CalBank Plc (CAL) released its unaudited 1Q2025 results on 25 April 2025, posting a disappointing start to the year with a second consecutive decline in net earnings. Profit after tax fell 25.7% y/y to GHS 35.6mn, driven by weak revenue generation. Net interest income dropped 30.6% y/y to GHS 86.3mn, reflecting CAL’s inability to effectively deploy assets due to inadequate capital buffers. Non-interest income also declined 19.5% y/y to GHS 81.8mn, largely impacted by a 59.7% y/y fall in net trading income, which dropped to GHS 25.0mn from GHS 62.2mn in 1Q2024. Pre-impairment income for the period consequently declined 25.6% y/y to GHS 168.1mn. On a positive note, impairment gains surged 8.2-fold y/y to GHS 25.0mn, reflecting successful debt recovery efforts. Operating expenses decreased by 17.5% y/y to GHS 128.3mn, defying the average inflation rate of 23.0%, as management embarked on internal re-organisation to tighten its grip on cost. However, cost-to-income ratio surged to 76.3% due to declining revenue. A review of CAL’s credit position shows that the bank remains focused on safety amid stressed capital and asset quality metrics. Cash and cash equivalents rose 7.7% y/y, while investment securities surged by 57.4% y/y, aligning with the bank’s defensive stance. We expect further investments in OMO bills as the bank will see to maximize interest income amid the constraint on risk asset expansion. Loan book contraction continued, with loans and advances declining 10.2% y/y to GHS 2.2bn as CAL works to reduce non-performing loans (NPLs), which stood at a high 45.5%. Capital adequacy deteriorated further, with CAR falling to –7.1%, a 0.7pp q/q decline and a 1.4pp y/y drop. In light of these pressures, loan book expansion is unlikely until the bank’s recapitalization efforts are addressed. In line with changes in management and governance of the bank, CAL appointed, Mr. Daniel Kwei-Kumah Sackey as board chair in March 2025, replacing Mr. Joe Mensah. Additionally, Mr. Kwadwo Brantuo Mpeani, Ms. Yvonne Ofosu-Appiah, and Mr. Gerrit Muller were appointed to the board to strengthen the bank’s leadership. We expect these strategic decisions to anchor CAL bank’s recovery in the medium-term with immediate focus on ensuring operational efficiency and effective recapitalization.

Outlook: Capital raise critical for stability and growth

• We remain concerned over CAL’s 1Q2025 results which showed disappointing declines in both top-line and bottom-line performance, driven by a constrained capital position. The bank plans to exceed the 13% CAR requirement by end of 2025. Strategies include a planned GHS 900.0mn capital raise, ongoing discussions to convert half of the U.S International Development Finance Corporation (DFC’s) USD 65.0mn debt facility into equity, revaluing assets, and converting preference shares to ordinary shares. The success of this capital raise is crucial for the bank’s solvency and a return to normal operations
• Given the high NPLs and fragile capital base, we expect continued downside risk to the loan portfolio. The bank will prioritize attracting low-cost deposits to manage liquidity constraints and meet the CRR requirement, given its 24.5% LDR, though it may resort to more expensive funding if necessary
• While the lower treasury bill rates will weigh on interest income, we expect CAL to pivot into the high-yield OMO bill to offset the downside risk. Management has also accounted for all problematic loans, and as such we do not anticipate worsening NPLs over the course of the year. We expect the bank will continue to tighten operating expenses, helped by declining inflation and ongoing adoption efficiency measures.

Key Risks

• Capital raising risk, credit risk, market risk, macroeconomic risk, liquidity risk,  reputational risk, as well as potential changes in regulatory and tax policy regimes.

Valuation: Under Review 

• CAL is trading at a P/B of 2.4x and we intend to release our rating on the stock soon.