Earnings Report /

CAL Bank: Q1 20 results – Strong net interest income and lower impairment charge

  • Pre-provision profit down 7% yoy but PAT up 17% yoy as lower impairment charge support bottom line improvement

  • Weaker efficiency sees cost-to-income ratio rise to 47%, as operating expenses expand by 16% yoy

  • Asset quality improves slightly to 9.7%. We have a Buy rating with an unchanged TP of GHS1.70

Nkemdilim Nwadialor
Nkemdilim Nwadialor

Equity Research Analyst, Financials

Tellimer Research
29 April 2020
Published byTellimer Research

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.

Key positives

  1. 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. 
  2. 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.

Key negatives

  1. Non-interest income was down 32% yoy, as both fee income (down 26% yoy) and trading income (down 11% yoy) contracted. 
  2. 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

GHSmnQ1 20Q1 19yoyQ4 19qoq
Net interest income13111811%143-8%
Net fee income811-26%18-55%
Trading income1213-11%-1-1165%
Non-interest income2030-32%7186%
Total operating income1511483%1501%
Operating expenses716116%77-8%
Pre-provision profit8187-7%7311%
Net impairment charge1127-60%28-62%
Net Profit494217%3445%
Net attributable profit494217%3445%
Net loans2,9882,55417%2,9202%
Total assets7,0955,26235%7,0483%
Net interest margin7.43%8.84%
Cost/Income ratio46.8%41.3%
NPLs/ loans9.70%9.40%

Source: Company financials, Tellimer research