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Higher Operational Costs Affect Banks Profitability

July 28, 2020
thevaultzby thevaultz
in Economics, Sub Top Stories, Sub Top Stories1, Top Stories
0
BoG To Support Gov’t Budget With GHc10 Billion

Dr. Ernest Addison, Governor of BoG

Banks in the country saw a decline in their profit margins for the first half of the year due to higher operational costs.

The higher operational costs was as a result of measures being put in place to limit the impact of the COVID-19 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.

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This was disclosed by the Bank of Ghana (BoG) in its Monetary Policy Committee press release.

“Although the financial soundness indicators remain strong, the banking 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,” the release indicated.

The central bank, however, assured the public 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.

“On the domestic scene, there has been some pressures on headline inflation. After remaining flat at 7.8 percent in the first quarter, inflation jumped to 11.2 percent in the second quarter. This sharp increase was driven in large part by food prices, which spiked in response to the panic-buying episode preceding the partial lockdown that was announced at the end of March 2020. Food prices continued to increase from 8.4 percent at the end of the first quarter to 13.9 percent at the end of the second quarter. Non-Food inflation also rose from 7.4 percent to 9.2 percent, but this has been at a much slower pace than food prices.”

According to the survey, the inactiveness of some sectors as a result of the pandemic, affected the banking sector on a larger scale.

“Industrial consumption of electricity fell as manufacturing companies worked below capacity, while tourist arrivals have virtually remained at a standstill due to the border closure and travel restrictions. Imports, domestic VAT, and exports have all been impacted negatively.”

The release by MPC also cited data from the Ghana Statistical Service which disclosed that both the GDP of the first quarter of the year and non-oil growth stood at 4.9 per cent.

“Latest data from the Ghana Statistical Service point to a moderation in the pace of economic growth. The latest real GDP outturn showed that the first quarter grew by 4.9 percent in 2020 compared with 6.7 percent in the same period of last year. Non-oil growth also slowed to 4.9 percent from 6.0 percent in the same comparative period.”

Meanwhile, little gains from some sectors such as agriculture, manufacturing and others, as well as modest consumer confidence contributed to the robust performance of the banking industry and sustained it during the pandemic.

“However, port activity, DMB’s credit to the private sector, and SSNIT contributions are beginning to record some modest gains—a sign of some early green shoots. The business and consumer confidence surveys conducted in June 2020 showed some modest improvement in sentiments, although the level of the indices remained far below pre-pandemic levels. Low consumer demand and effects of border closure on businesses were cited as the key concerns for businesses.”

Notwithstanding, the BoG emphasized that the measures put in place are to ensure business continuity and higher loan-loss provisions due to repayment challenges by clients who have been severely affected by COVID-19.

Tags: BoGCOVID-19MPCVAT
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