Commercial Banks in the country ended 2019 recording strong growth in profits. 

Latest data from the Bank of Ghana (BoG) puts the 2019 Profit after Tax of the banks in the country at GH¢3.3 billion. This represents 38 per cent over the 12.5 growth recorded for 2018.

According to the Bank of Ghana, the higher increase in the net income in 2019 was on the back of significant increases in both net interest income and fee and commission income outstripping the growth in operating expenses.   

The Banking Sector Report ending December 2019 added that in more specific terms “net interest income grew by 23.6 per cent to GH¢9.27 billion in 2019 compared to a marginal 1.5 per cent growth recorded in 2018. 

Net fees and commissions were GH¢2.24 billion in 2019, representing a growth of 15.3 per cent compared to the growth of 14.6 per cent observed in 2018. 

Return on Equity

The stronger profit outturn during the review period translated into higher profitability indicators, including the after-tax Return on Equity (ROE) and before-tax Return on Assets (ROA). 

The sector’s ROE accordingly increased to 19.9 per cent as at end-December 2019 from 18.5 per cent in December 2018 while the ROA went up to 4.1 per cent in December 2019 from 3.3 per cent a year earlier. Increases in both ratios signify enhanced resource utilisation of both shareholders’ funds and total assets

How other sectors fared?

Total assets of the banking sector amounted to GH¢129.06 billion in December 2019, representing a 22.8 per cent year-on-year growth compared with 12.3 per cent growth in December 2018. 

The stronger total assets growth in December 2019 reflected higher growth in both domestic and foreign assets of the banking sector. 

Domestic assets rose by 23.1 per cent to GH¢118.69 billion in December 2019, compared to the 12.5 per cent growth recorded in the previous year, while foreign assets grew by 19.8 per cent to GH¢10.38 billion during the same period, compared to 9.6 per cent growth in December 2018.  

The higher growth in domestic assets translated into an increase in the share of domestic assets in total assets to 92.2 per cent in December 2019 from 90.3 per cent in December 2018, with the share of foreign assets declining accordingly to 7.8 per cent from 9.7 per cent over the same comparative period.

Deposits

The banking sector continued to rely heavily on deposits mobilized mainly from the domestic economy to finance assets in 2019. Of the total banking sector deposits of GH¢83.46 billion as at end-December 2019, domestic deposits accounted for 99.6 per cent, while the share of deposits from non-residents was at 0.4 per cent. 

Total deposits recorded a 22.2 per cent growth in December 2019, against 17.3 per cent growth in December 2018, driven mainly by similar growth in domestic deposits (22.4 per cent, up from 17.5 per cent), and signifying sustained confidence in the sector following the reforms. 

The foreign currency deposits component (denominated in Ghana Cedis) of total deposits recorded a 43.0 per cent growth to GH¢83.46 billion in December 2019, relative to the 14.1 per cent growth in December 2018. 

Total borrowings by banks increased by 37.9 per cent to GH¢20.45 billion as at end-December 2019, a reversal of the 12.4 per cent contraction recorded a year earlier.

Liquidity indicators

The liquidity position of the industry remains strong registering only some marginal declines in the operational liquidity indicators. 

The industry’s ratio of core liquid assets (mainly cash and due from banks) to total deposits declined to 37.0 per cent in December 2019 from 40.1 per cent in December 2018 while the ratio of core liquid assets to total assets also dipped to 23.9 per cent from 26.0 per cent over the same comparative period. The strong growth outturn in deposits and assets during the review dampened the core liquidity ratios

Where are the banks investing?

Share of Banks investment portfolio as at end-December 2019 was largely skewed towards long-term debt instruments. 

The share of securities increased to 68.2 per cent in December 2019 from 66.5 per cent in December 2018. 

The proportion of short-term bills in total investments accordingly declined to 30.9 per cent from 32.4 per cent between the two periods.  

Investments in equities also moderated marginally to 0.9 per cent from 1.1 per cent over the same comparative period.

Loan advances and credit conditions

Credit growth gained momentum at year-end, with gross loans and advances (excluding the loans under receivership) increasing by 23.6 per cent in December 2019 against a contraction of 3.7 per cent in December 2018. 

Private sector credit also grew by 17.9 per cent to GH¢39.36 billion over the same period after contracting by 3.4 per cent in December 2018. 

Household credit, however, recorded a slower growth of 12.6 per cent in December 2019 from 40.7 per cent in December 2018

 Credit Portfolio Analysis

Private sector credit still constitutes the larger proportion of credit in the banking sector. 

Its share, however, declined to 87.1 per cent in December 2019 from 91.4 per cent in December 2018 while the share of public sector credit accordingly increased to 12.9 per cent from 8.6 per cent during the review period. 

The dip in the relative share of private sector credit in total credit reflected in declines in the share of credit to households and private enterprises. 

Specifically, the share of credit to private enterprises declined to 63.8 per cent from 66.3 per cent while the share of household credit dipped to 20.8 per cent from 22.9 per cent over the same comparative period.  

Credit to indigenous enterprises was the largest component of private sector credit, accounting for 55.4 per cent of total credit in December 2019 while foreign companies were allocated 8.4 per cent of total credit from the banking sector, summing up to the 63.8 per cent share allocated to private enterprises. 

The rise in the share of the industry’s credit to the public sector reflected in all the sub-components, namely,

Bank of Ghana on the strong earnings

The financial performance of the banking industry improved significantly in December 2019, exactly a year after completion of the reforms in the sector. 

This reflected in the growth of banks’ balance sheet size and profitability, as well as improvement in key financial soundness indicators. 

In the year, the sector recorded strong growth in total assets funded mainly by deposits, which signalled renewed confidence in the banking sector. 

The pickup in deposits. Together with increased capital levels, gave impetus to strong credit growth during the period under review. Profitability also improved relative to last year with banks posting a stronger profit outturn in December 2019. 

 Bank of Ghana on way forward

The Bank of Ghana maintained that a year after the reforms, the banking sector’s performance has improved significantly underpinned by strong asset growth and a healthier financial position. 

The key balance sheet indicators, that is, deposits, credits, total assets, and shareholders’ funds improved. 

Other key financial soundness indicators reflecting the stability of the industry also improved. 

The strong growth in credit was broadly in line with expectations following the recapitalisation exercise and other regulatory reforms. 

Looking ahead, banks would continue to deepen intermediation while adopting sound banking practices and stronger risk management practices to help consolidate the gains made from the reforms. 

The Bank of Ghana would also continue to strengthen its supervision and monitoring roles to facilitate a competitive, efficient, and stable banking sector.