Rating Summary:
We maintain our “REDUCE” rating (“Take Profit”) on Standard Chartered Bank Ghana PLC (SCB) despite a slight upward revision of our fair value estimate to GHS 24.80 per share (previously GHS 24.52), implying a 14.7% downside from the current market price. The revision reflects updates to our valuation assumptions and model inputs. Specifically, we have revised the risk-free rate down to 15.56% (from 17.74% at HY2025) to align with current yields on the restructured Government of Ghana bonds, adjusted beta to reflect the version with the strongest statistical validity, and updated our relative valuation model based on the latest 9M2025 financial results. SCB’s 9M2025 earnings lagged our forecast by approximately 2.1%, underscoring continued margin compression and slower-than-expected recovery in core income. Net interest income (NII) declined 27.9% y/y, reflecting lower yields and a 21.5% drop in interest-earning assets, which compressed NIMs by 310bps. Non-funded income rose 75.0% y/y, buoyed by FX-driven trading gains and strong fee growth, but could not offset the weaker NII. Operating expenses rose 22.7% y/y, lifting the cost-to-income ratio to 45.5%, while pre-tax profit slipped 2.6% y/y and net profit fell 11.5% y/y. The balance sheet remains defensive, with investment securities down 24.2% and loans contracting 13.1% y/y, highlighting conservative risk appetite amid tighter liquidity. Asset quality improved, as the NPL ratio declined to 21.8% in September 2025 (from 30.7% a year ago), aided by recoveries and FX translation effects. Capital adequacy remains strong at 23.2%, comfortably above regulatory thresholds. Despite SCB’s solid capital and improving asset quality, we believe the current market price is well ahead of fundamentals. The current price embeds overly optimistic earnings expectations at a time when spreads remain compressed and cost pressures persist. We view our “Reduce” rating as a “take-profit” call, recognizing near-term downside while maintaining confidence in SCB’s long-term resilience. A more constructive stance would depend on a sustained rebound in net interest margins, improved loan growth, and moderation in cost escalation.
SCB 9M2025 Results: Trading Gains Cushion Weak Core, But Valuation Still Outpaces Fundamentals
