This paper seeks to objectively scrutinize the financial performance and position of the Bank of Ghana (BOG) as portrayed by the 2022 BOG Annual Report financial statements and the additional information provided.
The below framework has been employed in analyzing the Bank of Ghana’s financial institution’s performance and position:
- Growth Analysis:
In performing a growth analysis, it is essential to review the income statement to assess revenue growth over the year. It is also necessary to analyze the growth in assets, loans, and deposits to gauge the bank’s expansion. There is also the need to compare these growth figures to previous years to identify trends.
- Revenue Growth:
To assess revenue growth on the income statement, it is necessary to calculate the year-over-year growth rate using the following formula:
Revenue Growth Rate (%) = [(Revenue in Year 2 – Revenue in Year 1) / Revenue in Year 1] * 100
The Bank:
Revenue in Year 2(2022) GH’000= 5,496,979
Revenue in Year 1(2021) GH’000= 4,995,784
Revenue Growth Rate (%) = [{(5,496,979-4,995,784)/4,995,784] *100 = 10.03%
- “Revenue in Year 2” refers to the total operating income for the current reporting year (2022).
- “Revenue in Year 1” refers to the total operating income for the previous reporting year (2021).
A positive growth rate of 10.03% for the Bank of Ghana indicates an increase in revenue generated, shooting up by one-tenth in 2022.
The Group:
Revenue in Year 2(2022) GH’000= 5,974,747
Revenue in Year 1(2021) GH’000= 5,315,632
Revenue growth rate (%) = [(5,974,747-5,315,632)/ 5,315,632] *100
=12.40%
A positive growth rate of 12.4% for the Group indicates an increase in revenue generated by the Group in 2022. This means that, in 2022, the Bank of Ghana performed relatively better in collecting revenues.
- Growth in Assets, Loans, and Deposits:
To analyze the growth in these key balance sheet items, it is necessary to scrutinize year-over-year growth rates using similar formulas:
- Asset Growth Rate (%) = [(Total Assets in 2022 – Total Assets in 2021) / Total Assets in 2021] * 100
The Bank:
Total Assets in 2022(GH’000) = 118,678,319
Total Assets in 2021(GH’000) = 112,394,201
= [(118,678,319-112,394,201)/ 112,394,201] *100
=5.59%
The Group:
Total Assets in 2022(GH’000) = 125,974,103
Total Assets in 2021(GH’000) = 117,059,134
= [ (125,978,103-117,059,134)/117,059,134] *100
=7.62%
- Loan Growth Rate (%) = [(Total Loans in Year 2 – Total Loans in Year 1) / Total Loans in Year 1] * 100
The Bank:
Total Loans in Year 2 =Loans and advances in 2022(GH’000) = 22,387,024
Total Loans in Year 1= Loans and advances in 2021(GH’000) = 17,137,212
= [(22,387,024-17,137,212)/17,137,212] *100
=30.63%
The Group:
Total Loans in Year 2 =Loans and advances in 2022(GH’000) = 23,057,684
Total Loans in Year 1= Loans and advances in 2021(GH’000) = 17,864,109
= [(23,057,684-17,864,109)/17,864,109] *100
=29.07%
- Deposit Growth Rate (%) = [(Total Deposits in Year 2 – Total Deposits in Year 1) / Total Deposits in Year 1] * 10
The Bank:
- “Total Deposits in Year 2” refers to the respective balance sheet item for the current year (2022) GH’000 = 57,609,340
- “Total Deposits in Year 1” refers to the respective balance sheet item for the previous year (2021) GH’000 = 30,670,860
= [(57,609,340-30,670,860)/ 30,670,860] *100
=87.83%
The Group:
- “Total Deposits in Year 2” refers to the respective balance sheet item for the current year (2022) GH’000 = 63,329,113
- “Total Deposits in Year 1” refers to the respective balance sheet item for the previous year (2021) GH’000 = 34,155,220
= [(63,329,113-34,155,220)/34,155,220] *100
=85.42%
These growth rates show how much assets, loans, and deposits have increased over the year for the bank as well as the Group.
- Profitability Analysis:
In doing the profitability analysis, it is necessary to calculate key profitability ratios, such as net profit margin, return on assets (ROA), and return on equity (ROE). It is also important to assess the efficiency of operations of the Bank of Ghana and the Group by analyzing the efficiency ratio and net interest margin. It is also necessary to compare profitability metrics to industry benchmarks to gauge competitiveness.
Profitability Ratios:
- Net Profit Margin (%):
Net Profit Margin measures the percentage of each dollar of revenue that represents profit after all expenses have been deducted.
Net Profit Margin (%) = (Net Profit / Total Revenue) * 100
“Net Profit” is the profit after all expenses, including interest and taxes.
“Total Revenue” is the total income generated from all operations.
The Bank
Net Profit is the profit after all expenses, including interest and taxes.
“Total Revenue” is the total income generated from all operations.
For 2022
Net Profit (GH’000) = Operating loss = (60,809,753)
Total Revenue (GH’000) = Total operating income = 5,496,979
Net loss margin (%) = [-60,809,753/5,496,979] *100=-1,106.24%
For 2021
Net Profit (GH’000) = Operating profit = 1,236,861
Total Revenue (GH’000) = Total operating income= 4,995,784
Net Profit Margin (%) = [1,236,861/4,995,784] *100=24.76%
The Group
For 2022
Net Profit (GH’000) = Operating loss = (60,895,560)
Total Revenue (GH’000) = Total operating income = 5,974,747
Net profit Margin (%) = [-60,895,560/ 5,974,747] *100=-1,019.22%
For 2021
Net Profit (GH’000) = Operating profit = 1,220,582
Total Revenue (GH’000) = Total operating income= 5,315,632
Net profit Margin (%) = [1,220,582/5,315,632] *100=22.96%
Interpretation:
For the Bank, Net profit reduced from 24.76% in 2021 to a negative 1,106.24% in 2022. This drastic reduction in profit can largely be attributed to the high jump in impairment losses for securities and loans from a total of GH 186,668,000.00 in 2021 to GH 54,510,372,000.00 in 2022, almost an increase of 29,101.78%. The other causes of the high loss margin include the rise in interest and other operating expenses from 3,211,039 in 2021 to 5,983,873 in 2022, reflecting a rise of 86.35%.
Similarly, the Group also suffered from a drastic reduction in profits from 22.96% in 2021 to a negative 1,019.22% in 2022 resulting primarily from abnormal increases in impairment losses from a total of GH 195,368,000 in 2021 to GH 57,780,537,000.00 in 2022, reflecting an increase of 29,475.23%. Additionally, the group experienced a hike in interest and other operating expenses from a total of GH3,524,888 in 2021 to GH 6,494,672 in 2022, representing an increase of 84.25%.
- Return on Assets (ROA) (%):
ROA measures how efficiently a bank uses its assets to generate profit.
The Bank
ROA (%) = (Net Profit / Total Assets) * 100
-
- “Net Profit” is the profit after all expenses.
- “Total Assets” refers to the average total assets over a specific period (usually the beginning and end of the year)
For 2022
Net Profit (GH’000) = Operating loss = (60,809,753)
Total Assets in 2022(GH’000) = 118,678,319
ROA (%) = (60,809,753/118,678,319)*100
=-51.24%
For 2021
Net Profit (GH’000) = Operating profit = 1,236,861
Total Assets in 2021(GH’000) = 112,394,201
ROA (%) =(1,236,861/112,394,201)*100
=1.100%
The Group
ROA (%) = (Net Profit/Total Assets) *100
For 2022
Net Profit (GH’000) = Operating loss = (60,895,560)
Total Assets (GH’000) = 125,974,103
ROA (%) =(-60,895,560/125,974,103)*100
= -48.34%
For 2021
Net Profit (GH’000) = Operating profit = 1,220,582
Total Assets (GH’000) = 117,059,134
ROA (%) =(1,220,582/117,059134)*100
= 1.04%
Generally, the ROA for the Bank of Ghana in 2021 was far better than in 2022. In fact, per the ROA profitability index, it dropped from 1.04% for the group to -48.34%. This also means that the fiscal year of 2022 experienced a loss of 48.34% per unit of asset across the group. A lower ROA of -48.34% or -51.24%, indicates the Bank of Ghana’s poorer profitability and operational efficiency.
- Return on Equity (ROE) (%):
ROE measures the return generated for shareholders’ equity.
ROE (%) = (Net Profit / Shareholders’ Equity) * 100
-
- “Net Profit” is the profit after all expenses.
- “Shareholders’ Equity” represents the shareholders’ ownership in the bank.
The Bank
For 2022
ROE (%)
Net Profit (GH’000) = Operating loss = (60,809,753)
Shareholders’ Equity = (55,120,092)
ROE (%) = (- 60,809,753/-55,120,092)*100
=110.32%
A loss of 110.32% was generated for the negative net worth of the Bank in 2022. In other words, in 2022, for every unit of negative net worth, a loss of 110.32% was produced. This implies that the Bank’s operations were not profitable for the shareholders, whose ownership have been depleted.
For 2021
Net Profit (GH’000) = Operating profit = 1,236,861
Shareholders’ Equity = 5,171,284
ROE (%) = [1,236,861/5,171,284] *100=23.92%
A return of 23.92% was generated for the shareholder’s equity in the previous year. This is relatively better than 2022 where the return not only fell but resulted in a loss shifting the Shareholder’s equity to not only reduce but fall below zero. This means that, in 2021, for each unit of shareholder equity, there was a return of 23.92%.
The Group
For 2022
Net Profit (GH’000) = Operating loss = (60,895,560)
Shareholders’ Equity = (53,930,089)
ROE (%) = [-60,895,560/-53,930,089] *100= 112.92%
In 2022, the Group experienced a 112.92% loss generated for negative shareholders’ equity.
This means for every negative net worth, there was a loss of 112.92%.
For 2021
Net Profit (GH’000) = Operating profit = 1,220,582
Shareholders’ Equity = 6,211,534
ROE (%) = [1,220,582/6,211,534] *100=19.65%
In 2021, for each unit of shareholders’ equity, a profit of 19.65% was produced. This shows that the operations were profitable or efficient for the Group in 2021 until they worsened in the following year (2022).
- Efficiency Ratios:
Efficiency Ratio (%):
The Efficiency Ratio assesses how efficiently a bank manages its expenses relative to its revenue. A lower efficiency ratio is generally considered better.
Efficiency Ratio (%) = (Operating Expenses / Total Revenue) * 100
-
- “Operating Expenses” include all expenses related to the bank’s operations, excluding interest and taxes.
- “Total Revenue” is the total income generated from all operations.
| GH’000 | The Bank | The Bank | Group | Group |
| Efficiency Ratio % Computation | 2022 | 2021 | 2022 | 2021 |
| Operating Expenses (OE) | 66,306,732.00) | 3,758,923.00 | 6,859,412.00 | 4,097,066.00 |
| Total Revenue (TR) | 5,496,979.00 | 4,995,784.00 | 5,974,747.00 | 5,315,632.00 |
| Efficiency Ratio (OE/TR) | 12.06 | 0.75 | 11.19 | 0.77 |
Interpretation: In 2021, the Bank better managed its expenses relative to its revenue, but in the following year, the efficiency ratio worsened, increasing from 0.75 in 2021 to 12.06 in 2022. Similarly, the Group experienced a poorer management of its operating expenses in 2022 where the efficiency ratio heightened from 0.77 in 2021 to 11.19.
- Liquidity Analysis:
It is necessary to examine the liquidity position by reviewing the bank’s cash and cash equivalents, as well as short-term and long-term liabilities.
It is also important to calculate liquidity ratios like the current ratio and quick ratio.
- Liquidity Position:
To examine the liquidity position, you should review the bank’s balance sheet to identify the following key items:
- Cash and Cash Equivalents
| Cash and Cash equivalents | The Bank (2022) | The Bank (2021) | Group (2022) | Group (2021) |
| Cash (Cash and Bank, Balances with IMF) | 6,083,741.00 | 5,775,436.00 | 11,158,386.00 | 10,062,586.00 |
| Cash Equivalent (Gold Swap) | 2,424,633.00 | – | 2,424,633.00 |
- Short-Term Liabilities
| Short -term liabilities (GH’000) | The Bank (2022) | The Bank (2021) | Group (2022) | Group (2021) |
| Current Liabilities (CL) (Deposits, Swap gold payable, liabilities under money market, current income tax liabilities) | 70,071,385.00 | 36,675,961.00 | 75,794,579.00 | 40,160,321.00 |
Interpretation: There is the need for the Bank of Ghana to ensure that the bank has sufficient liquidity to meet its short-term obligations and efforts must be made to curtail short term liabilities to fall below cash and cash equivalents or be nearly at par. A robust liquidity position is crucial for a bank to ensure it can meet its short-term obligations, including customer withdrawals, operational expenses, and maturing debts, without facing financial distress.
- Liquidity Ratios:
- Current Ratio:
The Current Ratio measures the bank’s ability to meet its short-term obligations using its current assets.
Current Ratio = Current Assets / Current Liabilities
- “Current Assets” include cash, cash equivalents, accounts receivable, and other assets expected to be converted to cash within one year.
- “Current Liabilities” include obligations that are due within one year, such as accounts payable and short-term debt.
| Current Ratio Computation (GH’000) | The Bank (2022) | The Bank (2021) | Group (2022) | Group (2021) |
| Current Assets (Cash and Bank Balances, Gold Swap, Balances with IMF, Current Income Tax Assets, Gold, marketable securities) | 81,937,912.00 | 91,182,987.00 | 88,896,345.00 | 95,123,651.00 |
| Current Liabilities (Deposits, Swap gold payable, liabilities under money market, current income tax liabilities) | 70,071,385.00 | 36,675,961.00 | 75,794,579.00 | 40,160,321.00 |
| Current Ratio (CA/CL) | 1.17 | 2.49 | 1.17 | 2.37 |
A current ratio above 1 indicates that the Bank of Ghana has more current assets than current liabilities, suggesting good short-term liquidity and from 2021 to 2022, the Bank of Ghana has maintained an acceptable current ratio above 1. Liquidity indicators remained sound, with broad and core liquidity measures surpassing 1.
- Quick Ratio (Acid-Test Ratio):
The Quick Ratio is a more conservative measure of liquidity, excluding less liquid current assets like inventory (Rose & Hudgins,2015).
Quick Ratio = (Cash + Cash Equivalents + Marketable Securities) / Current Liabilities
- “Cash” refers to cash on hand.
- “Cash Equivalents” are highly liquid investments that can be swiftly converted to cash.
- “Marketable Securities” are short-term investments that are readily translatable to cash without significant loss in value.
- “Current Liabilities” include short-term obligations due within one year.
| Quick Ratio Computation | The Bank (2022) | The Bank (2021) | Group (2022) | Group (2021) |
| Cash (Cash and Bank, Balances with IMF) | 6,083,741.00 | 5,775,436.00 | 11,158,386.00 | 10,062,586.00 |
| Cash Equivalent (Gold Swap) | 2,424,633.00 | – | 2,424,633.00 | |
| Marketable Securities (Securities) | 61,160,166.00 | 70,486,858.00 | 63,034,203.00 | 70,138,928.00 |
| Cash + Cash Equivalents+ Marketable Securities (CCM) | 69,668,540.00 | 76,262,294.00 | 76,617,222.00 | 80,201,514.00 |
| Current Liabilities (CL) | 70,071,385.00 | 36,675,961.00 | 75,794,579.00 | 40,160,321.00 |
| CCM/ CL | 0.99 | 2.08 | 1.01 | 2.00 |
A quick ratio above 1 indicates that the Bank of Ghana has sufficient highly liquid assets to cover its short-term liabilities without relying on inventory or Gold. The bank experienced a better quick ratio of 2.08 in 2021 than in 2022 when the ratio dropped to 0.99. Similarly, the Group maintained a quick ratio above 1 for both 2021 and 2022. A ratio significantly below 1 or lower than industry norms may indicate a potential liquidity issue. A robust liquidity position is needful for the bank of Ghana to meet its short-term obligations, including customer withdrawals, operational expenses, and maturing debts, without facing financial distress.
- Gearing or Leverage Analysis:
It is critical to assess the bank’s leverage by examining the debt-to-equity ratio as to whether the Bank of Ghana has the ability to manage its debt and capital structure effectively.
Debt-to-Equity Ratio:
The Debt-to-Equity Ratio measures the proportion of a bank’s financing that comes from debt relative to equity.
| Gearing or Leverage Analysis (GH’000) | The Bank (2022) | The Bank (2021) | Group (2022) | Group (2021) |
| Debt to Equity Ratio Computation | ||||
| Total Debt | 173,798,412.00 | 107,222,917.00 | 179,904,192.00 | 110,847,600.00 |
| Shareholder’s Equity | (55,120,092.00) | 5,171,284.00 | (53,930,089.00) | 6,211,534.00 |
| Debt to Equity Ratio (Total Debt/Total Equity) | (3.15) | 20.73 | (3.34) | 17.85 |
Debt-to-Equity Ratio = Total Debt / Shareholders’ Equity
- “Total Debt” includes all outstanding debt obligations, including short-term and long-term debt.
- “Shareholders’ Equity” represents the ownership interest of shareholders in the bank.
A high debt-to-equity ratio indicates higher leverage and potential financial risk, while a lower ratio suggests a more conservative capital structure but the impression depicted by the bank’s 2022 debt-to-equity ratio of -3.15 shows that there is no equity to match the debts. In 2021, the bank showed that each unit of equity was matched by a debt of 20.73 which is far better than the situation of 2022. The 2022 fiscal year shows how weakened the ownership structure has become, to the extent that the Bank of Ghana saddled with debts has obtained a negative debt-to-equity ratio. In other words, the Bank of Ghana’s as a ‘ship’ has lost control making the Bank and its Group ‘sunk’ in the ocean. The Bank of Ghana did not manage its debt and capital effectively in 2022 per the ratios.
A balanced capital structure is essential for the Bank of Ghana to manage its risk effectively and maintain financial stability. Excessive leverage such as -3.15 or -3.34 as experienced by the Bank of Ghana in 2022 can increase financial risk, while a strong capital position provides a cushion against unexpected losses.
- Other Appropriate Ratios:
Depending on the specific financials provided, it is critical to consider other relevant ratios such as asset quality ratios (net interest income to assess different aspects of the bank’s performance).
Certainly, here are some additional ratios that can be used to assess different aspects of a bank’s performance, along with their respective formulas:
- Net Interest Income Margin (%):
The Net Interest Income Margin measures the spread between the interest income earned from loans and investments and the interest expenses incurred on deposits and borrowings.
NIM (%) = [(Interest Income – Interest Expenses) / Average Interest-Earning Assets] * 100
-
- “Interest Income” is the income generated from loans, securities, and other interest-earning assets.
- “Interest Expenses” are the costs associated with funding sources, such as deposits and borrowings.
- “Average Interest-Earning Assets” represents the average balance of assets that generate interest income during a specific period.
Average Interest-Earning Assets = (Opening Balance + Closing Balance) / 2
- “Opening Balance” is the value of interest-earning assets at the beginning of the period.
- “Closing Balance” is the value of interest-earning assets at the end of the period.
By taking the average of these two values, the average interest-earning assets for the period is obtained.
| GH’000 | The Bank | The Bank | Group | Group |
| Net Interest Margin (NIM) (%) | 2022 | 2021 | 2022 | 2021 |
| Interest Income | 5,094,081.00 | 3,466,318.00 | 5,283,443.00 | 3,556,192.00 |
| Interest Expense | 3,283,081.00 | 1,533,526.00 | 3,266,654.00 | 1,529,006.00 |
| Net Interest | 1,811,000.00 | 1,932,792.00 | 2,016,789.00 | 2,027,186.00 |
| Interest-Earning Asset (IEA); Securities, Loans and Advances, Investments | 85,677,820.00 | 88,778,767.00 | 87,139,300.00 | 88,490,391.00 |
| Average Interest -Earning Asset (2022 IEA+2021 IEA)/2 | 87,228,293.50 | 87,814,845.50 | ||
| NIM (%) | 2.076161217 | 2.296637873 |
Interpretation:
The average interest-earning assets represent the average amount of assets that were available to generate interest income during the specific period. This figure is useful for various financial calculations, such as calculating the net interest margin or return on assets (ROA). The Net Interest Income Margin measures the spread between the interest income earned from loans and investments and the interest expenses incurred on deposits and borrowings.
A higher net interest income margin suggests that the bank is effectively earning more from its interest-earning assets but a lower rate below 3% shows that both the Bank and the Group are not effectively earning from such assets. In fact, the bank’s 2022 NIM% fell short of the real growth GDP rate of 3.1% as well as fell lower than the headline inflation rate of 54.1% as of December 2022. Both the Bank and the Group experienced an NIM% lower than the monetary policy rate of 27% and this shows how poorly the Bank of Ghana performed in 2022 in terms of profitability. A lower NIM such as 2.30% and 2.08% can also be disadvantageous for the Bank of Ghana as it is not earning much from its interest-earning assets.Top of Form
- Loan-to-Deposit Ratio (%):
The Loan-to-Deposit Ratio indicates the proportion of a bank’s deposits that are used to fund loans.
Loan-to-Deposit Ratio (%) = (Total Loans / Total Deposits) * 100
- “Total Loans” refers to the outstanding loans in the bank’s portfolio.
- “Total Deposits” represents customer deposits held by the bank.
| Loan to Deposit Ratio (%) (GH’000) | The Bank (2022) | The Bank (2021) | Group (2022) | Group (2021) |
| Total Loans | 22,387,024.00 | 17,137,212.00 | 23,057,684.00 | 17,864,109.00 |
| Total Deposits | 57,609,340.00 | 30,670,860.00 | 63,329,113.00 | 34,155,220.00 |
| Loan to Deposit Ratio (%) | 38.86 | 55.87 | 36.41 | 52.30 |
A high loan-to-deposit ratio may suggest that the bank is heavily reliant on total deposits to fund its lending activities and this means that the Bank of Ghana performed better in 2022 than in 2021. In 2021, more than 55% of deposits were given out as loans (for the Bank) as against 38.86 of deposits given out in 2022.
These additional ratios provide insights into different aspects of a bank’s performance, including asset quality, efficiency, and the composition of its income and expenses. When analyzing the Bank of Ghana’s financial health, it’s important to consider these ratios alongside other key metrics to get a comprehensive view of its overall performance and risk profile.
- Going Concern Analysis:
To assess the going concern of the Bank of Ghana, it is important to review the notes to the financial statements for any disclosures regarding the bank’s going concern status such as below as noted by Deloitte and Touché in the 2022 Bank of Ghana Annual Report:
In preparing the consolidated and separate financial statements, the Directors are responsible for assessing the Group’s and the Bank’s ability to continue as a going concern, and disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless the Directors either intend to liquidate the Group and/or the Bank or to cease operations or have no realistic alternative but to do so.
- There is a need to consider any significant events or uncertainties that might affect the bank’s ability to continue its operations.
The external auditors also noted that the auditor’s responsibilities include concluding on the appropriateness of the Directors’ use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and/ or the Bank to cease to continue as a going concern;
Assessing the bank’s going concern status and considering significant events or uncertainties that could affect its ability to continue operations involves a qualitative analysis of the information provided in the notes to the financial statements and other relevant disclosures. There are no specific mathematical formulas for this analysis; it requires careful evaluation of the disclosed information. Here’s how I approached it:
- Reviewing the Notes to the Financial Statements:
- Going Concern Disclosures:
It is necessary to identify any disclosures related to the bank’s going concern status. Banks are required to disclose any significant doubts about their ability to continue as a going concern such as what the Bank of Ghana stated in the 2022 BOG Annual Report below:
Bank of Ghana and its subsidiaries recorded a negative net worth of GH¢54.52 billion at the end of 31 December 2022. This was largely due to the impairment of government securities holdings which was occasioned by the Government of Ghana Domestic Debt Exchange Programme (DDEP), impairment of loans and advances granted to quasi-government and financial institutions, and depreciation of the local currency resulting in exchange losses. The Board and Management of the Bank have assessed the policy solvency implications arising out of the negative net worth position and its ability to continue to generate enough income to cover its monetary policy operations and other operational costs. In their view, the Bank will continue to operate on an ongoing basis due to a variety of factors underpinned by expectations of an improved macroeconomic situation and policy actions specifically targeted at improving the balance sheet of the Bank of Ghana. Based on the above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, the Group continues to adopt the going concern basis of accounting in preparing the annual consolidated and separate financial statements.
- Significant Events or Uncertainties:
- External Factors:
It is critical to assess external events and uncertainties that impact the bank’s operations. This includes economic downturns or adverse developments in the banking industry. According to the Bank of Ghana 2022 Annual Report, the external factors that affected the bank were as follows:
In 2022, the global economy was confronted with significant challenges due to the Russia-Ukraine war, persistent and broadening inflation pressures, volatile commodity prices, the economic slowdown in China, a series of negative supply shocks, and tight financial conditions. At the beginning of the year, expectations were that the COVID-19 pandemic-induced pent-up demand would be released to boost growth, but the onset of the Russia-Ukraine war introduced new uncertainties, aggravating the existing pandemic-related supply bottlenecks and challenging the recovery efforts.
High inflation, amid tightening global financing conditions, led to a decline in the real incomes of households, cost-of-living crisis, and weighed on growth. In response to the heightened inflationary pressures, most central banks raised their monetary policy rates aggressively. The decisive policy actions resulted in the tightening of global financing conditions, with negative spillovers on capital flows to Emerging Markets and Developing Economies. On the domestic front, economic growth slowed down to 3.1 per cent in 2022, from 5.1 per cent in 2021, on the back of weakened aggregate demand and supply shocks arising from the lingering effects of the pandemic and geopolitical tensions. Sovereign credit downgrades by rating agencies over fiscal policy implementation and debt sustainability concerns led to loss of access to the international capital market which, together with low domestic revenue mobilization, negatively impacted government’s ability to finance the budget. This prompted the Bank of Ghana to intervene to close the widened financing gap to avert domestic debt default and a full-blown economic crisis. Despite a healthy trade surplus, the balance of payments recorded a deficit of US$3.64 billion on account of significant net outflows in the capital and financial account. This led to a drawdown of US$3.46 billion in Gross International Reserves from US$9.70 billion at end-December 2021, to US$6.24 billion at end-December 2022, providing 2.7 months of import cover.
- Internal Factors:
Internal factors that affected the Bank of Ghana’s ability to continue operating were as follows:
According to the Bank of Ghana 2022 Annual Report, the negative equity position was not the result of sub-optimal policy decisions but emanated from the restructuring of government debt and adverse market movements. The Bank of Ghana incurred a significant loss in 2022 largely as a result of the DDEP. The central bank’s holdings of government debt were restructured. Non-marketable holdings of Government of Ghana instruments including long-term stocks, a Covid-19 Bond and overdraft were subjected to a 50 per cent haircut. Bank of Ghana’s other claims (holdings of marketable instruments) were exchanged under similar terms as other financial institutions under the DDEP. This led to an impairment of GH¢48.40 billion in 2022. At the same time, the Bank incurred revaluation losses on its foreign assets and liabilities due to exchange rate depreciation. The impairments and revaluation losses led to a negative equity position of GH¢55.12 billion for 2022.
Overall, total assets of the banking industry grew by 22.9 per cent to GH¢220.90 billion, mainly funded by growth in deposits. Asset quality improved marginally to 15.1 per cent in 2022, reflecting a strong pickup in credit growth, which outpaced the growth in the non-performing loan stock. Liquidity indicators remained sound, with broad and core liquidity measures surpassing historical averages. The industry’s Capital Adequacy Ratio stood at 16.6 per cent at end-December 2022. The Bank also strengthened regulation and supervision of banks and enhanced its Online Regulatory Analytic Surveillance System.
- Mitigation Measures:
There is the need to evaluate whether the bank has disclosed any measures it plans to take to address these uncertainties or events. For example, per the 2022 Annual Report for the Bank of Ghana, the following measures are in place:
The negative equity position was not the result of sub-optimal policy decisions but emanated from the restructuring of government debt and adverse market movements. This negative equity does not imply loss of policy effectiveness, and is expected to correct as the economy recovers and foreign reserves build up. Central bank financial independence is key to its effectiveness. The Bank of Ghana will therefore put in place policy measures to restore the equity of the Bank, including:
- Retention of profits to rebuild capital;
- Optimization of the Bank’s investment portfolio and operating cost mix to bolster efficiency; and
- An assessment of the potential need for recapitalization support by the government in the medium term.
The broad expectation is for steadfast implementation of these policy measures to restore the Bank’s equity to positive territories by the end of 2027.
To improve internal operational efficiency, the Bank continued to strengthen staff capacity, information security, risk management, currency management, communication outreach, and economic literacy programmes in the review year. In addition, the Bank undertook various programmes and activities to create a high sense of ethical culture among staff. The Bank continued to strengthen relations with regional, sub-regional and international financial institutions. It also participated in meetings and facilitated missions of multilateral institutions.
- Director’s Assessment:
The bank’s management or directors regarding their assessment of the going concern status is necessary. Management’s views on the bank’s ability to continue operations can provide valuable insights. In their view, the Bank will continue to operate on a going basis due to a variety of factors underpinned by expectations of an improved macroeconomic situation and policy actions specifically targeted at improving the balance sheet of the Bank of Ghana. Based on the above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, the Group continues to adopt the going concern basis of accounting in preparing the annual consolidated and separate financial statements.
- Auditor’s Opinion:
It is important to review the auditor’s opinion on the financial statements. The auditor’s comments or qualifications regarding the bank’s ability to continue as a going concern, cannot be overlooked. The Independent Auditor, Deloitte & Touché provided an unqualified report as follows: In our opinion, the consolidated and separate financial statements give a true and fair view of the consolidated and separate financial position of Bank of Ghana and its subsidiaries as at 31 December 2022, its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards, the requirements of the Bank of Ghana Act, 2002 (Act 612) (as amended by the Bank of Ghana (Amendment) Act, 2016 (Act 918)) and the Public Financial Management Act, 2016 (Act 921).
The opinion of the external auditors, stating that the report gives a true and fair view, provides confidence or assurance that the report is free from bias or any misrepresentation. In addition, the author employed the M-score to detect objectively if there was any financial information manipulation, and the results according to the Beneish M-Score were less than -2.22. In other words, the Bank of Ghana is not likely to have manipulated its earnings. It is, however, recommended that BOG should ensure the implementation of its mitigation measures to restore the Bank’s equity to positive territories by the end of or before 2027.
The writer is a Chartered Accountant (a member of ICAG) and a management expert. He has trained more than 7000 finance professionals across Africa and facilitated a number of finance, audit and forensic conferences. Email: [email protected]
