Total assets of the banking sector have experienced a sluggish growth in the first half of the year despite gradual economic recovery underway.

According to the banking sector report from Bank of Ghana (BoG), total assets of the banking industry has grown by 17.2 percent to GH¢162.9 billion year-on-year as at end-June 2021. This is lower than the 23.2 percent year-on-year growth recorded the same period last year.

The report stated that the unhurried growth was due to the persistent impact of the COVID-19 pandemic on the economy.

Banks’ balance sheet

Per the banking sector report, growth in domestic assets stood at 18.0 percent, higher than foreign assets which grew by 6.7 percent. Consequently, the portion of domestic assets in total assets also rose from 92.8 percent in June 2020 to 93.4 percent same period this year.

Aside domestic assets being greater than foreign assets, investment in bills and securities persisted as the largest constituents of total assets in June 2021. The share of investments in total assets expanded from 42.3 percent in June 2020 to 46.5 percent this year 2021, representing a 28.8 percent year-on-year growth. This also reflects a 4.2 percentage points expansion in investments.

Bank of Ghana further revealed that, the continued growth of investments portion in total assets was mainly driven by the heightened credit risks associated with the pandemic. This, according to BoG, has caused banks to redirect their portfolio into less riskier assets.

Compared to June 2020 which recorded a growth of 16.3 percent, gross loans and advances provided by the banks experienced a lower annual growth of 5.7 percent at Ghc47.5 billion this year. Correspondingly, net loans and advances also recorded a year-on-year growth of 5.5 percent in June 2021, lesser than 14.7 percent growth in the previous year 2020. The reduction in growth of both gross and net loans and advances indeed, justifies the decrease in credit demand and supply of the banks.

In fact, the banking industry finds it more comfortable to invest in government securities. Recent data from the Bank of Ghana clearly indicates that the banking sector holds 50 percent of government instruments.

Deposits remains the driver of total assets funding. Likened to a growth of 19.1 percent in June 2020, total deposits experienced a healthy expansion of 22.5 percent to GHc110.3 billion same period this year 2021. Consistent with the BoG report, growth in total deposits was as a result of liquidity flows within the domestic economy from the COVID-19 fiscal stimulus, payments to contractors, SDI depositors, and clients of SEC-licensed fund managers. Heightened individual and firm’s savings due to the pandemic reduced the pace of consumer and investment spending in some sectors. This added to the factors that contributed to total deposit growth.

Meanwhile, total borrowings increased by 5.0 percent in June 2021, relative to a 10.9 percent growth in the previous year. This was as a result of increased deposits joined with higher loan repayments.

Additionally, liquidity release following reduction in banks reserve ratio at a period where credit growth is also low, clarifies why the banking sector borrowings decreased this year as compared to June 2020.

The shareholders’ funds position supported the stability and resilience of the banking sector. According to BoG, the industry’s shareholders’ funds persisted strongly, signifying sufficient capital buffers. Even though the growth of shareholders’ fund was 23.2 percent higher in end-June 2020, it grew by 15.6 percent this year 2021. Increase in banks’ profits supported reserves, and contributed to the growth in shareholders fund to GHc22.8 billion as at end-June 2021.