Earnings Report /
Ghana

Stanchart Ghana: Q1 20 – Strong top line growth as funding cost moderates

  • PAT grew by 35% yoy as net interest income and fee income expand

  • NPL ratio rise for the first time in six quarters, currently at 21% (the highest within our coverage)

  • We reiterate Hold on account of its relatively high valuation and asset quality issues

Nkemdilim Nwadialor
Nkemdilim Nwadialor

Equity Research Analyst, Financials

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Tellimer Research
5 May 2020
Published byTellimer Research

SCB reported Q1 19 PAT of GHS109mn (up 25% yoy) supported by a 25% uptick in net interest revenue, 84% increase in fee income and improved impairment write backs. Net interest margin was also up by 0.3ppts owing to lower funding costs. Compared with Q4 19, PAT was up 35% while NIM contracted by 5ppts.

We reiterate our Hold recommendation on SCB with a TP of GHS15.7 (-12% ETR). Our recommendation is on account of: 1) its relatively high valuation relative to peers, with FY 20f P/B of 2.2x, implying a 173% premium, and 2) weaker asset quality, as its NPL ratio at 21.4% is the highest within our Ghana banking universe.

Key positives

  1. Net interest income is up 27% yoy as the bank's continued emphasis on its retail business resulted in a 5ppts decrease in funding cost. The bank's fee income was also up 83% yoy driven by the increased use of e-banking and other digital channels.
  2. Cost/income ratio came in at 36% (vs 37% in Q1 19) despite a 22% increase in operating expenses from higher personnel and IFRS 16 lease expenses. Recall that SCB has the lowest cost/income ratio within our Ghana banks coverage.
  3. Strong balance sheet growth over the quarter with loans up 7% and deposits up 12%, as the bank continued to drive its retail franchise. SCB’s strong capital ratios with CAR at 28.8% (vs 25.2% in Q1 19) should continue to support asset growth over the medium term.

Key negatives

  1. Asset quality deteriorated with NPL rising by 4.2ppts to 21.4% in Q1 20 – this ends a six-quarter streak of continued NPL ratio improvements (from 34.8% in Q3 18 to 17.2% in Q4 19).
Q1 20 results summary
GHSmnQ1 20Q1 19yoyQ4 19qoq

Net interest income

160

126

27%

171

-6%

Net fee income

45

24

84%

22

104%

Trading income

38

42

-11%

37

2%

Non-interest income

76

66

15%

60

27%

Total operating income

236

192

23%

231

2%

Operating expenses

86

70

22%

89

-4%

Pre-provision profit

150

122

23%

141

6%

Net impairment charge

-6

-3

101%

5

-223%

Net Profit

109

88

25%

81

35%

Net attributable profit

109

88

25%

81

35%

Net loans

1,892

1,401

35%

1,771

7%

Deposits

6,083

4,701

29%

5,419

12%

Net interest margin

8.05%

7.79%

 

8.55%


Cost/income ratio

36.3%

36.5%

 

38.7%


NPLs/loans

21.36%

23.69%

 

17.20%


ROE

36.1%

32.1%

 

28.4%


ROA

5.51%

5.41%

 

4.05%


 

Source: Company financials, Tellimer Research