BANKS in the country registered a net profit after tax of GH¢2.4 billion ($430 mln) in 2018, a growth of 12.5 percent year-on-year but lower than the 21.7 percent growth a year earlier.

According to the latest Banking Sector January 2019 Report, both interest income and interest expense respectively declined by 7.0 percent and 18.0 percent in 2018, partly as a result of the general decline in interest rates during the year and lower levels of loans and borrowings.

These developments resulted in a marginal growth of 1.5 percent in net interest income, compared to 9.2 percent growth recorded a year earlier.
Fees and Commissions, however, grew by 14.6 percent in 2018, compared with 12.7 percent growth in 2017.

While the industry benefitted from a decline in growth of operating expenses, increasing costs related to provisions on non-performing loans and depreciation moderated the positive impact of lower operating costs, resulting in the lower growth rate in both profit before tax and profit after tax.

After-tax return on equity (ROE) and before-tax return on assets (ROA), very important to shareholders declined marginally during the review period. The slower growth in before and after tax profit despite the stronger growth in assets and equity in 2018 relative to 2017 contributed to the overall decline in the two profitability indicators.

Stress Test

According to stress test carried out on all banks balance sheet and income statement in December 2018, the banking sector was broadly resilient to shocks and well-capitalized to absorb losses that can potentially be induced by extreme events such as currency depreciation, asset quality downgrade, an unexpected withdrawal of funds by a single largest depositor, extreme interest rate repricing and default by single largest borrowers.

The sector the Banking Sector report said appeared even more robust to shocks compared to the stress tests conducted on banks in December 2017 and June 2018 financial results.

This was due mainly to improved capital buffers within the banking sector. Generally, the improvement in the overall performance of the banking sector’s stress test was a result of the positive domestic macroeconomic environment in 2018.

Asset Quality

Asset quality in the banking sector improved following enforcement of the loan-write off directive issued in June 2018.

Consequently, non-performing loans (NPLs) declined to GH¢6.65 billion in December 2018 from GH¢8.19 billion in December 2017, representing 18.9 percent contraction against a 33.4 percent growth recorded a year ago.

The loss component of NPLs contracted by 32.4 percent and accounted for 49.2 percent of total NPLs in December 2018 compared with a growth of 40.1 percent and a share of 59.0 percent a year ago. Accordingly, the ratio of NPLs to gross advances declined to 18.2 percent from 21.6 percent during the review period.

Liquidity Indicators

According to the report, the banking industry remained adequately liquid to meet its short-term obligations, with core and broad liquidity indicators showing some improvements as at end-December 2018 compared to the same period last year.

The industry’s core liquid assets to total deposits ratio increased to 43.3 percent in December 2018 from 41.8 percent in December 2017 due to an increase of 21.7 percent in banks’ liquid assets (cash and near cash items). Similarly, core liquid assets to total assets increased to 27.6 percent from 26.0 percent during the review period.

Similarly, the industry’s broad liquid assets (cash, due from banks and investments) recorded a growth of 28.4 percent year-on-year, partly due to the issuance of the ESLA bond and the recent Government of Ghana Bond to offset the liabilities of the five defunct banks transferred to the Consolidated Bank Ghana (CBG).

Capital Adequacy Ratio

The report said the banking industry remained solvent in December 2018 with the main solvency indicator, the Capital Adequacy Ratio (CAR) well above the statutory requirement of 10.0 percent.

The recent recapitalization exercise contributed to the increase in the industry CAR from 18.5 percent in December 2017 to 21.9 percent in December 2018, while the Tier 1 CAR (another solvency measure) went up from 15.4 percent to 21.0 percent over the same period.

The Central Bank said improved solvency will enhance the capacity of banks to expand credit growth as well as absorb any potential losses.


Overall, the Central Bank said the performance of the banking industry broadly improved in December 2018 compared with the performance in December 2017.
It noted that the industry has started to show signs of recovery following the completion of the recapitalisation exercise and implementation of reforms to address weak and insolvent institutions within the sector.

Following the injection of new capital by the banks, the report said the sector is projected to bounce back more strongly with increases in credit, corroborated by the results of the recent credit conditions survey.

Banks it noted will however be closely monitored to ensure they adhere to sound risk management practices in their operations.
The outlook for the industry therefore remains positive in the short to medium term.

credit: The Finder

(By Augustine Amoah)