In brief
- Margin Squeeze Offsets Trading Gains, Weighing on Profitability: Profitability weakened as net interest income fell 27.9% y/y on lower yields and a 21.5% drop in interest-earning assets, compressing NIMs by 310bps to 9.1%. Although non-funded income surged 75.0% y/y on strong FX trading and fee growth, it only partly offset margin pressure and rising operating costs (+22.7% y/y), driving an 11.5% decline in net profit to GHS 508.6mn.
- Defensive Balance Sheet and Strengthened Capital Position: Total assets contracted 3.4% y/y to GHS 16.6bn, driven by a 24.2% decline in investment securities and a 13.1% fall in loans as SCB maintained a cautious lending stance amid tight liquidity. Customer deposits also slipped 4.8% y/y to GHS 12.7bn, though liquidity buffers remained strong. Asset quality improved sharply, with the NPL ratio dropping to 21.8% from 30.7% on recoveries and FX effects, while capital adequacy strengthened to 23.2% (from 18.3%), positioning the bank well above regulatory thresholds despite slower growth and profitability.
- Margins to Recover Gradually Amid Cautious Lending: Monetary easing and lower funding costs should stabilize margins and gradually revive loan growth, but SCB’s cautious risk appetite and a 13.1% y/y contraction in loans suggest a slow recovery in core income. Sustained improvement will depend on disciplined credit deployment and balance sheet expansion as macro conditions strengthen.
- Non-Funded Income to Anchor Earnings Despite Growth Constraints: Non-funded income will remain the key earnings driver, supported by trading and transaction activity, even as regulatory limits on FX positions cap upside. Improving asset quality (NPL: 21.8%) and strong capital (CAR: 23.2%) reinforce balance sheet resilience, but limited loan growth and low-yield asset deployment will constrain near-term profitability.
Rating Summary:
We maintain our “REDUCE” rating (“Take Profit”) on Standard Chartered Bank Ghana PLC (SCB) despite a slight upward revision of our fair value estimate to GHS 24.80 per share (previously GHS 24.52), implying a 14.7% downside from the current market price. The revision reflects updates to our valuation assumptions and model inputs. Specifically, we have revised the risk-free rate down to 15.56% (from 17.74% at HY2025) to align with current yields on the restructured Government of Ghana bonds, adjusted beta to reflect the version with the strongest statistical validity, and updated our relative valuation model based on the latest 9M2025 financial results. SCB’s 9M2025 earnings lagged our forecast by approximately 2.1%, underscoring continued margin compression and slower-than-expected recovery in core income. Net interest income (NII) declined 27.9% y/y, reflecting lower yields and a 21.5% drop in interest-earning assets, which compressed NIMs by 310bps. Non-funded income rose 75.0% y/y, buoyed by FX-driven trading gains and strong fee growth, but could not offset the weaker NII. Operating expenses rose 22.7% y/y, lifting the cost-to-income ratio to 45.5%, while pre-tax profit slipped 2.6% y/y and net profit fell 11.5% y/y. The balance sheet remains defensive, with investment securities down 24.2% and loans contracting 13.1% y/y, highlighting conservative risk appetite amid tighter liquidity. Asset quality improved, as the NPL ratio declined to 21.8% in September 2025 (from 30.7% a year ago), aided by recoveries and FX translation effects. Capital adequacy remains strong at 23.2%, comfortably above regulatory thresholds. Despite SCB’s solid capital and improving asset quality, we believe the current market price is well ahead of fundamentals. The current price embeds overly optimistic earnings expectations at a time when spreads remain compressed and cost pressures persist. We view our “Reduce” rating as a “take-profit” call, recognizing near-term downside while maintaining confidence in SCB’s long-term resilience. A more constructive stance would depend on a sustained rebound in net interest margins, improved loan growth, and moderation in cost escalation.