According to the Central Bank report, the industry made an income after tax of GH¢1.59 billion in October 2017 compared with the contraction by 10.2 percent in the same period of last year.
The report also noted that the industry’s Return on Equity (after tax) declined to 14.4 percent in October 2017 from 20.2 percent in October 2016, while the Return on Assets (before-tax) declined from 4.3 percent to 3.0 percent respectively, representing some moderation in the industry’s profitability.
On composition of bank’s income, interest income from loans constituted 44.9 percent of total income in October 2017 compared with 50.4 percent a year ago. The share of investment income in banks’ total income on the other hand, rose to 39.6 percent in October 2017 from 33.8 percent in October 2016, due to increased share of investments in banks’ assets.
Fees and commissions remained a relatively smaller source of income for the banks, with its share in total income declining marginally to 10.4 percent in October 2017 from 10.8 percent in October 2016. The proportion of banks’ other income however remained unchanged at 5.0 percent
Credit conditions survey
According to Bank of Ghana, results of the credit conditions survey conducted in October 2017 pointed towards a net tightening in credit stance on loans to enterprises, while the stance on loans to households eased. Banks tightened credit stance on both short and long-term loans to large enterprises as well as to small and medium enterprises (SMEs), citing increases in the proportion of adversely-classified loans in total loan portfolio (as reflected in their non-performing loans (NPLs) ratio) as the major reason.
The net ease in banks’ credit stance on loans to households during the latest survey round was reflected in loans for house purchases, consumer credit and other lending. The reported net ease in the credit stance to households was consistent with the pickup in the year-on-year growth in household credit in October 2017.
However, the survey reported a mixed outcome for demand for credit by both households and enterprises.
Development in balance sheet
Total assets of the banking sector increased from GH¢73.79 billion (23.3 percent year-on-year growth) in October 2016 to GH¢88.91 billion (20.5 percent year-on-year growth) as at end-October 2017. The slower annual growth in total assets was attributed to moderate increase in domestic assets from both gross advances and investments.
On the other hand, deposits for the banking sector increased to GH¢55.83 billion in October 2017, from GH¢47.22 billion a year earlier, representing 18.2 percent growth. Total deposits funded 62.8 percent of the industry’s assets during the period.
Assets and liability structure
Net advances constituted 35.8 percent of banks’ assets in October 2017 compared with a share of 40.2 percent in October 2016. In spite of the decline, net advances remained the largest component of total assets on the balance sheet of the banks
Total deposits remained the major source of funding for the banking industry, constituting 62.8 percent of banks’ total liabilities and capital in October 2017 compared with a share of 64.0 percent in October 2016.
Off-balance sheet activities
Banks’ off-balance sheet items (contingent liabilities) grew by 23.3 percent to GH¢8.90 billion in October 2017, after contracting by 7.3 percent in October 2016. The pick-up in growth indicates an increase in trade finance and guarantees over the period.
The banks’ stock of Non-Performing Loans (NPLs) stood at GH¢ 8.30 billion as at end-October 2017, from GH¢ 6.52 billion in October 2016. The current stock of NPLs, though high, signals a slow annual growth to 27.2 percent from 58.1 percent in October 2016.
Despite this trend, the industry’s NPL ratio increased to 21.6 percent in October 2017 from 19.0 percent a year earlier, due to a slowdown in the growth of gross loans
The banking industry’s liquidity conditions improved in October 2017 compared with the October 2016 position, and was reflected by increases in both broad and core measures of liquidity during the period under review. The improvement in the liquidity indicators showed the banking industry’s improved ability to meet short-term obligations.
In conclusion, the Central Bank said the banking industry remained solvent and liquid even though some deterioration was recorded in key financial sector indicators.
The increase in the minimum paid-up capital and issuance of the energy sector bond it said are major policies that would ensure stability and soundness of the banking industry over the medium term. However, poor asset quality continued to be a major risk in the banking industry, and concrete steps are being taken to reduce the stock of NPLs and enhance the sector’s performance. In the medium term, the industry is likely to see significant consolidation in the form of mergers and acquisitions as banks take steps to meet the new minimum paid-up capital by the end of 2018.
All these it added would inure to creating strong banking institutions to support economic growth.