1H25 earnings flat on lower net interest margin

#themes: net interest margin, credit growth

Event: Afreximbank reported a 1% increase in its 1H25 earnings to USD 413mn driven by lower net interest margin and continued strong growth in costs. 

Revenue breakdown: Net interest income, which accounts for 88% of revenue, increased by only 1% to USD 836mn, despite a 21% increase in interest-earning assets, as NIM fell by 54bps to 4.9%. NIR increased by 55% to USD 114mn leading to a total revenue growth of 6%. Operating costs increased by 21% to USD 184mn – similar to the last five years’ range of 19%-32%. This led to a CIR deterioration of 240bps to 19.4% but CIR still remains healthy and within management’s target and our FY25E projections. PPOP increased by 3%. 

Provisions increased by 7% to USD 350mn leading to a slight uptick in the COR to 2.6% from 2.5%.

ROE declined to 12.2% from 13.8% (partly worsened by new capital raises) while the ROA fell to 2.40% from 2.66%.

Balance sheet: Net loans increased by 7% to USD 27.7bn while cash and cash equivalents more than doubled to USD 8.3bn from USD 3.9bn and investment securities increased by 59% to USD 1.1bn. The result is that asset allocation to loans has declined significantly (74% from 84%) creating a drag on revenue. Loan yield has been more than twice as high as the average yield on the other assets in the last eight years.

Mobilization of funds was strong as total interest-bearing liabilities grew by 22% as borrowings due to banks, money market deposits and debt securities all increased by over 20%.

Asset quality remains high as the NPL ratio remained flat at 2.5% compared to 1H25.

Upshot: The topline growth weakness was expected with the decline in market rates though it was slightly weaker than we had pencilled in. Credit growth, while decent at 7% is also behind our numbers. The high liquidity ratio, however, indicates the bank is in prime position to take advantage of new credit opportunities as they arise and we expect the growth to pick up as the year progresses. ROE as expected remains in double-digit territory presenting a compelling investment opportunity. The largest risk remains asset quality deterioration with two member states possibly seeking to renegotiate their loans that total 2.6% of gross loans. In the meantime, the bank maintains a high NPL coverage ratio (201% as of FY24).

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