Dr. Ernest Addison, the governor of the Bank of Ghana (BoG), has advised banks operating in the country to submit capital restoration plans for a progressive recapitalisation over a three-year period.

Dr. Ernest Addison explained that the aim of the capital restoration is to rebuild banks’ capital buffers, enhance resilience, and position the sector to support the country’s growth agenda. The BoG Governor’s advice follows a turnaround in banks’ profits and planned equity capital injections.

The governor, while Addressing the banking sector’s performance, noted that the 2022 audited financial statements of banks reflected the challenging operating environment of that year. He stated that most banks reported significant mark-to-market valuation losses on their holdings of government bonds, along with higher impairments on loans and rising operating costs.

In 2022, the industry collectively posted losses of GH¢8.0 billion, compared to a profit of GH¢7.4 billion in 2021. Key profitability indicators such as return-on-assets and return-on-equity turned negative due to these losses.

However, Dr. Addison shared some positive news, stating that the banking sector’s data for the first half of 2023 showed improved performance, despite declines in some key financial soundness indicators. This improvement came after industry stakeholders reached a consensus on how to address the losses and with the timely introduction of temporary prudential and regulatory reliefs by the Bank of Ghana.

Prudential data revealed that banks had rebalanced their portfolios from medium- and long-term investments to short-term investments, with gradual increases in new loans. As of June 2023, the total assets of the banking industry amounted to GH¢242.4 billion, indicating a 21.2 percent annual growth compared to 22.8 percent growth in June 2022.

Growth In Asset Driven By Investments

The governor further explained that the growth in asset was primarily driven by investments, particularly in short-term investments, while medium to long-term investments declined.

Despite increased income levels, the banking sector saw rising costs, reflecting the challenges of the operating environment. However, the increase in costs did not outweigh earnings, resulting in a strong profit-before-tax for the first half of the year.

Profits showed a remarkable 51.2 percent increase in June 2023 compared to the same period in the previous year. Similarly, the industry’s net income or profit-after-tax increased to GH¢4.3 billion from GH¢2.8 billion, representing a 51.4 percent increase in June 2023.

Overall, Dr. Addison indicated that the banking sector’s performance has improved in the first half of 2023. He further noted that for the remainder of the year, the banking sector is expected to remain broadly stable, supported by regulatory reliefs and sustained growth in profitability.

Meanwhile, the implementation of the DDEP has taken a heavy toll on banks, some of which are beginning to show signs of distress as captured in their unpublished financials for last year.

There are fears that the impact of the financial sector clean-up which forced the collapse of many local banks in the country a couple of years ago may recur in view of the negative impact of the DDEP.

The Bank of Ghana, in its latest Monetary Policy Committee (MPC) meeting, reported that developments in the banking sector broadly reflected the challenging operating environment in 2022 on account of macroeconomic conditions, and the recent implementation of the DDEP which all 23 universal banks participated in.

However, the central bank noted that the impact of the DDEP, as currently assessed, was moderated by the timely introduction of regulatory reliefs by the Bank of Ghana to support the banking sector, similar to the reliefs provided to banks at the onset of the COVID-19 pandemic.