In brief
- Earnings under pressure as core income contracts and costs rise: SCB’s net profit fell 26.2% y/y to GHS 290.1mn, weighed down by a 27.9% decline in net interest income and a 178.4% surge in impairment charges. The sharp compression in net interest margin to 6.8% reflects elevated funding costs and shrinking interest-earning assets, while operating expenses rose 26.6% y/y, lifting the cost-to-income ratio to 44.6%.
- Trading gains and fee income provide some earnings cushion: Non-interest revenue rose 78.7% y/y to GHS 405.6mn, supported by a 133.9% jump in trading income and a 30.2% increase in fees. This helped limit the decline in pre-impairment income to just 2.8% y/y, highlighting the growing role of transaction-led revenue in mitigating core income pressure.
- Loan Growth Likely to Remain Subdued Amid Focus on Asset Quality Restoration: With the NPL ratio still elevated at 18.2% in 1H2025, we believe SCB will maintain a conservative credit stance under the BOG’s 10% NPL reduction target. We expect the bank to focus on loan recovery, restructuring, and portfolio clean-up over the next 12–18 months before returning to meaningful credit expansion.
- Soft earnings rebound likely as falling rates offset by weaker asset yields: While we anticipate easing policy rates and improved liquidity to lower funding costs, we believe the benefit to margins will be limited by continued yield compression. As a result, we expect only a modest recovery in net interest income in 2H2025, keeping full-year earnings growth subdued.
1H2025 Earnings Update
Standard Chartered Bank Ghana (SCB) posted a mixed 1H2025 performance, as net interest income dropped sharply by 27.9% y/y to GHS 531.5mn. This was driven by a 48.2% increase in interest expense and a 30.8% decline in interest income, reflecting both lower market yields and a reduction in interest-earning assets. SCB’s margin pressure underscores a broader trend of elevated funding costs amid CRR-driven liquidity constraints in the 1H2025. As a result, net interest margin compressed by 212bps to 6.8%, highlighting the squeeze on spreads. Non-funded income proved more resilient, rising 78.7% y/y to GHS 405.6mn. The increase was fueled by a 133.9% jump in trading income and a 30.2% lift in fees and commissions, supported by increased transaction volumes. This mirrors a growing industry shift, where trading and fee-based revenue are increasingly relied upon to cushion declining growth in net interest income as weak asset quality constrains loan book expansion. Despite the strong lift in non-interest income, pre-impairment income dipped 2.8% y/y to GHS 937.1mn, as core earnings remained under pressure. Impairment charges rose sharply by 178.4% y/y to GHS 63.2mn, reflecting a more cautious credit stance amid a still-fragile operating environment. Operating expenses climbed 26.6% y/y to GHS 418.2mn, outpacing inflation and pushing the cost-to-income ratio up by 138bps to 44.6%. The jump in costs diluted the benefits of revenue diversification and weighed on profitability. Net profit declined by 26.2% y/y to GHS 290.1mn. The earnings drop reflects the combined effect of tighter margins, higher credit provisioning, and rising operating costs. On the balance sheet, investment securities declined by 33.6% as the bank pared back exposure to treasuries amid falling yields and the high CRR requirements (as loan-to-deposit ratio is substantially below 40.0%). Loans and advances contracted by 15.1% y/y to GHS 2.0bn, pointing to a more conservative credit stance and the impact of Cedi appreciation on foreign currency balances. Customer deposits also fell by 12.5% y/y to GHS 10.8bn, largely reflecting translation losses on foreign currency deposits due to the Cedi appreciation in 2Q2025. Liquidity remained robust, with cash and equivalents accounting for 35.6% of total assets. Total assets declined 9.4% y/y. Meanwhile, asset quality showed some improvement, with the stock of non-performing loans contracting 10.8% y/y, bringing the NPL ratio down to 18.2%. SCB’s 1H2025 results reflect intensifying margin pressure, rising credit risk provisions, and inflation-driven cost growth. Sustaining profitability will require a stronger topline recovery, tighter cost control, and more deliberate balance sheet expansion in the coming periods.
Near-term Outlook: Moderation Ahead Despite Improving Macros
- We expect the 300bps policy rate cut to 25.0% and falling treasury yields to ease funding costs and lift credit demand modestly. However, in our view, the downward pressure on asset yields will offset much of the benefit, limiting any sharp rebound in net interest margins. Given the steep 27.9% y/y drop in NII and continued loan contraction in 1H2025, we anticipate only muted net interest income growth (7.0%) in 2H2025, keeping full-year earnings growth subdued.
- We anticipate stronger transaction volumes as economic activity picks up, which in turn should support fee income, FX trading, and other non-interest revenue lines. In our view, SCB’s global network and strong corporate banking franchise provide a platform for growth. That said, we expect the incremental gains in 2H2025 to moderate relative to the exceptional 78.7% y/y surge seen in the first half of the year.
- SCB’s FY2024 annual report shows that Manufacturing (35.9%), Commerce & Finance (22.9%), and Individuals (13.5%) together accounted for 72.3% of the loan portfolio and were the main drivers of the sharp rise in non-performing loans during the year. These sectors were particularly affected by the difficult macroeconomic conditions in 2024, including high inflation, elevated interest rates, and significant currency depreciation. These factors weakened borrower repayment capacity and pushed the NPL ratio to nearly 25% by year-end.
- With macro indicators improving in 2025, including moderating inflation, a decline in policy rates, and relative currency stability, we see meaningful scope for recovery in these segments. Many of the impaired exposures in manufacturing and commerce remain fundamentally viable. As operating conditions stabilize, improved cash flow generation should support restructurings, partial repayments, and targeted write-backs. In addition, FX gains have likely contributed to the decline in the NPL ratio to 18.2% in 1H2025 by reducing the local currency burden of foreign-currency denominated loans.
- Despite the improving macroeconomic backdrop, we expect SCB to remain conservative in expanding its loan book. In our view, the Bank of Ghana’s directive to reduce the NPL ratio to 10% by end-2026 will reinforce tight credit controls, disciplined loan selection, and high underwriting standards. Loan growth is likely to remain subdued in the near term as the bank prioritises credit quality and asset clean-up over aggressive balance sheet expansion.
.
Limited Room for Operating Leverage Gains
- In our view, easing inflation should help moderate expense growth in 2H2025. However, we expect limited operating leverage gains, given SCB’s already efficient cost base and the pressure on revenue growth. We believe the cost-to-income ratio will remain elevated as topline improvements fall short of offsetting cost growth.
Capital and Liquidity Strength to Support Stability, Not Growth
- In our view, easing inflation should help moderate expense growth in 2H2025. However, we expect limited operating leverage gains, given SCB’s already efficient cost base and the pressure on revenue growth. We believe the cost-to-income ratio will remain elevated as topline improvements fall short of offsetting cost growth.
Capital and Liquidity Strength to Support Stability, Not Growth
- We believe SCB’s strong capital buffers and enhanced liquidity from relaxed CRR rules will underpin resilience in 2H2025. However, we expect the bank to allocate much of this liquidity toward low-risk government securities, especially as the Treasury resumes bond issuance. In our view, capital strength will support regulatory compliance and stability rather than fuel aggressive growth.
Key risks
- In our opinion, SCB’s earnings decline and balance sheet contraction in 1H2025 justify a cautious valuation stance. Margin pressure, asset runoff, and elevated impairments signal weak near-term momentum. However, a turnaround in topline growth, driven by loan portfolio expansion, rising interest income, or improved treasury yields would support a rebound in earnings. A sustained recovery in topline performance, especially through stronger loan growth or NIM uplift, could erode the basis for our “Reduce” call. Other medium-term risk factors include, unexpected changes in the regulatory environment, interest rate risk, FX shocks, and changes to Ghana’s sovereign rating.
Valuation: REDUCE
|