Ghanaian banks aren’t recovering from the fallout of the coronavirus pandemic quite well as the economy is.
Lenders are still way off profit levels reached before restrictions were introduced to curb the spread of Covid-19, according to data compiled by the regulator for this year through October.
The Governor of the Bank of Ghana, Dr. Ernest Addison on November 30, 2020, stated that West Africa’s 2nd largest economy is rebounding faster than expected. With the positive signs of a rebound, the central bank is predicting 2% to 2.5% growth this year, compared with earlier estimates of 0.9%.
The Bank of Ghana stated in its 97th Monetary Policy Committee (MPC) report that contrary to initial growth spurts recorded in June 2020, high-frequency economic indicators monitored by the Bank of Ghana gained some traction due to supportive fiscal and monetary policies and the easing of COVID restrictions.
After contracting in March, April, and May, the real Composite Index of Economic Activity (CIEA) recorded an annual growth of 10.5 percent in September 2020, compared with 4.2 percent growth a year ago.
The key drivers of economic activity during the period were construction activities, manufacturing, and credit to the private sector. Also, the Purchasing Managers Index (PMI) which gauges the rate of inventory accumulation by managers of the private sector and also captures dynamics in economic activity has increased significantly in September.
However, the renewed optimism in the economy is yet to filter to banks. Figure 1 shows that the profitability of Ghanaian banks is still well below levels before the first cases were recorded in March 2020.
Figure 1 Bank profitability
Source: Bank of Ghana
Bloomberg has stated that the acceleration in return on equity, a measure of profitability, is being held back because banks haven’t been able to boost lending, their main source of income, quick enough. Annual credit expansion slowed to 13.7% in October, the lowest since January 2019.
Similarly, as depicted in figure 2, Ghana banks’ loan growth has fallen below pre-COVID levels. Banks loan growth in October was the lowest in 21 Months.
Figure 2 Annual Growth in Loans
Source: Bank of Ghana
Bloomberg quoted the chief financial officer at Ecobank Ghana Ltd. Edward Botchway to have said earlier this month that “banks are cautious with new loans because activity in industries such as trade, aviation, and hospitality are still lagging”.
Non-Performing Loans (NPLs)
NPLs are slowly ticking lower as growth in Ghana’s economy picks up. While heading in the right direction, non-performing loans have also not yet declined to near the levels they were before the virus struck.
Figure 3 Non-Performing Loans
Source: Bank of Ghana
Rising Costs
Figure 4 Operational costs remained above pre-virus levels
Source: Bank of Ghana
Additional spending to enable banks to do things differently than they would under normal circumstances is keeping operational costs slightly above March’s levels.
“Those expenses include new platforms and computer systems to enable staff to work remotely and customers being able to access banking services. Lenders also needed to make arrangements to keep to safety protocols such as physical distancing”, FBN Bank Ghana Ltd. Managing Director Victor Yaw Asante said in an interview.
Despite the above indicators showing that Banks are yet to return to pre-COVID levels, the Bank of Ghana said,
“The banking sector remains liquid, profitable, and well-capitalized with strong buffers to withstand adverse shocks and support the country’s recovery efforts from the pandemic. Asset quality has also improved. The Financial Soundness Indicators and the Banking Sector Stability Index remain in high positive territories.
“The industry’s Capital Adequacy Ratio (CAR) of 20.0 percent as at end October 2020 remains well above the regulatory minimum threshold”.
The latest banking sector data as of October 2020 indicate that total assets grew by 23.7 percent year-on-year to GH¢150.0 billion while deposits also recorded an annual growth of 27.0 percent to GH¢100.2 billion. Total advances also went up by 13.7 percent year-on-year to GH¢47.4 billion over the period.
