Ghana's CAL Bank has released its FY 20 results, reporting 22% yoy (25% qoq) growth in net attributable profit to GHS213.8mn, driven by a 105.2% yoy spike in non-interest income and a 382% increase in trading income. Net interest income, though, only increased by 1% yoy on the back of an 18% decrease in loan and advances (due to the repayment of some major exposures). Loan impairment charges increased slightly (1% yoy) to GHS86.88mn (-45% qoq), reflecting an 11% yoy decline in impairment losses and loan recoveries in the year.
The directors recommend the payment of a dividend of GHS0.11 per share (2019: GHS0.089) subject to the Bank of Ghana's approval.
We reiterate our Buy rating on CAL Bank with an unchanged target price of GHS1.70 and an ETR of 90%. Our positive outlook on the company is based on the following:
It remains adequately capitalised and recorded the highest capital adequacy ratio (CAR) in our banking coverage, of 22.3% FY 20;
The bank is well-positioned to manage asset quality risk given it mostly lends to less vulnerable sectors; and
It has a strong liquidity management approach, ensuring that it will always have sufficient liquidity to meet its liabilities when due and in the event of losses.
CAL Bank is currently trading at a 0.84x FY 20 PE and 0.48x tangible PB, a premium to the average 0.8x FY 20f PE and 3.3x tangible PB for our Ghana banks coverage.
Non-interest income increased 105.2% yoy, supported by aggressive growth (480% yoy) of fixed income trading volumes and the expansion of trading portfolios.
The CAR remains strong (22.3%), well above the regulatory minimum requirement of 11.5%. indicating that CAL Bank has enough of a buffer to absorb losses in the event of a significant asset quality decline.
The cost of risk declined from 3.3% in 2019 to 2.8% in 2020, as loans and advances decreased 17.8% yoy. This was primarily because the bank reduced its lending to vulnerable sectors to leverage partnerships with development finance institutions (DFIs) to raise long-term funding for projects.
The bank’s pre-provision profit increased 16% yoy, despite the 15% yoy increase in operating expenses. This favourable outcome is a result of increased gains of GHS171mn from fixed income trading activities made possible by the expansion of the fixed income portfolio.
Fee income declined 21% yoy due to fee waivers earlier in the year (a Covid-19 relief measure), and the inability of the bank to close major expected advisory mandates during the pandemic.
In terms of asset quality, the NPL ratio increased 35bps to 13.5% yoy, driven by the pandemic and its impact on loan facilities in the hospitality and tourism sectors, and other sectors most impacted by Covid. These sectors accounted for the high-level provision for credit losses of GHS86.8mn.
Operating expenses increased by 19% yoy, attributable to the newly introduced deposit insurance premium, depreciation and other staff-related expenses.