1H2025 Earnings Update

CalBank’s 1H2025 results showed mixed fortunes, with net profit rising 10.8% y/y to GHS 175.0mn, underpinned by strong impairment recoveries (GHS 154.3mn), an 18.7% y/y cut in operating expenses (GHS 260.2mn), and a 14.8% uplift in net trading income (GHS 68.0mn). The performance reflects a strategic pivot toward operational efficiency amid constrained capacity to grow risk assets. Despite the bottom-line gain, EPS fell 35.8% y/y to GHS 0.32, owing to the expanded share base from last year’s recapitalisation, which is yet to translate into earnings growth. CalBank’s balance sheet remains under pressure, with a 49.0% y/y contraction in the loan book to GHS 1.4bn and a 47.6% y/y surge in investment securities to GHS 5.1bn, reflecting a continued pivot toward lower-risk assets such as BOG instruments and interbank placements. We see this shift as a necessary containment of risk appetite amid ongoing recapitalisation efforts to rebuild capital buffers. Critically, regulatory capital remains deeply negative with a CAR of -7.6%, while the NPL ratio worsened to 51.6% in June 2025, up 13.0 percentage points y/y, underscoring persistent asset quality and solvency challenges. While efficiency gains have lifted near-term outlook on profitability, CalBank’s medium-term outlook remains clouded by recapitalisation pressures and regulatory risk. The sharp decline in domestic yields across Treasury securities and Bank of Ghana OMO bills presents a downside risk to topline, given the bank’s current tilt toward investment securities amid limited capacity to expand its loan book. We expect the ongoing cost containment and aggressive loan recoveries to support near-term profitability. However, a meaningful turnaround in capital position, if achieved ahead of the end-2025 deadline, could serve as a catalyst for medium-term re-rating.

Near-term Outlook: Capital raise critical to solvency as impaired loans and liquidity weigh

• We remain cautious on CAL’s near-term outlook as the bank’s fragile capital position and elevated NPLs continue to constrain its ability to grow risk assets. Management plans to exceed the 13.0% minimum CAR (without regulatory relief) by end-2025. This hinges on the success of a GHS 900mn capital raise, alongside ongoing initiatives to convert half of USD 65.0mn debt owed to the Development Finance Corporation (DFC) into equity, revalue assets, and convert preference shares to ordinary shares. The timely execution of these measures is critical to strengthen solvency and enable a return to normal operations, though we expect loan book growth to remain muted or decline further in the interim. The partial conversion of the DFC loan into equity would have yielded additional equity capital of about GHS 504.7mn (per management’s estimate) in 1Q2025. However, we estimate that the unexpectedly sharp appreciation of the Ghanaian Cedi in 2Q2025 has reduced the potential GHS-equivalent support and raises the required success rate from the other recapitalisation measures

• Management’s strategic choice to defend earnings through cost containment is yielding tangible results amid persistent pressure on topline growth. Stabilisation of payroll costs and internal reorganisation efforts have driven a notable drop in administrative costs, leading to a 15.3 percentage point year-on-year and 4.7 percentage point half-year decline in the cost-to-income ratio to 67.8% in 6M2025. The earnings rebound in FY2024 (GHS 267.7mn) has continued into 1H2025 (GHS 175.0mn), supported by disciplined cost control amid favourable currency and disinflation backdrop. In the near term, we expect continued restraint on non-core administrative expenses to further anchor profitability, with FY2025 operating expenses forecast at GHS 520.3mn, down 10.5% year-on-year, translating into a projected cost-to-income ratio of 60.9%.
• We expect the tight grip on operating expenses, alongside the Cedi rebound and easing inflation, to provide a critical mitigation against earnings volatility while the bank rebuilds capital by end-2025. Although interest income will likely remain subdued given lower Treasury yields and declining OMO bill rates, the shift to cost efficiency will mitigate the topline pressure. As management gradually deploys capital to stimulate loan book growth in the medium term, we forecast operating expenses to rise moderately at a compounded annual growth rate of 7.15% between 2025 and 2029, with cost-to-income ratio likely to average 60.0% amid sustained operational efficiency. We expect CalBank to sustain its aggressive recovery drive in the near term, reinforcing bottom-line performance alongside ongoing cost efficiencies. The bank has intensified efforts to claw back bad debts, delivering consistent impairment gains, and we anticipate this momentum will continue as a key lever in profitability in the short-term.

Key Risks

• Upside: Faster execution of recapitalisation measures, BOG write-off approval, recovery in loan activity, a stronger-than-expected reboot to fixed income trading, and a better-than-expected improvement in efficiency metrics.
• Downside: Delays in recapitalisation, persistent regulatory non-compliance with accumulated penalties, macroeconomic volatility (medium-term), and unexpected reform measures in the banking sector.

Valuation: HOLD

• Our HOLD rating is based on our weighted average fair value of GHS 0.53 per share, representing a downside of 3.7%, using the weighted average prices from our dividend discount model (DDM), residual income (RI) and relative valuation models. We see limited near-term upside for CAL given its weak fundamentals and subdued outlook, and therefore maintain a HOLD rating pending greater visibility on capital restoration and earnings momentum.
• CAL is trading at a TTM P/E of 2.1x and P/B of 1.33x.