The banking sector posted strong performance during the first six months of 2024, on the back of sustained increases in deposits and other funding sources.
The financial soundness indicators remained healthy, with improved solvency, liquidity, and profitability.
The industry’s Non-Performing Loans ratio, however, picked up due to an increase in the NPL stock as well as a slowdown in the pace of credit growth.’
Banks’ balance sheet
Total assets of the banking sector grew by 33.3% to GH¢323.2 billion as at June 2024, relative to a growth of 21.2% recorded in June 2023.
The higher growth in assets was driven by a robust growth in deposits, as well as the depreciation of the Ghana cedi.
Foreign assets grew by 57.6% in June 2024, compared to 74.5% in June 2023; while domestic assets grew by 31% in June 2024, up from 17.8% growth same period last year.
The share of foreign assets in total assets increased to 10.2% from 8.6%, while the share of domestic assets declined to 89.8% from 91.4% in June 2023.
Investments grew by 19.2% to GH¢107.2 billion in June 2024, up from a growth of 11% in June 2023, due to a significant growth in both short-term and long-term instruments.
The growth in investments reflected a 7.3% growth in short-term bills, from a growth of 149.6% in June 2023, while long-term investments (securities) also grew by 28.6% in June 2024, having contracted by 23.2% in June 2023.
The mixed growth in both bills and securities investments culminated in a reduced share of investments in total assets to 33.2% in June 2024, from 37.1% in June 2023. Gross loans and advances rose by 15.6% to GH¢84.5 billion in June 2024, relative to a 15.4% growth in June 2023.
Growth in net loans and advances (gross loans adjusted for provisions and interest in suspense) also moderated to 10.3%, from 11.3% during the same period last year.
The higher growth in assets was funded by increases in deposits and other funding sources.
Deposits remained the main source of funding for the banking sector, accounting for 76.1% share of total assets in June 2024, from 77.4% in June 2023.
Deposits improved by 31.1% to GH¢245.9 billion in June 2024, as against 42.8% growth recorded in June 2023.
The foreign currency component of deposits grew by 29.8% to GH¢81.2 billion in June 2024, relative to a growth of 62.5% in June 2023, suggesting some currency depreciation effect on the overall growth in total deposits.
Borrowings also picked up by 44.4 percent to GH¢23.2 billion in June 2024, up from 39.1% contraction recorded in June 2023. The growth in borrowings reflected an uptick in both short-term foreign and domestic borrowings while long-term domestic and foreign borrowings contracted.
Short-term domestic borrowings of GH¢15.2 billion at end-June 2024 suggested a growth of 83%, relative to a contraction of 33.6% recorded in June 2023.
Long-term domestic borrowing, however, contracted by 17.6% in June 2024, down from a growth of 45.1% during the same period in 2023.
Short-term foreign borrowings grew by 33.2%, after contracting by 75.7% in June 2023, while long-term foreign borrowings contracted by 2.5%, from the 16.2% contraction registered in June 2023.
Banks’ shareholders’ funds position (comprising paid-up capital and reserves) continued to improve on account of a rebound in profits across the industry.
Total shareholders’ funds grew sharply by 44.9% to GH¢32.3 billion as at end-June 2024, relative to a contraction of 15.1% recorded.
Asset and liability structure
The asset structure of the banking industry’s balance sheet in June 2024 reflected banks’ preference for less risky assets.
Cash and bank balances replaced investments as the largest component of total assets, with an increased share of 35.8% in June 2024, from 27.7% in June 2023, on account of significant increase in banks’ reserves in compliance with the new Cash Reserve Ratio (CRR) requirements.
Investments (comprising bills, securities, and equity) was the second largest component of banks’ assets at the end of June 2024, although its share in total assets declined to 33.2%, from 37.1% in June 2023.
Investments and cash and bank balances together accounted for 69% of total assets in June 2024, compared to a share of 64.8% in June 2023.
Net loans and advances constituted the third-largest component of total assets, recording a share of 21.4% in June 2024, down from 25.8% during the same period a year ago.
Non-earning assets (fixed assets and other assets) in banks’ total assets recorded a marginal pickup in share to 9.6%, from 9.4% during the same period in 2023.
On the liability side, the share of deposits in banks’ liabilities and shareholders’ funds declined marginally to 76.1% in June 2024, from 77.4% in the corresponding period last year.
The share of borrowings rose to 7.2% in June 2024, from 6.6% a year ago, reflecting the growth in total borrowings during the period.
The share of shareholders’ funds in banks’ liabilities and shareholders’ funds also rose to 10%, from 9.2%, consistent with the strong growth of shareholders’ funds.
The proportion of “other liabilities” was unchanged at 6.8% during the review period.
Share of Banks’ investments
Securities (long-term debt instruments) constituted the largest component of banks’ investment portfolio after its share rose to 59.8% in June 2024, from 55.4% in June 2023.
The share of short-term bills in total investments, however, declined from 44.3% to 39.9% over the same period.
The share of equity investments remained negligible and unchanged at 0.3% during the period under review
Credit risk
The industry’s asset quality deteriorated during the first half of 2024 relative to same period in 2023, principally due to a sharp increase in the Non-Performing Loan (NPL) stock, which accounted for the rise in the NPL ratio.
The elevated credit risk was broad-based, with increases in NPL ratios in all but one economic sector in June 2024 relative to June 2023.
Credit portfolio analysis
The stock of gross loans and advances (domestic and foreign) recorded a growth of 15.6% to GH¢84.5 billion at end-June 2024, as against a growth of 15.4% during the same period last year. Private sector credit (comprising credit to private enterprises and households) posted a higher growth of 17.7% to GH¢78.1 billion in June 2024, from 16.1% in a similar period a year ago.
Public sector credit contracted by 5% to GH¢6.4 billion at end-June 2024, down from a growth of 8.9% recorded in June 2023. Consequently, the share of private sector credit in total credit rose to 92.4% in June 2024, from 90.8% in June 2023, whereas the share of public sector credit declined to 7.6% in June 2024, from 9.2% a year earlier.
In terms of sectoral distribution of credit, the services sector accounted for the largest share of 32.8% as at end June 2024 (from 33.6% in June 2023), followed by the commerce and finance sectors, with a relative share of 23.6% (from 21.5% in June 2023), while the manufacturing sector accounted for a share of 10.7% (from 10.6% in June 2023).
Together, these top three sectors accounted for 67.2% of total credit (up from 65.7% in June 2023).
The mining and quarrying sector remained the lowest recipient of industry credit, with a share of 3.3% (from 3.4% in June 2023).
Off-balance sheet transactions
Off-balance sheet transactions (largely trade finance and guarantees) grew during the review period.
Contingent liabilities rose by 29% to GH¢25.7 billion as at end-June 2024, from GH¢19.9 billion as at end-June 2023.
However, banks’ contingent liabilities as a percentage of total liabilities declined to 8.8% in June 2024, from 9% in June 2023.
Asset quality
The asset quality of the banking industry declined during the period under review.
The industry’s NPL ratio rose to 24.2% in June 2024, from 18.7% in June 2023.
When adjusted for the fully provisioned loan loss category, the industry’s NPL ratio still increased to 10.8% in June 2024, from 7.8%, reflecting increasing stock of all categories of nonperforming loans.
The rise in the NPL ratio during the period under review was explained by the higher growth in the NPL stock relative to the growth in total loans.
The industry’s NPL stock grew by 49.4% to GH¢20.4 billion in June 2024, up from GH¢13.7 billion, reflecting a deterioration in both domestic and foreign currency-denominated loans in the period under review.
The private sector accounted for the largest share of the non-performing loans, being the largest recipient of the industry’s credit.
The proportion of NPLs attributable to the private sector rose marginally to 95.6% in June 2024, from 95.5% in June 2023, while that of the public sector declined to 4.4%, from 4.5% in a similar period last year.
The agriculture, forestry, and fishing sector recorded the highest NPL ratio of 56.4% (an increase from 30% a year ago), followed by the transportation, storage and communication sector with an NPL ratio of 49.1% (from 22.1% a year earlier).
The NPL ratio of the construction sector rose to 36.8% (from 32.8%), followed by the electricity, water and gas sector at 20.6% (from 7.8%), and then the commerce and finance sector unchanged at 20.2%.
The mining and quarrying sector accounted for the lowest NPL ratio of 13.7% in June 2024 (from 12.7% a year earlier).
Financial soundness indicators
Key financial soundness indicators (FSIs) in the first half of 2024 pointed to a liquid and profitable sector with improved capital buffers.
Liquidity indicators
The industry’s liquidity position remained strong in June 2024, with improvements in the core measures following the increase in the CRR requirement.
The ratio of core liquid assets (mainly cash and due from banks) to total deposits improved to 47.1% in June 2024, from 35.8% in June 2023.
Also, the ratio of core liquid assets to total assets rose to 35.8% percent in June 2024, from 27.7% in June 2023.
Also, the ratio of broad liquid assets to total deposits increased to 90.6%, from 83.6%, while broad liquid assets to total assets increased to 68.9% from 64.7% over the review period.
Capital adequacy ratio
The industry’s solvency position, measured by the Capital Adequacy Ratio (CAR) adjusted for the regulatory reliefs, was 14.3% in June 2024, higher than the prudential minimum of 10%, and unchanged from 14.3% recorded in June 2023.
The CAR in June 2024 reflected the recognition of 2024 profits posted by banks for purposes of CAR computation, as well as the on-going recapitalisation of banks.
Profitability
The banking industry remained profitable for the first half of 2024, recording higher profit-before-tax (PBT) and profit after-tax (PAT) in June 2024 relative to the same period last year.
However, the growth rate in profit moderated to 25.5% in June 2024 relative to 51.4% recent same period last year.
Generally, all income lines increased but at a lower growth rate in June 2024 relative to the same period last year.
Net interest income grew by 19.4% to GH¢11.8 billion, lower than the corresponding period’s growth of 41.4% in 2023.
In year-on-year terms, interest income increased to GH¢18.0 billion from GH¢15.1 billion, representing a growth of 19.1% relative to 44.3% in June 2023.
The lower growth in interest income was explained by the relatively lower rates on money market instruments this year compared to the first half of 2023, as well as a decline in lending rates.
Interest expenses also rose to GH¢6.2 billion in June 2024, representing a lower growth rate of 18.6% compared to the 50% percent recorded in June 2023.
Net fees and commissions recorded a slower growth of 16.8% in June 2024, from 30.6% a year ago, while other income recorded a sharp contraction of 16.2% to GH¢2.4 billion in June 2024, from GH¢2.8 billion in June 2023.
These developments in the different income lines culminated into a sharp increase in industry’s operating income to GH¢16.8 billion in June 2024, from GH¢14.9 billion in June 2023.
Similarly, gross income increased to GH¢23 billion in June 2024, from GH¢20.1 billion in June 2023.
The cost lines recorded similar increases in June 2024, but at lower growth rates compared to the same period in 2023.
The industry’s operating expenses grew by 15.5% in June 2024, compared to 44.9% in June 2023, on the back of slower growth in staff costs and other operating (administrative) expenses. Impairment losses on financial assets, as well as provisions for bad debt and depreciation, contracted by 39.5% in June 2024, compared to 32.7% increase in June 2023.
Consequently, the industry’s profit-after-tax increased by 25.5% to GH¢5.4 billion in June 2024, compared with the 51.4% growth recorded in June 2023.
Profit-before-tax also rose by 22.8% to GH¢8.1 billion.
The lower growth in profit during the first half of this year was because of lower increases in interest income and other income lines in 2024, relative to the same period in 2023.
Return on assets and return on equity
The banking sector’s profitability indicators, namely, return-on-assets (ROA) and return-on-equity (ROE), moderated during the period under review following the slowdown in growth of profit-before-tax and profit-after-tax, respectively.
The ROE declined to 35.3% in June 2024, from 37.6% in June 2023, while ROA was marginally lower at 5.4%, from 5.5% in the same reference period
Interest margin and spread
Interest spreads for the banking sector widened to 6.4% in June 2024, from 6% in June 2023.
The increase in spreads was on the back of an increase in gross yields to 9.4% in June 2024, from 9.1% in June 2023, while interest payable declined to 3%, from 3.2% a year earlier.
The interest margin to total assets ratio also inched down to 3.7% from 4.1%, while interest margin to gross income rose from 49.1% to 51.4% during the period under review.
The ratio of gross income to total assets (asset utilisation) declined to 7.1% in June 2024, from 8.3% in June 2023, while the profitability ratio rose from 21.3% to 23.5% over the review period.
Composition of banks’ income
Income from investments remained the largest component of banks’ total income in June 2024, with its share rising to 42% from 40.1% in June 2023 following the growth in total investments.
The share of interest income from loans improved to 36.3% from 34.9% during the same review period.
The share of banks’ income from fees and commissions also went up to 11.4% from 11.1%, while the share of income from other sources moderated to 10.2% from 13.9%.
Operational efficiency
The industry’s efficiency improved on the back of the slowdown in growth of operating expenses during the review period.
The cost-to-income ratio declined from 78.7% in June 2023 to 76.5% in June 2024, while cost-to total assets ratio decreased to 5.4% from 6.5% a year earlier.
The operational cost-to-total assets ratio also went down to 3.5% from 4.4% a year earlier, while the ratio of operational cost to total income reduced to 49.6% in June 2024 from 52.8%.
Banks’ counterparty relationships
Total offshore balances increased by 71.4% to GH¢29.9 billion in June 2024, compared to the 67.8% growth in the previous year, driven largely by substantial growth in placements.
Industry placements with foreign counterparties increased by 69.4% in June 2024, from 58.8% growth recorded during the same period a year earlier.
Nostro balances on the other hand, moderated to 73.6%, compared with a growth of 77.9% in June 2023.
As a result, the ratio of offshore balances to net worth rose to 92.6% from 78.3%.
The share of banks’ external borrowings in total borrowings declined to 28.1% in June 2024, from 37.3% in June 2023, while the share of domestic borrowings increased to 71.9%, from 62.7% in June 2023.
Banks’ external borrowings were tilted towards long-term instruments, although the share of long-term borrowings in total external borrowings declined to 61.7% from 68.8%, while the share of short-term borrowings picked up to 38.3% from 31.2% a year earlier.
Credit conditions survey
Results of the June 2024 Credit Conditions Survey indicated a net easing in the overall stance on loans to enterprises between May and June 2024, on the back of a net easing in the stance on all components of enterprise loans (namely short-term and long-term enterprise loans, loans to SMEs, and loans to large enterprises).
Banks projected their overall stance on enterprise loans to record a net tightening in July and August 2024, from a tightening in all components of enterprise loans apart from loans to large enterprises.
The overall stance on loans to households also eased during the June 2024 survey round from net ease in loans for house purchase, while consumer credit and other lending tightened marginally.
Over the next two months, banks project further net easing in the overall stance on loans to households, which will be reflected in loans for house purchases and consumer credit.
On the demand side, the June 2024 survey further indicated a soaring in overall demand for enterprise loans from increases in the demand for loans on all components of enterprise loans. Banks projected a net increased demand for corporate loans over the next two months, also driven by net increases in the demand for all categories of enterprise loans.
Credit demand by households recorded a net increase between May and June 2024, from a net increase in the demand for both mortgages and consumer credit and other lending.
Over the next two months, banks expect a slump in the demand for both consumer credit and loans for house purchases to drive a decrease in the overall demand for household loans.
Conclusion and outlook
The banking sector’s performance in June 2024 pointed to continuing recovery from the macroeconomic challenges since 2022.
However, asset quality concerns remained a drag on the performance of the sector.
The banking sector remained profitable, liquid, and generally efficient during the review period, with stable solvency reflecting the rebound in profitability in the industry post-DDEP implementation, as well as the ongoing recapitalisation effort by banks.
The outlook remains stable, but recapitalisation and enforcement of stringent credit underwriting standards, and intensified loan recovery efforts are critical to ensuring good performance of the banking sector in the medium term.
Source: Bank of Ghana
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