Earnings Report /
Ghana

CAL Bank: FY 19 review – Net interest income boosts earnings; reiterate Buy

  • Net interest income up by 23% yoy

  • NPL ratio rose by 0.9ppts qoq, mostly attributed to defaults in some major construction sector loans

  • Reiterate Buy (TP: GHS1.70, 83% ETR); recommendation supported by the bank’s impressive balance sheet growth

Nkemdilim Nwadialor
Nkemdilim Nwadialor

Equity Research Analyst, Financials

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Tellimer Research
28 February 2020
Published byTellimer Research

CAL Bank reported FY 19 net profit of GHS153mn, up 13% yoy and 5% below with our forecast. The positive performance was mainly driven by higher net interest income (up 23% yoy) despite a 20% yoy dip in non-interest income.

We reiterate our Buy recommendation (TP: GHS1.70, 83% ETR), supported by the bank’s impressive balance sheet growth, which is in turn supported by strong CAR. CAL trades at 0.6x 2020f PB, a 40% discount to Ghana peers.

Key positives

  • Revenues rose by 16% yoy, driven by a 23% yoy increase in net interest income attributable to loan book expansion.
  • Cost/Income ratio fell by 1ppt to 44% despite a 16% yoy increase in operating expenses (attributable to increased salaries on the back of the higher minimum wage). 
  • Loans were up 18% qoq, due to increased lending from industrial and construction sectors which grew by 131% and 102% yoy respectively and account for c40% of loan book.

Key Negatives

  • Non-interest income was down 20% yoy due to lower trading income and higher fee expenses from transactions costs on medium term borrowings.
  • Deposits were down 2% qoq, as the bank seems to have abandoned its cheaper agency banking deposits opting for alternative funding such as inter-bank borrowing (up 108% qoq) and other borrowings.
  • NPL ratio rose by 0.9ppts qoq mostly attributed to defaults in some major construction sector loans, which currently account for 33% of loan book.

Management outlook

Going forward, the focus seems to be on strengthening the core banking business and continued investment in technology infrastructure to improve operational efficiencies.

Table 1: FY 19 results summary
GHSmnFY 19FY 18yoy9M 19qoq

Net interest income

518

422

23%

375

38%

Total income

596

519

15%

443

35%

Operating expenses

267

230

16%

190

40%

Pre-provision profit

329

290

14%

252

30%

Net impairment 

86

67

29%

58

47%

Net attributable profit

173

153

13%

135

28%

Net loans

2,920

2,423

21%

2,477

18%

Total deposits

3,695

3,079

20%

3,765

-2%

NII margin

8.3%

8.7%


7.9%


Cost/income ratio

44.8%

44.2%


43.0%


ROE

19.8%

21.1%


21.6%


Cost of funds

6.3%

7.3%


5.8%


NPL ratio

9.9%

8.0%


10.0%


Source: Company accounts, Tellimer Research


Management Outlook

Going forward, focus seems to be on strengthening the core banking business and continued investment in technology infrastructure to improve operational efficiencies