2 August 2021

Ecobank Ghana 1H2021 results

In brief

EGH released yet another sterling set of numbers late last week as it reported its unaudited 1H2021 results. Earnings exceeded our expectations driven by better than anticipated growth in non-funded income, improved efficiency, and asset quality.  

Performance: Key performance indicators point north

  • Profit after tax grew by 28.5% y/y to GHS 235.8m
  • Non-funded income was the key growth driver, increasing by 35.4% y/y on account of a 44.9% y/y increase in net fees and commission income as well as a 31.5% y/y increase in net trading income
  • Favourable yields and volume growth in investment securities supported the increase in trading income
    Growth in funded income was muted as NIMs compressed by 109bp y/y to 6.9% as the loan book shrank by 3.7% to GHS 4.5bn
  • The cost-to-income ratio improved by 289bp y/y to 39.7%
  • Asset quality also saw some improvement within the period as cost of risk and the NPL ratio both declined by 59bp and 154bp y/y to 2.5% and 13.9% respectively

Outlook: Capable of weathering the storm

  • We remain impressed by EGH’s robust growth and its capacity to diversify non-funded income lines in response to the challenging operating environment
  • While trading income in our opinion is not sticky, growth in fees and commissions income appears to be slightly more sustainable
  • Consequently, we envisage top line growth to remain robust despite the hostile credit environment
  • Furthermore, with the loan-to-deposit ratio pegged at 37.3%, EGH’s is in a sweet spot to aggressively expand its loan book when credit conditions become accommodative
  • The above notwithstanding, we are concerned about the size of the off-balance sheet transactions which may have facilitated the sharp growth in fees and commissions
  • Although we are not opposed to the bank’s strategy in growing transactional income, we are cautious of the possibility that off-balance sheet assets could crystallise into on-balance sheet liabilities due to the weak macroeconomic backdrop

Valuation: Under review

  • We are currently adjusting our models to reflect our recent views and management guidance. We have therefore placed our recommendation under review
  • We expect to publish an update in 3Q2021
  • EGH is currently trading at a PB of 0.9x