The banking industry registered a profit of 45.3% (GHS2.83 billion) for the first 10 months of 2019, according to the November 2019 Banking Sector
This is against the 22.3% growth (GHS1.59 billion) recorded during the same period last year.
Despite this impressive performance, Class Business understands that some banks are struggling to perform.
According to the report, the increase in the net income was on the back of significant increases in net interest income and fee; and commission income while operating cost was contained.
The industry’s net interest income grew by 23.9% (GHS7.56 billion) compared with the 0.3% contraction (GHS6.10 billion) recorded in the same period a year ago.
The increase in the net interest income, the report reiterated, was due to a stronger growth in interest income (16.8% y/y) which more than offset the growth in interest expense (5.2% y/y).
This contributed to the 33.0% growth in net operating income as all the revenue sources grew faster than operating expenses.
On a year-to-date basis, net fees and commissions was GHS1.79 billion in October 2019 representing a slower year-on-year growth of 12.3% compared with GHS1.59 billion in October 2018.
Growth in operating expenses, however, picked up on account of staff costs and other operating expenses. The industry’s staff cost of GHS2.85 billion during the first ten months of 2019 was 15.5% higher than the GHS2.47 billion recorded during the same period in 2018.
Similarly, the banks’ other operating expenses (largely comprising administrative expenses) went up by 6.9% (GHS2.38 billion) in October 2019 compared with the 1.7 per cent growth which amounted to GHS2.23 billion during the same comparative period a year ago.
Return on Assets and Return on Equity
According to the report, the industry’s main profitability indicators were positive during the period. The ratio of profit-after-tax to average shareholders’ funds, termed after-tax Return on Equity (ROE) increased to 20.7 per cent in October 2019 from 17.6 per cent in October 2018.
This points to a higher earning on each unit of average shareholders’ funds used. The ratio of profit-before-tax to average total assets, termed before-tax ROA increased to 4.3 per cent from 3.3 per cent during the same comparative period, reflecting more efficient assets utilisation to generate profits.
Interest Margin and Spread
The spread between gross yield and interest payable widened during October 2019 to 9.8 per cent from 8.1 per cent a year earlier.
The increase in the spread, according to the report, was on the back of the increase in the gross yield to 14.9% from 13.1% while interest payable increased marginally to 5.1% from 5.0% during the same comparative periods.
Overall, the report said the performance of the banking industry reveals a stronger banking sector with improved solvency, liquidity and profitability.