Performance: Interest income rebounds on growing loan book

• Profit after tax increased by 17.3% y/y to GHS 62.7m, owing to double-digit growth in interest and non-interest revenue
• The bank witnessed a rebound in net interest income, which grew by 19.9% y/y to GHS 146.3m. Notably, the bank expanded its loan book by 21.6% y/y in 1Q2022 which helped to boost asset yields
• Non-funded income rose by 14.7% y/y, driven by a rise in net fees and commission income which increased by more than 2-fold. Net trading income, on the other hand, slipped by 460bps y/y
• Impairment loss on financial assets fell by 34.8% y/y to GHS 14.4m with the NPL ratio declining by 5.2pp y/y to 9.2% in 1Q2022
• Operating expenses increased by 26.4% y/y reflecting the recent inflationary pressures. Consequently, CAL’s cost-to-income ratio inched up by 2.9pp to 46.1%

Outlook: Recovery in credit growth to bolster earnings

• We initially anticipated muted loan book growth in 1H2022, but much to our surprise, CAL began to expand its loan book aggressively early in 2022, adding GHS 466.9m to net loans and advances in 1Q2022 and beating management’s guidance of a 15% – 20% annual credit growth for 2022
• Consequently, we expect funded income growth to trend upward, supported by the continued increase in the stock of loans and advances, albeit at a moderate pace, as rising inflation impacts private consumption and production
• We also expect asset yields to improve from 2Q2022 on the back of the expected rise in interest rates following the 250bps increase in the monetary policy rate to 17.0%
• We expect non-funded income to benefit from growing demand for forex, increased credit-related fees from credit expansion, as well as continued increase in activity on the fixed income market
• Although the cost of risk came in much lower than anticipated, signaling some improvement in average default rates, we continue to maintain a cautious outlook on asset quality as rising inflation could elevate credit risk

Valuation: Under Review 

• CAL is trading at a P/B of 0.4x and we intend to re-initiate coverage in 2Q2022