Banks Post GHS 2.8bn Profit in First 4 Months Of 2023; Up from GHS 6.6bn Losses In 2022

In a year marked by formidable challenges, Ghanaian banks faced a tumultuous period in 2022, as they collectively recorded significant losses amounting to ¢6.6 billion, according to a statement released by the esteemed Monetary Policy Committee (MPC) of the Bank of Ghana.

This stark contrast to the previous year’s profit of ¢4.8 billion underscores the uphill battle the banking sector encountered amidst a challenging operating environment.

The audited financial statements of banks for the year unveiled the full impact of the Domestic Debt Exchange Programme (DDEP) and the prevailing economic conditions that shaped their performance.

The Bank of Ghana’s report highlights that most banks grappled with substantial losses primarily due to mark-to-market valuation losses on their holdings of Government of Ghana bonds following the implementation of the DDEP.

As the program aimed to restructure the nation’s debt, banks faced the brunt of the adjustment, leading to significant financial repercussions. Moreover, higher impairments on loans and rising operating costs further contributed to the losses incurred by the banks, exacerbating their financial struggles.

Consequently, key profitability indicators, including return-on-assets and return-on-equity, turned negative in 2022, reflecting the industry’s overall loss position and the magnitude of the challenges faced.

Despite these setbacks, the audited financial statements also shed light on impairments in capital levels, though it is important to note that most banks managed to maintain Capital Adequacy Ratios (CAR) above the regulatory minimum of 10% by the end of December 2022.

This encouraging resilience was primarily attributed to the temporary regulatory reliefs provided to cushion the banks against the impact of the DDEP. Similar to the measures adopted during the onset of the pandemic, these reliefs aimed to ensure the stability and continuity of banking operations amidst the economic turbulence.

However, amidst these trying times, Ghanaian banks have showcased remarkable resilience and embarked on a swift recovery in the first four months of 2023.

The collective profit of ¢2.8 billion during this period represents an impressive year-on-year growth of 45.8%, underscoring the banks’ ability to navigate through challenges and adapt to the evolving landscape. This resurgence in profitability is a testament to the sector’s resilience and adaptability.

Furthermore, the industry’s return-on-assets exhibited positive momentum, increasing from 4.7% to 5.5%, while return-on-equity surged from 22.3% to 36.3% during the same period. These improved performance indicators signify a potential turning point for Ghanaian banks, indicating a positive trajectory for future growth and stability.

Despite the strides made in profitability, it is essential to evaluate the banking industry’s financial soundness holistically. Adjusted for the regulatory reliefs, the industry’s Capital Adequacy Ratio stood at 14.8% in April 2023, surpassing the revised prudential minimum of 10%.

However, this figure remains lower than the 21.3% recorded in April 2022, signaling a degree of decline in the ratio. The Central Bank attributes this decline to the increase in risk-weighted assets resulting from exchange rate fluctuations and losses incurred on mark-to-market investments. As the banking sector aims to strike a delicate balance between growth and stability, carefully monitoring and managing these risk factors will be paramount.

On the downside, the banking industry’s Non-Performing Loans (NPL) ratio witnessed a deterioration, reaching 18.0% in April 2023, compared to 14.3% during the same period last year. This deterioration underscores the heightened credit risks and higher loan impairments faced by banks, presenting a challenge that must be addressed to ensure sustainable growth and financial stability.

In a positive development, the Bank of Ghana emphasizes that the industry’s liquidity indicators have exhibited improvement following the implementation of the revised Cash Reserve Requirement. As the banking sector adjusts to evolving regulatory measures, maintaining a robust liquidity position will be crucial to fortifying the resilience of Ghanaian banks and ensuring their ability to support the nation’s economic growth.

While the road to recovery may present further hurdles, the Ghanaian banking sector has shown commendable resilience and adaptability in the face of adversity. As the industry rebounds from losses and charts a path towards sustained profitability, continued vigilance and prudent risk management will be vital to bolstering the sector’s stability, fostering investor confidence, and driving economic growth in Ghana.