Ghana banks return to profitability in H1’23 scorecard

Isaac AIDOO in Accra, Ghana 

BANKS in Ghana have posted GH¢4.3 billion profit-after-tax for the first half of 2023 representing a 51.4 percent increase over the GH¢2.8 billion recorded in the same period in 2022.

A summary of economic activities released by the Bank of Ghana (BoG) showed strong profitability during the first half of the year.

This translated into a higher return-on-equity of 37.6 percent from 21.9 percent in June 2022 and a higher return-on-assets of 5.5 percent compared to 4.6 percent in June 2022.

Ernest Addison, governor, Bank of Ghana

According to the data, net interest income increased by 41.4 percent to GH¢9.9 billion, relative to the increase of 12.4 percent recorded a year ago.

Similarly, net fees and commissions also grew by 30.6 percent to GH¢2.2 billion, compared with 27 percent over the same period last year.

As a result, operating income rose sharply by 46.1 percent, higher than the 22.6 percent recorded in 2022.

But the industry’s cost of operations increased, with operating expenses increasing by 44.9 percent during the first half, compared with 22.9 percent growth for the same period in 2022.

The net effect of these developments was a 51.2 percent increase in profit-before-tax in June 2023, compared with 20.8 percent growth in June 2022.

Average lending rate fell to 31.5 percent in June 2023, from a high of 35.8 percent in January 2023.

This is equivalent to an average of 2.625 percent per month on loans charged by the banks.

According to the data from BoG, the average lending rate began easing in April 2023, as it dropped to 31.6 percent.

This is surprising because inflation remains high at 42.3 percent.

In January 2023, average lending rates stood at 35.85 percent. It went up to 36.64 percent in February 2023, but fell to 35.87 percent in March 2023.

It fell again sharply to 31.66 percent in April 2023 and 30.94 percent in May 2023, but rose slightly to 31.5 percent in June 2023.

The dip in lending rates may be due to the fact that the banks are diversifying their assets, following the impact of the Domestic Debt Exchange Programme, with a focus on lending which is their core business.

The Monetary Policy Committee of the BoG is set to announce developments in the economy with a key decision on the Policy Rate on July 24, 2023.

Already, some analysts are anticipating a steady policy rate for the next two and half months.

Ghana’s Central Bank in May 2023 maintained its key interest rate at 29.5 percent as inflation continues to decline, citing tight monetary policy and stable currency as contributing factors.

Average lending rates vary among banks

The average lending rates, however, vary among the banks and the respective sectors they lend to.

Some banks offer loans equivalent to the Ghana Reference Rate of 26.89 percent as of June 2023, whilst others will charge rates as high as 38 percent. This however depends on the risk profile of the customers.

Some banks also perceive lending to the agriculture and construction sectors as riskier, and therefore credit to these sectors are expensive.

Key financial soundness indicators broadly stable

The key financial soundness indicators remained broadly sound, supported by the temporary regulatory reliefs extended to the banks in the wake of the DDEP.

The industry’s Capital Adequacy Ratio (CAR) for June 2023, stood at 14.3 percent.

This is higher than the revised prudential minimum of 10 percent, but lower than the CAR of 19.4 percent recorded in June 2022.

The decline in the CAR is explained by the losses on mark-to-market investments from the Domestic Debt Exchange Programme (DDEP) as well as the increase in the risk-weighted assets of banks.

The industry’s non performing loans (NPL) ratio deteriorated to 18.7 percent in June 2023 from 14.1 percent in June 2022, reflecting higher loan impairments and elevated credit risks.

The industry’s liquidity indicators, on the other hand, improved during the period under review.

Investments grow by 149.6%

Investments made by Ghana’s banking industry within a year increased sharply with short-term investments growing by 149.6 percent to GH¢39.9 billion in June 2023, from GH¢15.9 billion in June 2022.

Total investments by banks rose to GH¢89.9 billion in June 2023 from GH¢1 billion in June 2022.

Ernest Addison, governor of the BOG, says  the growth in bank investments was supported by significant growth in deposits.

He discloses however that medium-to-long term investments declined to GH¢50.1 billion from GH¢65 billion, as a result of portfolio rebalancing following DDEP.

Gold purchase programme rakes in $1bn in 6 months

The BoG governor further revealed that from the beginning of the year to June 2023, the Bank had built up $1 billion in reserves, mainly coming from its gold purchase programme, and settlement of short-term liabilities.

“Since inception of the programme, a total of 7.73 tonnes of monetary gold, valued at approximately $480 million, has been added to reserves under the Gold for Reserves programme, well ahead of the target of doubling the gold holdings in five years,” he stated.

Gross International Reserves (excluding encumbered assets and petroleum funds) improved to $2,353.95 million equivalent to 1.1 months of import cover, compared with $1,440.0 million (0.6 months of import cover) recorded at the end of December 2022.

Cedi relatively stable

The foreign exchange market remained relatively stable for the first six months of 2023, supported by positive market sentiments derived from the IMF disbursement of the ECF first tranche of $600 million, forex purchases from the mining and oil sectors, and weakened demand.

The Ghana cedi depreciated by 20.6 percent against the US dollar in January 2023 and has remained generally stable since then with a cumulative depreciation of 1.8 percent between February and June 2023

BoG Policy Rate now 30%

The benchmark interest rate, (policy rate) of the Bank of Ghana has been hiked up to 30 percent from the initial 29.5 percent.

The increment, BoG maintains, is targeted at stemming the rising inflation.

BoG governor Addison says Ghana’s macroeconomic framework requires decisive tightening from both the fiscal and monetary side to anchor inflation expectations firmly on a declining path.

This is because the risks to the inflation profile are judged to be elevated, driven by second round effects of food prices.

Inflation persistently hovered around 42 percent throughout the second quarter of 2023 even though the central bank financing has been eliminated in the first six months of the year.

“Underlying measures of inflation have all ticked up in May 2023. While core inflation ticked up, businesses expectations of inflation remain flat at an elevated level.

“Although inflation is expected to decline in the near-term, baseline forecasts show a slightly higher elevated profile in the year ahead, which, if not contained, could embed in underlying inflationary pressures,” he explained.

The BoG governor said it is important that policy responds appropriately and decisively to prevent these risks from becoming embedded and consequently derail the disinflation process.