The Bank of Ghana (BoG) has disclosed that the banking industry is well-positioned to withstand moderate liquidity and credit shocks due to the existence of strong capital buffers despite COVID-19.
BoG in its recent Monetary Policy Committee (MPC) press release indicated that the performance of the sector is robust as some notable weaknesses have improved in the second quarter of the year.
“Banking sector data as at June 2020 continue to show robust performance despite the emerging risks posed by the pandemic on the sector’s operations. Weaknesses in key financial performance indicators observed in the first quarter of 2020 seem to have improved somewhat in the second quarter in response to the various policy measures announced by the Bank of Ghana in March and May 2020.”
According to the release, the banking industry has increased its total asset by 23.2 per cent which can be credited with some factors including the BoG supporting government in dealing with the impact of the virus.
“Total asset base of the banking industry continues to remain strong, expanding by 23.2 percent in year-on-year terms to GH¢139 billion at end-June 2020. The data shows that recoveries from loans, a significant increase in deposits growth, and borrowing from parent companies have funded banks investments, while these factors, in addition to regulatory reliefs provided earlier in the year by the Bank of Ghana have supported lending to the rest of the economy.”
It noted that the increase in assets by the industry shows that the sector is on the path to recovery. This conclusion was based on the premise that businesses are responding well to policies implemented.
“There are indications of a gradual rebound in credit growth in response to the previously announced policy measures aimed at supporting credit extension and loan restructuring in response to the pandemic’s impact on local businesses.”
However, the press release revealed that the industry just like other sectors, has been affected by the pandemic especially in profit gains.
“Although the financial soundness indicators remain strong, the industry’s profitability performance has been adversely impacted by higher operational costs due to measures being put in place to limit the impact of the pandemic on bank’s operations. These measures are to ensure business continuity and higher loan-loss provisions due to repayment challenges by clients who have been severely affected by COVID-19.”
It further listed some sectors that have been affected by the pandemic which indirectly affected the banking sector.
“Sectors mostly affected by the pandemic and consequently loan repayments to the banks and SDIs include the services, commerce & finance, and manufacturing. These conditions have heightened the risk of loan default in the banking sector and is pushing non-performing loans up.”
