Performance: Key performance indicators point north

• Profit after tax grew by 28.5% y/y to GHS 235.8m
• Non-funded income was the key growth driver, increasing by 35.4% y/y on account of a 44.9% y/y increase in net fees and commission income as well as a 31.5% y/y increase in net trading income
• Favourable yields and volume growth in investment securities supported the increase in trading income
  Growth in funded income was muted as NIMs compressed by 109bp y/y to 6.9% as the loan book shrank by 3.7% to GHS 4.5bn
• The cost-to-income ratio improved by 289bp y/y to 39.7%
• Asset quality also saw some improvement within the period as cost of risk and the NPL ratio both declined by 59bp and 154bp y/y to 2.5% and 13.9% respectively

Outlook: Capable of weathering the storm

• We remain impressed by EGH’s robust growth and its capacity to diversify non-funded income lines in response to the challenging operating environment
• While trading income in our opinion is not sticky, growth in fees and commissions income appears to be slightly more sustainable
• Consequently, we envisage top line growth to remain robust despite the hostile credit environment
• Furthermore, with the loan-to-deposit ratio pegged at 37.3%, EGH’s is in a sweet spot to aggressively expand its loan book when credit conditions become accommodative
• The above notwithstanding, we are concerned about the size of the off-balance sheet transactions which may have facilitated the sharp growth in fees and commissions
• Although we are not opposed to the bank’s strategy in growing transactional income, we are cautious of the possibility that off-balance sheet assets could crystallise into on-balance sheet liabilities due to the weak macroeconomic backdrop

Valuation: Under review

• We are currently adjusting our models to reflect our recent views and management guidance. We have therefore placed our recommendation under review
• We expect to publish an update in 3Q2021
• EGH is currently trading at a PB of 0.9x