Performance: Lower cost of risk and robust non-funded income growth propel earnings

• Profit after tax rose by 13.2% y/y to GHS 154.3m driven by double-digit growth in operating revenue and a drop in cost of risk
• Growth in net interest income slowed to 9.3% y/y in 1Q2022 on account of a sharp rise in interest expense, despite the 14.1% y/y increase in interest income. Notably, the rise in interest expense was driven by a significant increase in borrowings
• Non-interest income increased by 43.2% y/y to GHS 176.8m, propelled by net trading income which doubled over the period
• Impairment loss on financial assets declined by 14.8% y/y to GHS 68.2m. NPL ratio declined by 0.38pp q/q to 15.6%
• Cost-to-income ratio was little changed at 54.1% at the end of 1Q2022

Outlook: Are we out of the woods on asset quality?

• We maintain our bullish outlook on GCB’s earnings performance hinged on the continued expansion of the loan book coupled with the bank’s proficient reprofiling of debt securities to take advantage of the rising interest rates following the monetary policy rate hike. Management plans to grow its loan book by 21% in 2022 as they work towards driving ROE above 23%
• We take note of the considerable improvement in trading income, which reflects management’s success at addressing forex supply challenges experienced last year to meet the growing demand for foreign currency
• We expect GCB to continue to register strong growth in its non-funded income business supported by growing inflows from forex trading as import and cross-border trade continue to rise
• In line with our expectation, GCB’s cost of risk moderated in 1Q2022, following management’s efforts to clean its books last year
• Although, the bank’s NPL ratio remains elevated at current levels, when adjusted for the fully loan provisioned category, GCB’s adjusted NPL ratio falls to 2.7% and compares favorably with the industry average of 4.6%
• Overall, we expect earnings to gain momentum in the subsequent quarters with the cost of risk trending below that of 2021

Valuation: Under Review 

• GCB is trading at a P/B of 0.5x and we intend to re-initiate coverage on the stock in 2Q2022