In brief
- Earnings Strength Anchored by Topline Growth and Lower Credit Costs: GCB reported a 71.6% y/y increase in profit-after-tax (PAT) to GHS 2.1bn, 1.7% below our forecast, as strong revenue growth was partly offset by higher operating expenses and tax charges. Net interest income rose 35.4% y/y to GHS 4.6bn, supported by improved asset yields and a favourable mix, while net interest margin (NIM) expanded to 15.9%. Non-interest income grew 58.2% y/y, driven by trading income and fees, lifting total income by 40.9% y/y. Asset quality improved materially, with impairment charges declining 7.3% y/y and cost of risk easing to 1.2%. Operating expenses increased 23.7% y/y, improving the cost-to-income ratio to 47.2%, though underlying cost growth signals emerging pressure on efficiency sustainability.
- Balance Sheet Expansion and Improved Utilisation Support Growth Outlook: Loans and advances grew 56.8% y/y to GHS 16.0bn, outpacing deposit growth of 20.8% y/y and pushing loan to deposit ratio (LDR) to 43.1%, above the 40% threshold. This signals a shift toward better balance sheet utilisation, with reduced drag from excess liquidity. We expect continued loan book expansion as the bank deploys capital into higher-yielding assets, supported by strong liquidity and a solid funding base. Capital adequacy remains robust at 18.0%, providing sufficient headroom to sustain asset growth.
- Transition to Efficiency-Led Growth as Yields Compress: With declining interest rates expected to compress asset yields, future earnings growth will increasingly depend on disciplined capital deployment rather than margin expansion. We expect management to “sweat the balance sheet” by selectively growing risk assets in resilient sectors. Our forecast medium-term loan growth of 29% will be driven by optimisation of existing capacity, while maintaining credit discipline to preserve asset quality.
- Funding Advantage and Non-Funded Income to Support Earnings Resilience: GCB’s strong Current Account Savings Account (CASA) mix of 93% provides a structural funding advantage, helping to cushion margin compression as Ghana’s interest rate environment shifts lower. We expect continued expansion in non-funded income, supported by trade finance, digital channels, and strategic partnerships. Additional upside may come from recovering import activity and potential re-entry of the sovereign into the domestic debt market, sustaining trading income momentum. Combined with strong capital buffers, this positions the bank to deliver attractive shareholder returns, though execution and cost control will be critical to sustaining performance.
Rating Summary:
We maintain our “BUY” rating on GCB Bank PLC (“GCB”), following an upward revision of our fair value to GHS 50.8 per share, reflecting sustained earnings strength, and improved asset quality. Given the market price of GHS 41.2, this implies an upside of 23.3%. The upward adjustment reflects a lower risk-free rate of 12.8%, down from 15.6% at 9M2025, driven by compressed yields on restructured domestic bonds. We have transitioned from the capital asset pricing model (CAPM) to a Build-Up approach, using the average of 3-year and 5-year bond yields plus a 5.0% risk premium, given the lack of statistical robustness in observed equity betas. We also refined our relative valuation by narrowing the peer group to a more comparable subset, enhancing the integrity of our multi-factor linear regression P/B model and improving market-implied alignment. Despite slightly trailing our earnings forecast by 1.7%, GCB’s FY2025 performance was stellar, posting a 71.6% y/y jump in earnings, underpinned by strong topline growth, a 40.9% y/y expansion in total income, margin resilience, and a sharp moderation in credit costs. Efficiency gains were also notable, with the cost-to-income ratio improving to 47.2%, while asset quality strengthened materially as cost of risk declined to 1.2% and the non-performing loan ratio (NPL) edged closer to the regulatory threshold of 10.0%. We believe the bank remains well-positioned to extend its performance into 2026, supported by strong capital buffers, improving balance sheet utilisation, and capacity to grow risk assets, as it expands into higher-yielding quality assets despite softer Treasury yields.