The Bank of Ghana’s latest Monetary Policy report has shown that the banking industry’s total assets, total investments, and total deposits have all increased significantly.
According to the report, the banking industry’s outlook is very positive, but profitability has decreased slightly as at November 2021.
“Regarding the financial sector, the banking industry recorded sustained growth in total assets, investments and deposits. Profitability in the industry declined slightly and key financial soundness indicators such as liquidity and solvency, remain healthy. The outlook remains positive, although sluggish credit growth remains a risk to real sector recovery”.
The outcomes of the most recent stress test by Bank of Ghana indicated that the banking sector is resilient to mild and moderate stress. However, the potential effects of a long-term pandemic on the banking sector, particularly on asset quality, must be closely monitored in order to inform policy.
The Policy Committee decided that the macroprudential policy measures and regulatory reliefs put in place at the start of the pandemic should be kept in place to help the economy recover more quickly.
Banking Industry is sound
Furthermore, the banking industry is in good shape and is expected to continue to recover from the Covid-19’s ramifications.
“The banking sector remains sound, and well-capitalized with strong growth in total assets, investments and deposits. In the first ten months of the year, total assets increased by 16.1 percent to GH¢173.8 billion, reflecting strong growth in investments in government securities by 25.5 percent to GH¢83.4 billion. The gradual growth in gross advances has continued, with 8.9 percent growth as at end October 2021 compared to the end-June position of 5.2 percent growth. Deposits grew by 17.2 percent year-on-year to GH¢117.4 billion on the back of strong liquidity flows.”
The report also indicated that the bank of Ghana’s Covid-19 policies and reliefs have helped to shield the country’s banking sector from economic and financial shocks.
“The Covid-related policy measures and regulatory reliefs remain in place and have provided enough support to enable the banks withstand shocks. Trends in the private sector indicate some modest recovery in credit extension, although the year-on-year comparison suggests sluggishness, which broadly reflects the lingering pandemic related risk aversion on the part of credit institutions.”
Decrement in Private sector Credit
Private sector credit fell somewhat in October 2021 when compared to the same period a year ago, Moreover, banks’ average lending rates fell in October 2021 compared to October 2020, reflecting changes in the interbank market.
“Annual nominal growth in private sector credit slowed to 10.1 percent in October 2021 compared with 13.4 percent a year ago. In real terms, private sector credit contracted marginally by 0.8 percent compared with a 3.0 percent growth, recorded over the same review period. New loans and advances for the year thus far by banks, totalled GH¢28.4 billion in the year to October 2021, marginally above the GH¢27.1 billion for the same period in 2020.”
Moreover, the weighted average rate on the interbank market fell to 12.7 percent from 13.6 percent, owing to improved liquidity conditions, which were passed on to lending rates.” Bank lending rates averaged 20.3 percent in October 2021, down from 21.3 percent in October 2020, in line with interbank market developments.
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