9M2023 Performance: Impairment gains and growth in funded income propel earnings
- Profit after tax increased by 148.3% y/y to GHS 529.5mn, driven by strong growth in net interest income and impairment gains on financial assets.
- Net interest income grew by 52.6% y/y on account of a robust rise in interest income (+37.8% y/y) and a decline in interest expense (-16.5% y/y).
- Non-interest revenue declined by 12.5% y/y as net trading income contracted by 31.6% y/y.
- SCB reported impairment gain of GHS 13.3mn in 9M2023 from a loss of GHS 220.1mn in 9M2022. Impairment gain booked on leases to the tune of GHS 22.5mn propelled earnings higher.
- SCB’s operating expenses increased by 23.0% y/y to GHS 423.4mn with the cost-to-income ratio little changed at 34.9% (-0.52 pp y/y).
- The bank’s NPL ratio inched up by 1.0pp q/q to 16.5% with its CAR (with regulatory forbearance) little changed at 23.1% (-0.97% q/q) as net loans and advances increased by GHS 47.5mn.
Outlook: Broadly Positive
- We expect SCB’s topline performance to remain robust in 4Q2023 with net interest margin expanding further as the bank capitalizes on high-yield securities.
- On the downside, we maintain our view that non-funded income will continue to underperform the previous year’s performance in 4Q2023, given the slowdown in trade volumes on the fixed income market.
- Nevertheless, we anticipate SCB’s non-funded income to improve further in 4Q2023, relative to 3Q2023 as the growing demand for forex by corporates support FX trade volumes and margins.
- The uptick in the NPL ratio in 3Q2023 suggests lingering asset quality issues and recovery in non-performing loans may be delayed further. We take note of the reduction in impairment gains quarter-on-quarter which we believe reflects a mix of factors including expected credit loss charges on treasury bills and USD-denominated local bonds as well as loan loss provisions on non-performing loans following the uptick in NPLs.
- Per SCB FY2022 financial report, the bank reported no direct or indirect exposure to Eurobonds, leaving it immune to the planned restructuring of external debt by the government.
- Overall, we expect SCB’s pre-impairment income to remain robust in 4Q2023 to absorb higher cost of risk and rising operating costs.
Valuation: Under Review
- SCB is trading at a P/B of 1.6x and we intend to re-initiate coverage soon.