Banks could improve their capital position with retained earnings, GCB Capital has stated.
Despite the widespread Domestic Debt Exchange Programme-induced losses in 2022, the banks returned to profitability in 2023.
The key liquidity and profitability indicators show that the banks are highly liquid and profitable despite the pronounced credit risks. The financial institutions have mainly channelled this liquidity into high-yielding money market instruments given the limited loan book expansion drive, with the high-interest environment.
Following the return to profitability, the research and investment firm said the risks to recapitalisation in the near term are subsiding as banks have the option to capitalise retained earnings over the next two financial years.
Also, the government created the Ghana Financial Sector Stabilisation Fund (GFSF).
GCB Capital pointed out that the commitment of $250 million from the World Bank, which is expected to be disbursed imminently following the completion of the first review of Ghana's programme with the International Monetary Fund, should provide an additional alternative to recapitalisation given the unfavourable market conditions and the elevated country risks which could undermine valuations.
“Thus, we believe the risks to banking sector resilience are broadly contained, and the increasing concerns about asset quality are temporal”.
Banking sector performance improves – BoG
The Bank of Ghana revealed in its January 2024 Monetary Policy Report that the banking sector’s performance improved in 2023 as adverse spillovers from the domestic debt restructuring and macroeconomic challenges receded.
As of the end of 2023, the data showed that the banking sector remains stable, liquid, and profitable.
Profitability improved for the sector from the loss position recorded in the 2022 audited accounts, reflecting sustained increases in net interest income and fees and commissions. The industry’s balance sheet was generally strong, underscored by increased assets in December 2023, funded largely by deposits.
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