In brief
SCB released its audited FY2021 results on Monday with a few surprises. Contrary to our expectation, the bank’s profit after tax declined on the back of lackluster revenue growth numbers and a significant increase in operating expenses. Unlike CAL, SCB resumed risk asset expansion as early as 2Q2021, ending the year with double-digit growth in net loans and advances. The bank’s NPL ratio remained little changed at 23.6% while its CAR gained 8.52pp to 33.42%.
Performance: Lackluster revenue growth
- Profit after tax fell by 8.6% y/y to GHS 436.9m missing our forecast by 19.4%
- Funded income came in flat at GHS 646.4m on the back of muted growth in interest income despite the significant increase in the stock of investment securities and double-digit growth in loans and advances
- Growth in non-funded income slowed to 10.9% y/y, compared to the 48% y/y growth seen in 2020
- The bank reported impairment gain on financial asset of GHS 5.8m from a loss of GHS 59.3m. SCB’s NPL ratio inched up by 0.48pp y/y to end the year at 23.6%
- Operating expenses increased by 32.5% y/y to GHS 381.7m. Consequently, SCB’s cost-to-income ratio increased by 7.50pp to 35.7%. ROaE fell by 8.2pp y/y to 28.1%
Outlook: Rebound in sight
- We are pleased with the bank’s effort to grow its loan book despite the lingering impact of the pandemic and the current loan-repayment challenges. Management hinted that the bank increased credit particularly to the manufacturing sector in 1H2021
- We expect SCB to continue to grow its credit portfolio at a similar pace in 2022 to drive topline performance supported by an expanding economy. There is also considerable headroom for credit growth with SCB’s net loans to customer deposit ratio at 25%
- We anticipate a pick-up in SCB’s non-funded income business, hinged on elevated demand for foreign exchange on the back of rising import and cross-border trade
- We also take note of SCB’s improved position in fixed-income trading on the secondary market, and we expect inflows from this side of the business to propel earnings
- We have some concerns about SCB’s asset quality with the bank’s NPL ratio towering above its peers. The cost of risk has also fluctuated considerably over the last few years, somewhat shrouding visibility on the trajectory of impairments. Overall, we expect pre-impairment operating income to remain robust to absorb higher cost risk
Valuation: Under Review
- SCB is trading at a P/B of 1.7x and we intend to re-initiate coverage in the coming months
Downloads
SCB FY2021 Results