Banking sector solvent, strong to support economic growth

The Bank of Ghana (BoG) has reiterated that the banking sector remains solvent and strong to support economic growth despite the recent challenges faced by the country.

According to the Central Bank, the banking system is liquid and well positioned to lend to businesses and individuals after government’s debt exchange programme.

Banking sector solvent

Deputy Governor of BoG, Mrs Elsie Addo Awadzi said the central bank will continue to build a resilient banking sector to support government’s fiscal policies.

Domestic Debt Exchange Programme pressure

Preliminary assessment by the Bank of Ghana (BoG) of the impact of the Domestic Debt Exchange Programme (DDEP) on the banking sector using 2022 data had revealed significant losses on account of impairment of banks’ holdings in government bonds.

Impact moderated by regulatory reliefs

The impact of DDEP on the banking sector had been moderated by the timely introduction of regulatory reliefs from the BoG, to support the banking sector, similar to the reliefs provided to banks at the onset of the COVID-19 pandemic.

Cash Reserve Ratio reset to 14%

Cash Reserve Ratio on domestic currency deposits for banks reset from 12 to 14%, effective April, 13, 2023.

16 out of the 23 commercial banks post losses

About 16 out of the 23 commercial banks in the country recorded heavy losses at the close of 2022 year with only five banks posting profits.

GH¢14.81bn losses recorded

Collectively, the audited accounts show that the banks incurred direct losses of about GH¢14.81 billion and indirect losses amount to GH¢1.22 billion.

Two banks are yet to submit their audited accounts.

GH¢6.4bn Profit before tax

Profit before tax declined by 13.5% to GH¢6.4 billion in December 2022, compared with an annual growth of 22.1% a year earlier.

Return to profitability in first quarter of 2023

Despite the difficult 2022, unaudited results of the banks for the first quarter of 2023 indicate return to profitability.

GH¢15bn financial stability fund

Government is setting up GH¢15 billion financial stability fund to ensure appropriate solvency and liquidity for financial institutions.

Some GH¢750 million comprising GH¢500 from government of Ghana and GH¢250 million from the World Bank has been committed.

GH¢209.4bn total assets of banking sector

Total assets of banks increased to GH¢221 billion, representing an annual growth of 22.9% in December 2022, compared to a growth of 20.4% a year earlier.

GH¢64.8bn total investments

However,

Total investments, on the other hand, contracted by 4.8 per cent to GH¢79.2 billion in December 2022, relative to a 29 %  annual growth in 2021, as banks rebalanced asset portfolios in response to the Domestic Debt Exchange Programme.

GH¢157.9bn deposits

Total deposits ended the year at GH¢157.9 billion, representing an increase of 30.4% in 2022, relative to a growth of 16.6% in 2021.

GH¢69.1bn in credit

Credit, on the other hand, increased by 28.5% to GH¢69.1 billion in December 2022 from GH¢53.8 billion in December 2021.

GH¢53.7bn New loans

New loans and advances in 2022 increased to GH¢53.7 billion, reflecting an annual growth of 47.5%, compared with the growth of 6.8% in 2021,

GH¢157.9 total liabilities

Of the total liabilities of the banking system, total deposits stood at GH¢157.9 billion, representing an increase of 30.4% year-on-year, compared with 16.6% recorded during the same period in 2021.

“Our banking sector remains solvent and liquid even after the pandemic, in the face of recent macroeconomic challenges, and in particular the government debt restructuring efforts”, Mrs Awadzi stressed.

Banking sector clean-up and recapitalisation

She explained that the banking sector clean-up and recapitalisation exercise before the onset of the pandemic, provided the industry with the necessary capital and liquidity buffers to withstand the pandemic and the recent macroeconomic challenges.

“We expect banks over the next few years to take steps to rebuild strong buffers so that they remain resilient for the long-term”, she advised.

A regulatory crackdown on poor business practices and weak capital positions in Ghana’s banking sector has resulted in a series of market exits since August 2017.

The outcome is a smaller but more sustainable banking industry.

GH¢21bn cost of banking sector clean-up

BoG puts the total costs of its clean-up operation at some GH¢21 billion.

Mrs Awadzi pointed out that while regulating and supervising banks to promote their safety and soundness, BoG expects banks to be more inclusive in their product and service offerings to ensure that all economic actors in Ghana are able to access much-needed finance to grow their businesses and contribute to the growth of our economy.

Touching on the product launched by Absa bank, she stated that BoG expects banks to deploy the funding available to them into more lending to the private sector especially to Small and Medium Enterprises (SMEs), within the framework of robust credit underwriting and risk management.

She assured that the BoG on its part remains committed to achieving its statutory objectives of ensuring price stability, promoting economic growth and the effective and efficient operation of the banking and credit systems in the country, and promoting financial stability.

GH¢15.8bn Net interest income

Banks’ net interest income grew by 23% to GH¢15.8 billion, higher than the growth of 14.5% in 2021.

GH¢3.7bn Net fees and commissions

Net fees and commissions went up by 27.4% to GH¢3.7 billion, from the growth of 24.8% recorded in 2021

Operating income increased by 30.9%

Operating income increased by 30.9%, compared with 14.6% recorded a year earlier.

Operating expenses rose by 32.2%

Operating expenses rose by 32.2% in December 2022, compared with 14.2% growth in 2021

184% increase in provisions

Provisions also increased sharply by 184%  in December 2022 relative to a contraction of 4.7% a year earlier, due to the strong uptick in credit growth, elevated credit risks, and impairments on investments.

Capital Adequacy Ratio at 16.6%

Capital Adequacy Ratio (CAR) declined to 16.6%, but remained above the prudential minimum of 13%, as at December 2022, from 19.6%  in December 2021.

14.8% improvement in non-performing loans

The non-performing loans (NPL) ratio however improved to 14.8% in December 2022 compared with 15.2% in December 2021, on account of high credit growth, relative to the increased stock of NPLs between the two periods