There are emerging signs that the current macroeconomic conditions are spilling over to the banking sector, Governor of the Bank of Ghana (BoG) has said.
“Profitability levels have declined alongside other financial soundness indicators. The latest macro prudential risk assessments indicated increased pressure on solvency and liquidity of banks ahead of the implementation of the Domestic Debt Exchange Programme,” he said, after the 110th regular meeting of the Monetary Policy Committee (MPC) of the BoG in Accra on Monday.
He said to moderate the potential impact on the sector, the BoG had announced some regulatory reliefs for banks to help preserve financial stability, including the decrease of the Cash Reserve Ratio from 14 per cent to 12 per cent and reduction of the Capital Adequacy Ratio from 13 per cent to10 per cent.
Dr Addison said in addition to the Financial Stability Fund, the BoG would provide financial support to the banking industry to meet their liquidity needs.
He said 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.
“As a result, the performance of the sector moderated in December 2022 compared with December 2021, with some key Financial Soundness Indicators (FSIs) recording significant declines,” Dr Addison, who is the Chairman of the MPC, said.
He explained that profitability levels in the banking sector had declined, driven by the mark-to-market losses on investments, higher impairments on loans, and rising operating costs.
Dr Addison stated that profit-after-tax of the banking sector at the end of December 2022 stood at GH¢3.9 billion, representing 18.9 per cent contraction year-on-year, compared to 12.3 per cent annual growth recorded in 2021.
Net interest income, the Governor said, grew by 23.0 per cent to GH¢15.8 billion, higher than the growth of 14.5 per cent in 2021, and net fees and commissions went up by 27.4 per cent to GH¢3.7 billion, from the growth of 24.8 per cent recorded in 2021.
Dr Addison disclosed that operating income increased by 30.9 per cent, compared with 14.6 per cent recorded a year earlier.
Dr Addison said the strong out-turn in operating income was, however, moderated by increased operating expenses and provisioning during the year, explaining that operating expenses rose by 32.2 per cent in December 2022, compared with 14.2 per cent growth in 2021.
“Provisions also increased sharply by 184.0 per cent in December 2022, relative to a contraction of 4.7 per cent a year earlier due to the strong uptick in credit growth, elevated credit risks, and impairments on investments. As a result, profit before tax declined by 13.5 per cent to GH¢6.4 billion in December 2022, compared with an annual growth of 22.1 per cent a year earlier,” the Governor said.
He said new loans and advances in 2022 increased to GH¢53.7 billion, reflecting an annual growth of 47.5 per cent, compared with the growth of 6.8 per cent in 2021.
BY KINGSLEY ASARE