Nedbank associate under scrutiny

Ecobank ex-CFO claims figures juggled to boost results

● A bank in which Nedbank has a significant holding is under investigation for allegedly manipulating its accounts to improve its financial results.

The Financial Reporting Council of Nigeria this week confirmed the investigation of Togo-based Ecobank, in line with provisions in the Financial Reporting Council Act.

The probe is based on allegations by Altu Sadie, a former CFO of Ecobank’s card division, that Ecobank applied incorrect exchange rates, which resulted in it overstating balance sheet items and income statements.

Nedbank is the largest shareholder in Ecobank with a 21.2% stake, and SA’s Government Employees Pension Fund through the Public Investment Corporation (PIC) holds just under 20%. The PIC did not respond to requests for comment.

Ecobank is the largest independent regional banking group in West and Central Africa with more than 1,300 branches in 36 countries serving wholesale and retail customers.

The business is critical to Nedbank’s growth strategy in Africa. In November, Nedbank announced the expansion of its wealth management business in collaboration with Ecobank into francophone countries, with further expansion into Ghana in 2019.

Olumuyiwa Ajibade, principal manager in the directorate of inspection and monitoring at the Financial Reporting Council of Nigeria, this week confirmed the investigation but declined to give details, only saying: “The council is working on it. That’s as much as we can divulge at this time.”

Ato Arku, head of investor relations at ETI, Ecobank’s parent company, said: "We currently are not aware of any investigation by the FRC of Nigeria."

He added that when translating the financial results of subsidiaries into the US dollar (the reporting currency of the group), official rates in the jurisdictions in which the bank operates are used and disclosed in company publications.

International Financial Reporting Standard 9 was implemented in January. This has been adopted by all banks adhering to IFRS, including in Nigeria and SA, he added.

Mfundo Nkuhlu, Nedbank’s chief operating officer, said the bank had not received any notification from the council that Ecobank was being investigated.

“Neither has the board of ETI [Ecobank Transnational Inc], the holding company of Ecobank, been advised of the same,” he said.

“Consequently, it has not arisen that there is a need to notify the JSE and shareholders.”

Ajibade said the maximum penalty a transgression could attract was that the council could order the guilty party to restate financial information and publish this information in newspapers. “That process alone is very laborious and difficult, which in itself is a sanction because it has a lot of reputational implications for the entity. In addition there is a financial penalty,” Ajibade said.

The investigation follows a complaint by Sadie, who claimed he was dismissed after blowing the whistle on accounting irregularities and corporate governance transgressions. Sadie said he received a dismissal letter on January 31 last year after he reported the accounting irregularities. Since then he had attempted to report the irregularities to regulators in SA and Nigeria but without success until now.

Sadie is challenging his dismissal in a Togolese court and wants a salary payout for 12 years as opposed to the three-month payout he received.

Nkuhlu said the board of ETI was satisfied that Sadie was dismissed for misconduct after due process was followed.

In Sadie’s submission to the council he claimed that among the transgressions by Ecobank was the use of an incorrect average exchange-rate methodology to convert the currencies from its foreign operations into naira — Nigeria’s currency.

He alleged that the “inconsistent application of exchange-rate methodology across similar transactions and previous periods and nondisclosure of change in accounting estimates was to improve results in 2016”, which the bank did not disclose as per IFRS.

Sadie also alleged the incorrect use of the Central Bank of Nigeria’s exchange rates versus Nafex rates — which are commonly used by all businesses in Nigeria. The incorrect use led to the overstating of balance sheet items and income statements for 2017 and 2018. Assets were overstated by $862m (about R12bn) and deposits were overstated by $9m for Ecobank’s results for the first half of its 2018 financial year, he claimed.

Fitch, which rates Ecobank as sub-investment grade, said in August that with the influence of its shareholders and a “wideranging external review, we believe that ETI has addressed its widely publicised legacy corporate governance problems”.

Regarding the corporate governance failings in the past, Arku said ETI’s board worked with the Nigeria Securities Exchange Commission to improve governance. Ecobank has adhered to these actions and the company continues to work hard to ensure good governance is maintained.

The council is working on it. That’s [all] we can divulge Olumuyiwa Ajibade

Manager at Financial Reporting Council of Nigeria