Performance: Strong top and bottom-line growth but elevated cost of risk threatens growth

• Profit after tax grew by 25.4% y/y, supported by an increase in both funded and non-funded income

• Funded income was up by 29.9% y/y largely due to volume growth in government securities

• Non-funded income grew by 16.6% y/y following a 37.9% y/y increase in fees and commissions

• Cost of risk (“COR”) remained elevated, rising by 375bp y/y to 6.7%.

• This was driven by an additional GHS 61.6m in provisions, taking total impairments for 9M2021 to GHS 251.6m

• RoaE declined by 468bp y/y to end the period at 22.2%

Outlook: Additional impairments clouds earnings visibility

• Despite CoR more than doubling y/y, bottom-line growth remained impressive

• However, given the uncertainty regarding the extent to which restructured loans could impact impairments, we have turned significantly cautious about earnings growth

• According to management, reclassification of some loans in the hospitality and commerce sectors with an estimated value of ~GHS 800m contributed to the rise in impairments and NPLs more broadly

• Consequently, management indicated that the cost of risk could rise to GHS 300.0m by FY2021. This suggests an additional GHS 50m in impairments in 4Q2021

• While management suggests this may be the worst-case scenario, the hospitality sector remains constrained despite the opening up of the economy

• In effect, we could see further impairments beyond management’s guidance

• The significant deterioration in asset quality in a period where credit growth has been muted, raises concerns about the bank’s risk management and affects earnings visibility going forward

Valuation: Under Review

• We have placed our recommendation under review as we weigh the implications of the emerging asset quality issues

• GCB is trading at a P/B of 0.6x and we expect to publish our rating on the stock in 4Q2021