We want to use this medium to allay the fears of any of our shareholders, creditors, and other stakeholders resulting from the unfounded allegation contained in the said publications
LAGOS, Nigeria, December 19, 2018 The attention of the ETI Group has been drawn to recent publications in some online media alleging overstatement of ETI’s balance sheet and income statements emanating from incorrect exchange rates in translating the financial statements of our affiliate entities, especially Nigeria.
We want to use this medium to allay the fears of any of our shareholders, creditors, and other stakeholders resulting from the unfounded allegation contained in the said publications.
Ecobank complies with IAS 21 requirements
The deterioration of the Naira in 2016 led to the creation of different windows for various segments of the economy leading to foreign currencies being traded in these markets/windows at different rates and thus leading to a multiple exchange rate system in Nigeria.
The existence of multiple FX markets with different exchange rates as well as the accessibility to such markets necessitates the review of the appropriate exchange rates that entities should use in accounting for and reporting its foreign currency transactions as well as foreign investments into Nigeria under International Financial Reporting Standards (IFRSs). IAS 21 ‘The effects of changes in foreign exchange rates’, requires that a foreign currency transaction should be recorded at initial recognition in the functional currency using the spot exchange rate at the date of transaction (IAS 21, paragraph 21). IAS 21 paragraph 8 defines the spot exchange rate as the exchange rate for immediate delivery. Where a country has multiple exchange rates, an official quoted rate should be used as the spot rate.
Nigeria currently has multiple exchange rates and judgment is required to determine which exchange rate qualifies as a spot rate that can be used for translation under IAS 21. In determining whether a rate is a spot rate, an entity is required to consider whether the currency is available at an official quoted rate and whether the quoted rate is available for immediate delivery. The CBN official rate, Nigeria Inter-bank Foreign Exchange Fixing (NIFEX) rates and the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rates are all quoted and can be used to convert or translate foreign currency transactions. Thus, the CBN official, NIFEX or NAFEX rates all technically comply with the requirements of IAS 21.
As a policy within Ecobank Group, we use the official rate in the respective jurisdictions in which we operate to translate the results and balances of our affiliates into the Group’s reporting currency, the US Dollar. As a result, and in exercising the judgment allowed for within IAS 21, the Group currently uses the CBN official rate which is one of the 3 quoted rates and the official exchange rate according to the CBN. The use of this rate complies with IAS 21 and has been publicly disclosed to the market in all our press releases along with the impact of using the other available rates. This is done so that users of our financial statements can easily quantify and adjust for the use of the other exchange rates if necessary. Most of our peers in Nigeria used the CBN rate in 2017, before switching to NIFEX towards the end of the year. In 2018, they have gradually settled at a blend of both NIFEX and NAFEX.
The use of the CBN rate is in accordance with the group’s policy which is to apply the official rates. This policy and its application are compliant with IFRS and specifically IAS 21. To enable comparison and to ensure that the user of the group’s financial statements is not prejudiced in any way, we have adequately disclosed in our various press releases and investor presentations the fact that we have used the CBN official rate in addition to disclosing the expected impact on our results of using alternative available rates.
At its November board meeting, the Board of ETI approved the adoption of the NAFEX rate as the rate to be used for the translation of our operations in Nigeria. The change has been necessitated and approved in response to developments in the industry especially with the ETI’s peers moving away from the use of the CBN official rate.
Ecobank complies with IFRS 9 requirements
Ecobank Group adopted IFRS 9 as issued by the IASB in July 2014 with a date of transition of 1 January 2018, which resulted in changes in accounting policies and adjustments to the amounts previously recognised in the financial statements. Similarly to our peers in Nigeria, as well as other African and global banks, and, as permitted by the transitional provisions of IFRS 9, the Group has elected not to restate comparative figures. Adjustments to the carrying amounts of financial assets and liabilities at the date of transition were recognised in the opening retained earnings and other reserves of the current period. Overall, the adoption of the standard resulted in the group recording higher impairment allowance than that recognised under IAS 39. This had a negative impact on the group equity by $299m.
The main drivers for the significant increase in IFRS 9 impairment figures when compared to IAS 39 impairment figures are:
• Replacement of the emergency period under IAS 39 with 12 months ECL on all exposures under IFRS 9.
• IFRS 9 introduces the stage 2 bucket where higher impairment (Lifetime losses) is recognised for facilities with significant increase in credit risk. Under IAS 39, same assets were classified as performing with minimal impairment recognised.
• Off balance sheet exposure & undrawn balances: Under IAS 39, impairment was not required to be recognised on these items, however, IFRS 9 requires that impairment provision on these items is calculated.
• Other financial instruments: Historically very little or no impairment has been held on non-customer loans/ instruments such as placements with other banks, government treasury bills and bonds, corporate bonds, items in the course of clearing and other debtors. These are now clearly within the scope of IFRS 9 and impairment has been computed on these.
IFRS 9 2014 does not require restatement of comparative period financial statements except in limited circumstances related to hedge accounting (not applicable to Ecobank Group) or when an entity chooses to restate (the Group has not, nor have most of its peers). The standard requires that where comparative periods are not restated, the difference between the previous carrying amounts and the new carrying amounts be recorded in opening retained earnings or other components of equity, as appropriate. This is the approach that has been followed by the Group and as a result the transition impact of $299m has been recognised in equity.
In conclusion, we can confirm to all stakeholders that there were no misstatements in our financial statements as alleged in our financial statement for the year ended 31 December 2017 nor in our three quarterly reports released during the 2018 year. We also note that this unfounded allegation was made by a former employee of the Group who is currently in court claiming payment of 13 years’ salary for an alleged unlawful termination of his employment contract. (APO)
Current Legal Issues Arising from Banking and Financing Arrangements
In August 2020, Diagoe Plc’s Nigerian entity announced that it was struggling to refinance a $23 million debt and trim costs following a shortage of dollars in the local-foreign exchange market. While the lack of access to greenback (dollar) remains a growing concern for borrowers in Africa, the downturn in the revenue and profits as a result of COVID-19 has recently become a more prevalent cause for the inability of many borrowers to fulfill their contractual obligations.
The disruption of supply chains, compulsory quarantine, and social distancing regulations are a few examples of the effect of COVID-19 which in turn have materially caused economic instability and affected the ability of borrowers to meet their financial obligations. There is therefore a need for lenders and borrowers to critically consider the implications of the current economy on their financial obligations.
This article highlights some key implications the current financial terrain may have on borrowers’ businesses and their ability to comply with their contractual obligations. The article further sets out recommendations for lenders and borrowers who are faced with the task of funding and repaying loans under respective financing arrangements. While there are numerous impacts of the resultant effect of COVID-19 on covenants in finance documents, this article highlights only a few of such key legal consequences on financial obligations.
Financial Conditions and their Implication on Covenants in Finance Documents
Generally, financial covenants in a loan agreement are undertakings given by the borrower to test the performance of the business servicing the loan and to help the lender ensure that the risk attached to the loan does not unexpectedly deteriorate prior to maturity. These performance covenants may cover the borrower’s business both back or forward to assess whether the business is showing any signs of distress that could potentially affect its financial obligations under the finance documents.
However, as a result of the steps taken to combat the COVID-19 pandemic, many businesses have seen a severe and abrupt drop in income which has affected the ability of businesses to meet some performance covenants.Where these covenants have been breached as a result of the pandemic, the lenders may declare a default under loan documents and demand early payments of loan which acts as a drawstop, such that the borrowers will not have access to their facilities. A drawstop event means a breach by the borrower of a financial covenant which gives the lender the right to refuse to make further loan advances under a facility agreement.
In light of the foregoing difficulties that both lenders and borrowers may face in these uncertain times, the following paragraph sets out practical solutions that may be explored by the parties.
Legal Considerations for Borrowers and Lenders
With the current unpredictability of the financial markets, it is important that borrowers and lenders conduct a critical review of their current loan documents to verify the implications of COVID-19 on their rights and obligations. Most importantly, borrowers have to fully disclose to their lenders the current situation of their businesses, highlighting any potential breach before it happens helps to build trust and to enable the lenders to have a clear picture when deciding if they will be willing to adjust financial obligations in line with the current realities of the economy and take into consideration some practical solutions set out below.
First, parties may agree to re-negotiate and subsequently amend their financial covenants, taking into consideration the impact of COVID-19 on the borrower’s ability to comply with their financial covenants. For instance, certain definitions in the finance documents may no longer reflect the current realities of the borrower’s business, such as EBITDA which is used as a metric for thelast four fiscal quarter periods of earnings before interest, taxes, depreciation, and amortization to measure the company’s financial performance.
Thus, where the EBITDA has been affected as a result of the pandemic an amendment to its substance will be an appropriate step in order to reflect the current financial condition of the borrower. Other re-negotiation may be in relation to compliance with certain conditions provided under the finance documents.For example, a facility agreement may include provisions requiring the borrower to fulfil certain further conditions precedent before it can access additional funding under the relevant facility.
It usually includes confirmation that:
(i) no Event of Default or a potential Event of Default has occurred and is continuing; and
(ii) the repeating representations are true in all material
respects, in each case, as at the date of the utilisation request and the proposed utilisation date.
In such instances, parties may either amend the provisions or the borrower may request that the lender grant waivers in the event that such conditions will not be fulfilled.
Another consideration that the borrower may explore (subject to the fulfillment of any available conditions or if waivers are granted by the lender) is utilizing any undrawn commitment under its existing facilities. Although, it has been highlighted above that material breaches of covenants may give right to the lender torefuse to provide additional funding, it may be in the interest of lenders to provide same. This is because additional funding may positively impact the borrower’s business and in turn improve the lender’s chances of full debt recovery.
Finally, parties may consider undertaking a full restructuring of the financing by re-negotiating substantial terms and entering into restructured facility documentation which may capture relaxation of financial covenants, obtaining a moratorium on interest payment obligations, all necessary requirements, amendments, waivers, and consents required by the borrower. Essentially, the restructured facility documentation is drafted on much better terms that reflect the current financial conditions and commercial needs of the borrower.
The global COVID-19 pandemic has no doubt placed a strain on the ability of some businesses to service their debts under finance documents. While many governments especially in developed countries have granted some aids, this may not be enough especially for companies in certain industries that have been seriously hit by the pandemic. The situation is even worse in undeveloped markets where there is little or no support from government. Thus, it is unavoidable that re-negotiation and restructuring are considerations that will likely be put forward by borrowers to avoid triggering defaults under their finance document during these unprecedented times.
It is advisable that lenders on the other hand, are more flexible with their approach with their borrowers and are willing to work around re-negotiating the financial covenants with the borrowers given the current uncertainties arising in the economy.
Written By: Bukola Adelusi recently completed her LL.M in corporate law at Western University, Ontario. Prior to her LL.M, she practiced with a top-tier law firm in Nigeria, where she specialized in banking and finance, M & A and private equity.
Financial Inclusion: Ecobank Group And Alipay Partner On cross-border remittance
Alipay users to benefit from Ecobank’s cross-border remittance solution
LOME, Togo, February 12, 2020 – The leading pan-African bank, Ecobank has signed a cross-border remittance agreement with Alipay, the world’s leading payment and lifestyle platform, that aims to bring more inclusive financial services by providing a fast, safe, affordable and convenient way for workers to transfer money back home.
The partnership will facilitate instant transfers from Rapid transfer, Ecobank’s remittance solution, to users of Alipay, which serves more than 1.2 billion people globally together with its local e-wallet partners. This provides an additional channel option which will increase options available to users, help lower transaction costs and enhance the quality of service in the market.
Nana ABBAN, Group Consumer Banking Head said: “Our panafrican cross-border remittance solution, Rapidtransfer, has over the years been delivering transparent, convenient, and affordable services to the African diaspora and their African-based dependants. So, it is a natural extension for us to use it to deliver the same advantages to migrant workers across Africa. Through our partnership with Alipay we are further leveraging the scale and capacity of our unified payments ecosystem on the global stage.”
“We are excited to partner with Ecobank and use our technology to bring fast, affordable, and convenient remittance services to more users globally, especially workers who are living far from home,” said Ma ZHIGUO, Alipay’s head of the global remittances business. “We are committed to working with partners such as Ecobank, using innovative technologies to help global consumers gain access to inclusive financial services, creating greater value for society and bringing equal opportunities to the world.”
The solution will be rolled out across our entire footprint, subject to required local approvals.
A “Meeting of Minds” Report Identifies Five Main Challenges Facing African Banks
Pierre-Guy Noël, Chief Executive-MCB Group (Source: The Mauritius Commercial Bank Ltd (MCB)
Further to the “Meeting of Minds” workshop, a report probing into discussions has been published this week by Mauritius Commercial Bank (MCB)
PORT LOUIS, Mauritius, December 20, 2019- In October 2019, during the tenth Africa Forward Together (AFT) forum in Mauritius and spearheaded by Mauritius Commercial Bank (MCB), a special workshop aptly called “Meeting of Minds” session leveraged the insight and brainpower of over 35 C-level and senior banking leaders across the African region and beyond.
The aim of this session was to identify and prioritise the main challenges faced by their banks in five distinct but interlinked areas that were purposefully scoped to look beyond numbers:
- Operational Efficiency
- Corporate Sustainability
Further to the “Meeting of Minds” workshop, a report probing into discussions has been published this week by MCB. It identifies five main challenges facing African banks and financial institutions, as follows:
- Lack of technical expertise amidst the increased cybersecurity risk
- KYC issues hampering financial inclusion
- Talent Management, retention and development
- Customers’ education and staff skills gap
- IT & Digitalisation and Transformation Programme – Expertise
On a maximum rating of 9 points, the experts assessed the following:
- Cybersecurity and lack of experience: 7.1
- Inadequate institutional framework is a burden: 7.1
- Talent management: 7
In the editorial of the report, MCB Group CEO, Pierre-Guy Noël speaks of an alignment of African banks and institutions on the key issues they have to face. “Considering the relative heterogeneity of African markets in terms of distinct characteristics and level of maturity in consumer behaviour, there was a remarkable alignment on the challenges facing the region’s financial institutions,” he said. On the main threat posed by cybesecurity, MCB Group CEO observed : “Additionally, there is a lack of appropriate risk assessment and framework that caters for the exigencies arising from the use and adoption of new digital solutions.
The rise of cybersecurity attacks and other cyber frauds were therefore highlighted as the most significant challenge, compounded by the lack of technical expertise and familiarity at senior levels in these fields (…) In parallel across the rest of most institutions, is the significant shortage of technical expertise and know-how in IT, digitalisation and related transformation programmes…”
The lack of KYC and other compliance frameworks “to facilitate the on-boarding of unbanked segments remain a key obstacle for regional banks to further financial inclusion. This challenge emerged in many discussions”, added Mr. Noël, who also stresses upon the challenge of developing solutions from customer segments that are distinct and sometimes unrelated (urban customers with high digital literacy vs rural unbanked segments requiring traditional supports and channels).
Last but not least, sustainable development and the necessity to embed its principles into corporate DNA are also issues highlighted by Mr. Noël. “The alignment of long-term value to stakeholders with corporate sustainability requires a considerable strategic push, a deep adjustment of corporate culture and a more measured risk-management mindset. This adjustment will have to take place sooner than later, because a trusted bank with a wider positive impact is increasingly being upheld as the minimum standard vis-à-vis stakeholders ranging from our own customers and central banks, to providers of lines of credit”.
MCB’s CEO insists on the fact that the insights of the report can help prioritise strategies for the future and promote awareness “that collaboration and partnership within the region has potential to address many of the common challenges facing African banking and financial services today”.
Read the full “Meeting of Minds” report here http://bit.ly/2MfPRy2