is on the
reputational side," said Johann Scholtz, head of research at
Nedbank declined to comment, as did South Africa's Public
Investment Corporation, which holds an 18.35 percent stake in
(Additional reporting by Chijioke Ohuocha in Lagos, Tiiesetso
Motsoeneng and Helen Nyambura-Mwaura in Johannesburg and Joachim
Dagenborg in Oslo; Editing by Daniel Flynn and Elaine