Performance: Key performance indicators point north
- Profit after tax grew by 28.5% y/y to GHS 235.8m
- Non-funded income was the key growth driver, increasing by 35.4% y/y on account of a 44.9% y/y increase in net fees and commission income as well as a 31.5% y/y increase in net trading income
- Favourable yields and volume growth in investment securities supported the increase in trading income
Growth in funded income was muted as NIMs compressed by 109bp y/y to 6.9% as the loan book shrank by 3.7% to GHS 4.5bn - The cost-to-income ratio improved by 289bp y/y to 39.7%
- Asset quality also saw some improvement within the period as cost of risk and the NPL ratio both declined by 59bp and 154bp y/y to 2.5% and 13.9% respectively
Outlook: Capable of weathering the storm
- We remain impressed by EGH’s robust growth and its capacity to diversify non-funded income lines in response to the challenging operating environment
- While trading income in our opinion is not sticky, growth in fees and commissions income appears to be slightly more sustainable
- Consequently, we envisage top line growth to remain robust despite the hostile credit environment
- Furthermore, with the loan-to-deposit ratio pegged at 37.3%, EGH’s is in a sweet spot to aggressively expand its loan book when credit conditions become accommodative
- The above notwithstanding, we are concerned about the size of the off-balance sheet transactions which may have facilitated the sharp growth in fees and commissions
- Although we are not opposed to the bank’s strategy in growing transactional income, we are cautious of the possibility that off-balance sheet assets could crystallise into on-balance sheet liabilities due to the weak macroeconomic backdrop
Valuation: Under review
- We are currently adjusting our models to reflect our recent views and management guidance. We have therefore placed our recommendation under review
- We expect to publish an update in 3Q2021
- EGH is currently trading at a PB of 0.9x