Performance: Lower impairment charges and growing revenue streams propel earnings

• Profit after tax increased by 32.6% y/y to GHS 312.8m driven by robust growth in non-funded income and a fall in the cost of risk
• Net interest income inched up by 7.2% y/y mainly on account of a sharp rise in interest expense from increased borrowing
• Non-funded income grew by 50% y/y driven by robust growth in income from transactional banking and trading. Trading income more than doubled to GHS 176.2m
• Impairment loss on financial assets fell by 34.2% y/y to GHS 124.9m. GCB’s NPL ratio fell to 15.2% from 20.7% a year ago
• Operating expenses increased by 20.0% y/y amidst rising inflation. The bank’s cost-to-income ratio edged up by 1.79pp y/y to 55.2% with ROaE little changed at 24.2%

Outlook: More wind in sails 

• Rising interest expense arising partly from GCB’s USD 170m debt transaction with foreign partners continued to weigh on the bank’s net interest margin (NIM)
• We expect GCB’s NIM to reach an inflection point in 2H2022 contingent on the reversal of the transaction in the second half of the year. We also expect the bank to re-balance the portfolio of investment securities to take advantage of rising rates on government securities to improve asset yields. Additionally, continued expansion of the loan book will also contribute to propping up funded income
• On a year-to-date basis, GCB’s net loan book has increased by 19.6%, following closely with management’s annual loan book growth guidance of 21%. We saw growth in net loans moderate in 2Q2022 relative to 1Q2022 and foresee further slowdown in credit growth as the bank weighs the current inflation risk and its impact on economic activity and credit risk
• Growth in non-funded income continued to beat our estimates. We expect the bank to maintain this momentum in 2H2022
• Inflationary pressures will continue to impact the bank’s operations with the cost-to-income ratio expected to remain above 50.0% in the near-term
• GCB’s cost of risk continued to trend below that of 2021 in line with our expectations as management proactively cleaned its books last year. The moderating cost of risk will continue to propel earnings barring any unforeseen shocks. Consequently, we expect the bank’s 2H2022 bottom-line performance to mirror that of 1H2022

Valuation: Under Review 

• GCB is trading at a P/B of 0.5x and we intend to re-initiate coverage on the stock in 2H2022