3 rd Quarter Ended September 2014 3 rd Quarter Ended September 2014 Investor Presentation 1
Presentation Outline Page 01 Introduction of Speakers 3 02 Operating Environment 4 03 Income Statement 5 04 Balance Sheet 6 05 Facts behind the Figures 7 06 Outlook 11 2
Speakers Prince Kofi Amoabeng Chief Executive Officer Pearl Esua-Mensah Pearl Esua-Mensah Deputy Managing Director John Ackom General Manager Wholesale Banking & Investor Relations 3
Operating Environment Emerging markets and the Eurozone experienced a slowdown due to • geopolitical concerns GLOBAL China also showed signs of softening as the property market downturn • negatively affected lending and investment activity The US economy however retained momentum in its recovery • Real GDP growth slowed to 5.3% in the second quarter, compared to 6.5% in • the first quarter ; Provisional GDP growth for 2014 estimated at 6.9% down from a revised 7.6% from a revised 7.6% LOCAL Inflation of 16.5% for September, outside the target bandwidth of 9+/- 2% • The Bank of Ghana’s survey showed a mild improvement in consumer • confidence while business confidence worsened S&P downgraded Ghana to B- (negative outlook) from B • Number of banks increased to 28 with the licensing of First Capital Plus • Increased competition, particularly in attracting deposits • INDUSTRY Industry continued to view Technology as a key game-changer • Industry interest rates tread higher on the back of higher Policy and Treasury- • Bill rates 4
Income Statement ……Operating Profit before impairment increased by 44% +20% +32% 160 +61% +28% 140 +20% 120 -110 100 66 80 161 -76 60 118 +44% +73% 40 3% -23% +17% -30 20 42 3 12 9 - Interest Interest Non-funded Operating Operating Profit Impairment Profit Tax Profit after Income Expense Income Income Expenses before Charges before Tax Tax Impairment Charges Charges Key earnings drivers were: • Increased revenue from alternative business areas • Restrained growth in interest expenses despite the all-round growth in interest rates in the industry • Operating and non-operating cost containment On the other hand, the following factors negatively impacted our performance • Slowdown in lending in order to concentrate on improving asset quality • Fierce competition for cheap deposits, high treasury rates drove interest expense higher • Difficult economic conditions contributed to rise in Non-performing loans 5
Balance Sheet ……total asset growth of 34% year-on-year GHS’m 3Q14 3Q13 %CHG Key Notes Assets ` Loans and advances grew by 43% • Net Loans and 1,185 831 43% largely due to Cedi depreciation Advances GHS loan book grew by 15% • Investment Securities 123 85 45% USD loan book 119% (70% of growth • explained by currency depreciation) Other Assets 229 221 3% Fixed Assets 45 48 -6% Investments securities grew by 45% due Investments securities grew by 45% due • • Total Assets Total Assets 1,582 1,582 1,184 1,184 34% 34% to a conscious effort to improve balance sheet liquidity Liabilities and Shareholders’ Equity Increase in term debt principally Customer Deposits 881 796 11% • explained by FX translations; Short Term Borrowings 312 136 130% Currency depreciation accounted for 67% • of growth Term Debt 214 92 133% received additional funds from the African • Development Bank for trade finance Other Liabilities 39 34 15% Shareholders’ Equity 136 127 8% 6
Total Revenue Growth …Growth in non-funded income essential to overall income growth Other Operating Income: Fx gains from trade transactions Fee and commission income down by 10% due to : accounted for ~50% of exchange gain • Lower Fees and commission from loans down by 13% Other Operating Income – Exchange Gain 40 as the bank slowed down loan disbursement to focus trade others on improving asset quality 30 • The decline was however mitigated by growing 20 transactional banking income and commission which was up 34% year-on-year 10 51% 20% 0 2013 2013 2014 2014 Breakdown in Fees and Commission Income 2013 2014 Loans Loans 21% 25% Transactional Transactional 44% banking 46% banking 16% Money transfer 16% Money transfer 19% 13% Others Others 7
Stable cost of funds ……inspite of rising interest rates Cost of funds less volatile than interest rates 91-Day T-Bill UTB Cost of Funds (QTRLY) 30% 24% 24% 23% 21% 19% 20% 12% 12% 12% 12% 11% 10% 0% 3Q2013 3Q2013 4Q2013 4Q2013 1Q2014 1Q2014 2Q2014 2Q2014 3Q2014 3Q2014 Liability mix 2013 2014 % of % of Avg Cost of Funds Avg Cost of Funds Total Total Demand 29% 2% 22% 1% Term Deposits 49% 16% 40% 16% Borrowings 22% 8% 37% 10% 100% 100% 8
Cost growth contained ……resulting in reduced cost to income ratio Total income growth plus lower growth in Key contributors to Opex growth expenditure resulted in lower CIR 70% Rising indirect staff cost Cost to Income Ratio • 68% 69% Rising establishment costs • 66% Branch opening costs • 64% 65% Two new branches opened; in East Legon – 62% and Industrial Area 2013 2013 2014 2014 Slowdown in growth of operating expenses despite increasing cost of doing business OPEX Growth Non-food Inflation Inflation 50% 44% 36% 40% 30% 20% 20% 10% 0% 2012 2013 2014 9
Rising Impairments ……the ripple effect of tough economic conditions Impairments rise as tough economic condition tighten Prudence required us to increase loan loss reserve, by incomes charging extra provisions to the Income Statement 15% NPL Ratio Cost of risk 14% 15% 10% 14% 10% 10% 10% 5% 5% 6% 5% 0% 0% 2013 2013 2014 2014 2013 2013 2014 2014 ....Leading to a marginal improvement in profitability 2013 2014 10% 8% 9% 8% 6% 4% 1% 2% 1% 0% ROaE ROaA 10
Outlook Increase trade related businesses • Revenue Strengthen retail banking • Generation Deploy mobile money platform • Launch women’s market • Grow cheap deposits • On track to meet the target set for 100 for 100,000 promotion • Funding Harness alternative distribution channels to improve reach • Grow public sector business • Continuous improvement in risk and credit processes • Asset Quality Strengthen recoveries team • Raise GHS 100m to strengthen our balance sheet, increase Capital • Adequacy in order to support asset growth Balance Sheet Sweat the balance sheet to improve profitability • Improve liquidity • 11
Thank You Thank You 12
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