In brief
- Non-Funded Income Drives Earnings Amid Core Weakness: SCB reported a 12.3% y/y rise in PAT to GHS 804.2mn, 4.6% above our forecast, driven largely by a 108.1% y/y surge in non-funded income, primarily trading revenue. Net interest income fell 28.5% y/y to GHS 1.0bn, compressing NIM by 215bps to 16.8% due to cash drag from elevated CRR, a shrinking loan book, and lower treasury yields. Operating expenses rose 20.1% y/y, pushing the cost-to-income ratio to 45.9%. Credit costs partially offset pressures, with a net impairment gain of GHS 37.5mn reversing prior-year losses. Overall, headline profitability was resilient, but the contraction in core interest income and rising costs highlight underlying margin strain.
- Balance Sheet Rationalisation Creates Room for Lending Growth Net loans contracted 18.1% y/y to GHS 1.9bn, while investment securities grew 10.0%, reflecting a continued preference for low-risk government instruments. Customer deposits rose 9.3% y/y to GHS 12.4bn, leaving the LDR at 15.3%, well below optimal levels. Looking ahead, we expect SCB to accelerate loan write-offs in 2026 to reduce NPLs to 10%, resetting the balance sheet and improving asset quality. This clean-up will free capacity to rebuild the loan book and support funded income growth as macro stability improves and credit demand strengthens.
- Earnings Mix Must Shift Toward Core and Transactional Income: With low treasury yields removing prior high-margin cushions, sustainable profitability will increasingly depend on recurring funded income. Non-funded income, including trading revenue, will remain supportive but volatile. The bank will need to leverage transaction banking, digital channels, and SME lending to provide a stable earnings base. Medium-term loan growth of 20% will be critical to restore top-line momentum and offset margin compression in a lower interest rate environment.
- Execution Remains Key Despite a Supportive Macro Backdrop: Easing inflation and stable macro conditions should help contain costs, but external risks, particularly energy-driven inflation could limit operating leverage gains. Lower reference rates (11.74%) support enterprise lending but will compress margins as loan yields reprice faster than funding costs. SCB’s strong capital and liquidity provide a solid foundation, yet 2026 performance will be highly dependent on disciplined execution: expanding the loan book, managing pricing and risk, and deploying liquidity efficiently. Earnings recovery is credible but contingent on the bank actively “sweating” its balance sheet and rebuilding core income streams..
Rating Summary:
We update our rating on Standard Chartered Bank Ghana PLC (SCB) to “SELL”, following an upward revision of our fair value to GHS 59.94 per share. This remains below the current market price of GHS 79.41, implying a downside of 24.5%. The upward adjustment reflects a lower risk-free rate of 11.55%, down from 15.6% at 9M2025, driven by compressed yields on restructured domestic bonds. We have transitioned from 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 these methodological refinements and the higher fair value estimate, the stock remains overvalued relative to underlying fundamentals. SCB’s FY2025 earnings edged our forecast by 4.6%, but the quality of earnings remains weak, driven largely by trading income, impairment gains and lower taxes rather than core operations. Net interest income declined by 28.5% y/y, while the balance sheet remained defensive, with loan book contraction amid elevated NPLs and a continued tilt toward government securities. That said, we acknowledge SCB’s strong underlying franchise, solid capital position, and capacity for earnings recovery as core conditions normalise. However, at current levels, valuation appears stretched, and our SELL recommendation reflects an opportunity to take advantage of the strong technical momentum in the market, rather than a deterioration in long-term fundamentals.