Cal Bank's Q1 20 net interest income increased by 11% yoy on account of double-digit growth in loans and investment securities. However, non-interest income was down by 32% yoy and the operating expenses were up by 16% yoy, leading to a 7% yoy decrease in pre-provision profit. On the contrary, the bank’s PAT was up 17% yoy due to a 60% reduction in impairment charge. Net interest margin was down 1.4ppts yoy on account of lower yields on earning assets and higher funding costs over the period.
Our Buy rating (TP unchanged at GHS1.70, ETR at 126%) on the Ghanaian bank is supported by: 1) the roll-out of agency banking which has helped lower funding costs by sourcing cheaper deposits (down 250bps yoy to 7.2%); and 2) CAL’s strong medium-term loan growth prospects, particularly after a 0.4ppts qoq rise in the CAR. CAL trades at 0.5x 2019f PB – a 40% discount to frontier peers.
- Net interest income was up on account of impressive growth in earning assets (loans were up 15% yoy and investment securities up 70% yoy). This was enough to offset a 0.3ppts increase in gross funding cost owing to increased borrowings (up 46% yoy), vs deposits which were up 31% yoy.
- The bank’s NPL ratio moderated 0.2ppts qoq to 9.7%, as loans were up 2% over the quarter. This also saw impairment charge reduce by 60% yoy.
- Non-interest income was down 32% yoy, as both fee income (down 26% yoy) and trading income (down 11% yoy) contracted.
- The cost-to-income ratio increased by 5.4ppts yoy to 46.8%, owing to a 16% increase in operating expenses. As the increase in costs continues to trend well above average headline inflation for 2020 (8%), we highlight that this a concern and risk to our valuation.
Q1 20 results summary
|GHSmn||Q1 20||Q1 19||yoy||Q4 19||qoq|
|Net interest income||131||118||11%||143||-8%|
|Net fee income||8||11||-26%||18||-55%|
|Total operating income||151||148||3%||150||1%|
|Net impairment charge||11||27||-60%||28||-62%|
|Net attributable profit||49||42||17%||34||45%|
|Net interest margin||7.43%||8.84%||8.00%|
Source: Company financials, Tellimer research