Current macroeconomic challenges are negatively impacting the banking and financial sectors, resulting in the sector’s unimpressive performance in December 2022 compared with December 2021, as some key Financial Soundness Indicators (FSIs) recorded significant declines.
Profitability levels in the banking sector have declined, driven by the mark-to-market losses on investments, higher impairments on loans, and rising operating costs.
Operating expenses rose by 32.2% in December 2022, compared with 14.2 % growth in 2021.
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.
Profit-after-tax was GH¢3.9 billion at end December 2022, representing 18.9% contraction year-on-year, compared to 12.3% annual growth recorded in 2021.
Latest macro-prudential risk assessments indicated increased pressure on solvency and liquidity of banks ahead of the implementation of the Domestic Debt Exchange Programme.
Chairman of the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG), Governor Dr Ernest Addison, lamented that “developments in the banking sector were broadly reflective of current macroeconomic conditions, with rising cost of credit due to inflationary pressures, and revaluation-driven balance sheet performance.”
He announced another hike in benchmark interest rate to 28% from 27% citing the need to drive inflation downwards.
He explained that net interest income grew by 23% to GH¢15.8 billion, higher than the growth of 14.5 % in 2021.
Also, net fees and commissions went up by 27.4 % to GH¢3.7 billion, from the 24.8% growth recorded in 2021.
Operating income increased by 30.9% last year, compared with 14.6% recorded in 2021.“The strong outturn in operating income was however moderated by increased operating expenses and provisioning during the year,” the Governor added.
Dr Addison explained that the banking industry’s 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, attributed to losses on mark-to-market investments, increase in risk-weighted assets of banks from the high growth in actual credit, and the price effect of the depreciation of the Ghana Cedi on foreign currency denominated loans.
He said the sector’s return-on-equity and return-on-assets also declined during the period, in line with declining profit after tax and profit-before-tax, respectively.
The governor noted that 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.
According to him, total investments contracted by 4.8 % to GH¢79.2 billion in December 2022, relative to a 29.0 % annual growth in 2021, as banks rebalanced asset portfolios in response to the Domestic Debt Exchange Programme.
Dr Addison announced that total assets however 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.Total deposits increased by 30.4 % to GH¢157.9bnHe reveal that 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.
He stated that credit continued to increase, recording a growth of 30.2 % to GH¢70 billion from GH¢53.8 billion in December 2021.