Banking industry performance defies economic downturn

Banking industry

The banking industry’s performance has defied the general economic downturn with strong growth across key metrics including total assets and deposits, as well as sustained improvement in profitability within the industry during the first half of 2022.

Available data from the latest Monetary Policy Report (MPR) for the half-year of 2022 indicate that the key financial soundness indicators (FSIs) of the banking industry remained healthy as of June 2022, with solvency, liquidity and profitability remaining above regulatory limits and broadly showing improvements when compared to the same period last year.

The sector’s total assets increased by 22.8 percent to GH¢200billion at end of the period, representing a 17.2 percent growth over the previous year. The domestic component of total assets recorded a higher growth rate of 23.5 percent in June 2022 compared to a growth of 18 percent in June 2021, the report showed.

Additionally, foreign assets grew by 12.2 percent relative to a growth of 6.7 percent during the same comparative period.

The Bank of Ghana (BoG) noted that the industry has broadly managed the effects of current macroeconomic challenges, while suggesting that the industry’s strong performance is expected to continue in the near-term.

According to the central bank, higher growth in the industry’s assets by mid-year was primarily on the back of an upsurge in deposits and borrowings during the review period.

Deposits recorded a robust growth of 19.1 percent to GH¢131.3billion as of end-June 2022, albeit lower than the 22.5 percent growth recorded a year earlier.

Borrowings on the other hand continued to increase, registering a year-on-year (YoY) growth of 53.6 percent to GH¢26.4billion by middle of the year compared to the modest growth of 5 percent in June 2021.

The increase in borrowings during the year was reflected mainly at the short end of the domestic market, with short-term domestic borrowings growing by 143.1 percent relative to a contraction of 25.6 percent in the previous year.

The share of foreign assets in total assets declined to 6 percent from 6.6 percent while that of domestic assets increased from 93.4 percent to 94 percent, accounting for the highest growth in domestic assets during the period.

Investments of GH¢81.1billion remained the largest component of total assets as at end of June 2022. However, the data reveal that the share of investments in total assets declined in June 2022, reflecting a slower growth in investments this year relative to the same period last year.

“Annual growth in investments moderated to 7.1 percent in June 2022 from 28.8 percent in June 2021, on account of a contraction in short-term bills and moderation in growth of long-term securities over the review period,” the report indicated.

These assets somewhat translated into credit to the private sector, as credit growth also rebounded to pre-pandemic levels – although banks continued to maintain a net tightened credit stance on loans to enterprises and households.

Credit growth increased by 33.3 percent YoY to GH¢63.4billion at the end of June, compared to a growth of 5.7 percent in June 2021.

Apart from the appreciable increase in domestic currency loans during the year, increases in the foreign currency component of net advances – which partly reflected the revaluation effect from the sharp depreciation of the Ghana cedi – also accounted for the relatively stronger growth in net advances in June 2022.

Also, the industry’s asset quality as measured by its Non-Performing Loans (NPL) ratio also improved, on account of a moderation in growth in the stock of NPLs as well as the rebound in credit growth.

The stock of NPLs increased by 10 percent to GH¢8.9billion in June, compared with a growth of 15.1 percent a year ago.

The increasing stock of NPLs however indicates that asset quality risks still persist in the industry and will continue to be closely monitored.

Furthermore, the industry’s solvency position improved – as seen in its Capital Adequacy Ratio (CAR) which remained above the regulatory floor of 13 percent, ending the period at 19.4 percent.

“The industry CAR continued to highlight banks’ sustained capacity to expand lending and absorb any potential losses from the increased lending – using their capital buffers – during the current uncertain operating environment.

“The industry will continue to be closely monitored in order to address any emerging signs of weaknesses which may pose a risk to stability of the sector,” the report stated.

Leave a Reply