Even though recent indicators of the banking sector points to a strong and resilient rebound in the sector despite the damages caused by the current pandemic on its operations, the sector’s profitability has declined year-on-year by 14.8% in the third quarter of 2020.
The annual growth in profit-after-tax went down from 36.3 percent in August 2019 to 21.5 percent in August 2020. This represents a dip in the sector’s profitability by 14.8 percent over one year.
The lower profit growth out-turn in Q3 2020 compared to Q3 2019 was attributed to the slowdown in revenue growth during the period.
The report however shows that the sector’s profitability has begun to pick up since July this year.
In the recent Monetary Policy Report on Banking Sector Developments, the Bank of Ghana stated that the drag on profit growth from higher operating costs and loan loss provisions observed in the first quarter’s performance has somewhat softened into the third quarter.
According to the report, the annual growth in profit-after-tax however went up from 15.5 percent in June 2020 to 21.5 percent in August 2020, representing an improvement in the sector’s profitability by 6 percent between June and August 2020.
The Bank of Ghana said, “the pick-up in growth nonetheless shows that the industry is sufficiently profitable”.
Growth in net interest income also slowed to 18.7 percent in August 2020 from 26.3 percent a year earlier. This, the central bank said, wasdue to a moderation in the growth of interest income and a pick-up in growth of interest expense during the review period.
The Bank of Ghana also noted that growth in interest income moderated from 18.9 percent in August 2019 to 14.9 percent in August 2020 while interest expense growth inched up from 6.8 percent to 7.8 percent during the same comparative period.
Increased term deposits and relatively more expensive borrowings were cited by the central bank as factors responsible for the increase in interest expense in August 2020.
The Bank of Ghana further states in the recent report that despite the contraction in borrowings, interest expense on borrowings was higher during the year to August 2020 compared with the previous year.
“Like the trend in net interest income, growth in net fees and commissions and other income sources for banks also slowed, culminating in a decline in growth of gross income from 18.3 percent to 14.4 percent during the review period”.
The report also shows that growth in operating expenses moderated from 13.4 percent during the first eight months of 2019 to 12.1 percent for the same period in 2020. The Bank of Ghana pointed out that the slower growth in operating expenses reflected a similar slowdown in the growth of staff costs, which normalized to 8.3 percent in August 2020.
The central bank added that banks’ other operating expenses, generally related to administrative costs, on the other hand, increased by 16.7 percent compared to a contraction of 6.0 percent a year earlier.
According to the Bank of Ghana, part of the increase in other operating expenses was the cost associated with keeping the safety protocols and containment measures of COVID-19 as well as activation of Business Continuity Plans (BCPs) during the year.
“It is worth noting that while the pandemic has increased the industry’s cost of operations, banks have not passed on these costs to consumers through higher interest margins”.
