Banking Sector: Industry’s total assets rise to GHS 242bn; CAR pegged at 14.3%

Ghana’s banking sector has shown remarkable resilience in the first half of 2023, as per the Bank of Ghana’s latest Monetary Policy Committee report. Despite grappling with the lingering effects of the Debt and Derivatives Exchange Programme (DDEP), the industry rebounded strongly from significant losses incurred at the end of 2022 due to impairments of holdings in Government of Ghana (GoG) bonds.

Notwithstanding the challenges posed by the DDEP, the banking industry’s total assets reached GH¢242.4 billion by June 2023. While the growth rate moderated to 21.2 percent from 22.8 percent in June 2022, total deposits saw a significant surge of 42.8 percent, amounting to GH¢187.6 billion in June 2023, compared to GH¢131.3 billion in the same month the previous year. In contrast, total borrowings experienced a notable contraction of 39.1 percent, settling at GH¢16.0 billion in June 2023, reflecting a cautious approach in light of the DDEP impact.

Leveraging a substantial growth in deposits, the banking sector witnessed a surge in investments, with total investments rising to GH¢89.9 billion in June 2023 from GH¢81.0 billion in June 2022. While short-term investments recorded a remarkable growth of 149.6 percent, reaching GH¢39.9 billion, medium-to-long-term investments faced a decline, settling at GH¢50.1 billion, attributed to portfolio rebalancing following the DDEP.

Profitability in the banking industry exhibited robust growth during the first half of 2023. Notably, net interest income soared by 41.4 percent, standing at GH¢9.9 billion, and net fees and commissions recorded a 30.6 percent increase, amounting to GH¢2.2 billion. This contributed to a sharp 46.1 percent rise in operating income, significantly surpassing the 22.6 percent growth recorded in 2022.

As a result, profit-before-tax registered an impressive 51.2 percent increase in June 2023, compared to a growth rate of 20.8 percent in June 2022. The industry’s profit-after-tax demonstrated a remarkable surge, reaching GH¢4.3 billion, up from GH¢2.8 billion, representing a substantial 51.4 percent increase.

Despite the prevailing challenges, the banking sector’s key financial soundness indicators remained resilient, with temporary regulatory reliefs offered in response to the DDEP aftermath providing support. The Capital Adequacy Ratio (CAR) for June 2023 stood at 14.3 percent, surpassing the revised prudential minimum of 10 percent but lower than the CAR of 19.4 percent recorded in June 2022.

A decline in the CAR was primarily attributed to losses on mark-to-market investments resulting from the DDEP, along with an increase in the risk-weighted assets of banks. However, the industry’s NPL ratio deteriorated to 18.7 percent in June 2023 from 14.1 percent in June 2022, indicating higher loan impairments and elevated credit risks.

As the banking sector navigates the ramifications of the DDEP, improvements in liquidity indicators offer some respite during the review period. Nevertheless, the industry remains steadfast in addressing challenges and fortifying stability in the financial landscape.

Source: Norvanreports