In brief
- Core Earnings Remain Under Pressure Despite Earnings Beat: SCB reported a 10.3% y/y increase in 1H2026 PAT to GHS320.0mn, beating our forecast by 2.6%, primarily due to a net impairment write-back and a 32.3% y/y decline in tax expense, which offset weaker operating performance. Core earnings remained under pressure as interest income declined 25.0% y/y, compressing NIM by 219bps to 4.6%, while the modest 1.3% y/y increase in non-interest income was insufficient to offset the weakness in net interest income. Consequently, total operating income fell 14.8% y/y. Although operating expenses increased by only 1.1% y/y, the weaker revenue base pushed the cost-to-income ratio up 835bps to 53.0%, reflecting lower operating efficiency.
- Strong Capital Position Offsets Deteriorating Asset Quality: SCB maintained a solid balance sheet, with net loans expanding 17.0% y/y as the bank continued to reallocate from government securities towards higher-yielding assets, while customer deposits grew 7.6% y/y, supporting a stable funding base. Despite this, the loan-to-deposit ratio remained low at 19.9%, highlighting persistent excess liquidity. Capitalisation also remained strong, with shareholders’ funds rising 26.3% y/y and the capital adequacy ratio holding at a robust 32.0%. However, asset quality deteriorated further, with the NPL ratio increasing 528bps y/y to 23.5%, which could constrain future lending. Overall, we view the earnings growth as unsustainable, as it was driven largely by impairment recoveries and lower tax expense rather than an improvement in the bank’s underlying operating performance.
- Revenue Recovery to Depend on Non-Funded Income: We expect SCB’s core earnings to remain under pressure through the rest of 2026, as the lower interest rate environment, a relatively small loan book and cautious lending continue to weigh on net interest income. However, improving sovereign credit conditions should provide greater flexibility for business origination following the easing of group-level risk constraints. We therefore expect non-funded income to become the primary driver of revenue growth, supported by increased digital adoption, fintech partnerships and stronger transaction volumes as macroeconomic conditions improve.
- Strong Capital Supports Selective Growth Amid Asset Quality Concerns: We expect management to prioritize asset quality over aggressive loan growth to lower the NPL ratio toward regulatory thresholds. While risk appetite is returning, lending will remain selective. Disciplined cost control and digital migration should support efficiency, though margin improvement hinges on stronger revenue growth. While the reduced 20.0% CRR offers modest liquidity relief, SCB’s strong capital position remains its core anchor. Ultimately, a sustained earnings recovery requires stronger fee income, stabilized interest income, and improved asset quality.