CAL Bank Targets Expansion


Cal Bank says it is poised to sustain its good financial performance in 2014 despite the challenging economic environment.

The bank has also pledged to add eight branches to its network this year.

Frank Adu Jnr, Chief Executive Officer (CEO) of CAL Bank, disclosed this to brokers and journalists on the Ghana Stock Exchange (GSE) when the bank took its turn at the facts behind the figures programme in Accra recently.

Cal Bank was the sixth most profitable bank in 2014, with a return on equity of 38 percent, return on assets of 7 percent and cost income ratio of 32 percent, among others.

Profit after tax for instance went up by 39 percent to GH¢41 million. Net interest income also hit GH¢95 million.

Mr Adu, however, was not happy about the value of shares of CAL Bank on the bourse.

‘I blame the brokers, they broker the shares, they make sure people buy and sell. Once there is activity then there is price discovery, then the market begins to recognize the performance? It is actually quite frustrating for an investor,’ he stated.

He also could not fathom factors that were responsible for the share price reduction.

‘We have long supported CAL’s decision to expand its branch network as this would enable the bank to increase its retail presence and consequently ramp-up its retail deposit mobilization drive with a view to reducing its overall cost of funding. This should enable the bank to increase its current and savings accounts (CASA) component of its customer deposits, which stood at 49.5% at the end of December 2014. The remaining 50.5% is made up of expensive term deposits, which are complemented with borrowings to fund the creation of loan assets, resulting in the bank’s cost of funding being higher than the overall banking sector cost of funding in Ghana. And the most effective solution to boost the bank’s CASA is to increase its retail presence, according to some analysts.

They however said the execution risks that could potentially affect short-term earnings outlook (back-of-the-envelope calculations) suggest that the new CAL branches would take up to 18 months to break even.

‘We expect operating expenses and the cost-to-income ratio to increase if the bank goes ahead to accelerate its branch expansion exercise this year, which could have an adverse impact on earnings. In the long-term, we expect this to bode well for the bank as its cost of funding reduces to boost the creation of value for shareholders.’

CAL is currently undervalued compared to its peers.

The bank is trading at a price earning of 3.8x and price to book of 1.3x compared with peer average price earning of 6.2x and 1.5x price to book.

The bank’s share price has appreciated by 6.9 percent so far in 2015.

By Samuel Boadi


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