Recapitalized banks to post strong earnings - Report

The 23 recapitalized banks are expected to register strong earnings this year, following an increase in their single obligor, paving way for big ticket transactions.

According to a research by investment bank, Databank, the banking sector support for credit expansion and overall economic growth will trigger huge interest incomes and rapid deposit mobilization.

It noted that Ghana’s biggest bank GCB’s new stated capital of GH¢500 million should propel asset creation due to the banks’ ability to partake in large ticket transactions.

“We forecast 2019 earning assets of GH¢10.3 billion, about 14.0 percent year-on-year growth, adding, We expect GCB to rebalance its asset portfolio in favour of the loan book as asset quality improves.”

The analysis projected a growth in the loan book by 41 percent year-on-year for the full year 2018 as GCB’s high funds in cash and cash equivalents and government securities are tipped to be deployed into the higher yielding loan portfolio going forward.

It expected a stronger outturn of non-interest income driven by the loan book and improved international trade business supported by reinforced treasury unit and expansion of corresponding banking relationship to cover other West African countries.

For Ecobank Ghana, the second largest bank, the report said the bank is expected to leverage its increased single obligor limit, post recapitalization to GH¢416m, to fund larger ticket transactions and drive revenue.

“We expect funds from lower yielding maturing investments to be channeled into the loan book to support the declining yields on earning assets. With the growth in the loan book, it expects fees and commissions to grow by GH¢318m in 2019.

It concluded, saying strong digital drive will enhance fee income, efficiency and moderate growth operating expenses.

With regard to CAL Bank, the analysis noted that the increase capital base of GH¢400 million will boost single obligor limit and propel asset creation in the coming years.

“We consequently expect earning assets to grow by 19 percent year-on-year to GH¢4.7 billion in 2019 and 20 percent year-on-year to GH¢5.7 billion in 2020.”
Going forward, it emphasized strong deposit growth of 20 percent year-on-year in 2019 to be supported by yet-to-be-launched agency banking module and strong expansion of its retail client base, which should lower cost of funds and cost to income ratio.

For Soceite Generale, the report expected the bank to leverage on the increased capital base to drive earning assets to GH¢3.4b billion, about 19 percent growth in 2019.

“Increased deposit mobilization (18 percent year-on-year to GH¢2.8 billion) supported by the ongoing rebranding and expansion into the export sector to boost its corporate client base. The rebranding is expected to augment branch visibility to drive retail business,” it added.

Banks earnings

The banking industry recorded an improved income statement with after-tax profit of GH¢1.95 billion in October 2018, representing a year-on-year growth of 22.3 percent, compared with GH¢1.59 billion representing a modest 1.0 percent growth in October 2017.

The sharp increase in banks’ net income came from the 10.0 percent increase in net operating income to GH¢4.02 billion in October 2018 from GH¢3.66 billion (7.6percent y year-on-year growth) a year ago. Net operating income of banks increased following the slower growth of banks’ interest income compared with interest expenses.