Performance: Profit surge on strong revenue outturn and impairment gain on financial assets

• Profit after tax increased by 65.1% y/y to GHS 190.8m, falling in line with our forecast. Profit growth was driven by strong revenue outturn coupled with an impairment gain on financial assets
• Net interest income grew by 16.3% on the back of expansion of the credit portfolio by 46.9% y/y
• Growth in non-funded income shot up by 54.8% y/y driven by strong growth in net trading income which accounted for 76.8% of non-interest income
• The bank reported impairment gain on financial asset of GHS 28.8m from a loss of GHS 19.9m. SCB’s NPL ratio fell by 14.6pp y/y to 12.0% as the stock of loans increased
• Operating expenses increased by 9.9% y/y to GHS 90.0m despite the prevailing inflationary pressures. SCB’s cost-to-income ratio declined by 5.4pp to 25.5%

Outlook: On track for a good financial year

• We expect growth in SCB’s topline in 2022 to outstrip that of 2021, hinged on the continued expansion of the loan book, supported by the rise in economic activity. Additionally, we expect asset yields to improve on the back of the general increase in interest rates following the monetary policy rate hike
• We anticipate continued improvement in inflows from SCB’s non-funded income business, riding on the continued increase in forex demand and supply from the rise in cross-border trade activities as well as increased trade activity on the fixed-income market
• SCB has been successful at keeping operating costs under control despite the recent rising inflation. Consequently, we expect to see SCB contain operating costs as the bank continues to benefit from its lean business model
• We have seen SCB report impairment gains on financial assets for the last 4 quarters, signaling some improvement in asset quality and somewhat ameliorating our concerns. More importantly, SCB’s NPL ratio when adjusted for the loss category falls to 2.1%, falling well below the industry average of 4.6%
• Consequently, we expect SCB’s cost of risk to be well contained for the rest of the year barring any unforeseen shocks to the credit portfolio

 

Valuation: Under Review 

• SCB is trading at a P/B of 1.5x and we intend to re-initiate coverage in 2Q2022