The Governor of Bank of Ghana (BoG), Dr. Ernest Addison has disclosed in his press briefing after the 111th Monetary Policy Committee (MPC) meetings that in the real sector, the Bank’s high frequency indicators pointed to further moderation in economic activity in line with the challenging macroeconomic environment.
According to the BoG, the January 2023 update of the Bank’s Composite Index of Economic Activity (CIEA) indicated a contraction in economic activity by 7.6 percent, compared to a growth rate of 4.2 percent in the same period of 2022.
The governor explained that the main indicators that weighed down the Index during the period were port activity, cement sales, imports, and credit to the private sector.
“Developments in the banking sector broadly reflected the challenging operating environment in 2022 on account of macroeconomic conditions, and the recent implementation of the Domestic Debt Exchange Programme (DDEP) which all 23 universal banks participated in. Our preliminary assessment of the impact of the DDEP on the banking sector, based on December 2022 data, indicates significant losses on account of impairment of banks’ holdings in GoG bonds.
“The impact of the DDEP as currently assessed is 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. As a result, the industry is still fairly resilient. Our preliminary assessment will be updated once banks’ external auditors complete their audits of banks’ 2022 financial performance making the necessary adjustments to fully reflect the DDEP impact. Banks are expected to publish their 2022 audited financial statements by end April 2023 following a one-month dispensation granted by the Bank of Ghana on the account of the DDEP.”
Dr. Ernest Addison
However, Dr Addison noted that development in the monetary aggregates in February 2023 showed strong growth in broad money supply (M2+), an indication of increased liquidity in the banking system, driven mainly by expansion in the Net Domestic Assets.
“M2+ recorded an annual growth of 44.9 percent in February 2023, compared with 17.7 percent in February 2022, reflected in currency outside banks and deposit liabilities of the banking sector. Reserve money similarly went up by 54.3 percent compared with 21.9 percent, over the same comparative period.”
Dr. Ernest Addison
Dr Addison, moreover, indicated that annual nominal growth in private sector credit was up by 29.5 percent in February 2023, compared with 17.1 percent in the corresponding period of 2022. However, in real terms, he added that private sector credit contracted by 15.3 percent compared with 1.2 percent contraction, over the same period a year before, due to the high level of inflation.
Total Assets of Banking Industry Grows
Dr Addison averred that total assets of the industry stood at GH¢209.4 billion in December 2022, representing a growth of 16.4 percent, reflecting sustained growth in deposits and exchange rate variations on banks’ balance sheets.
“Total investments declined significantly to GH¢64.8 billion in December 2022 from GH¢83.1 billion in December 2021, indicating a contraction of 22.1 percent, compared with the 29.0 percent growth in the same period a year before. Total credit, on the other hand, increased by 28.5 percent to GH¢69.1 billion in December 2022 from GH¢53.8 billion in December 2021. Of the total liabilities of the banking system, total deposits stood at GH¢157.9 billion, representing an increase of 30.4 percent year-on-year, compared with 16.6 percent recorded during the same period in 2021.”
Dr. Ernest Addison
The Bank of Ghana Governor noted that key financial soundness indicators remained broadly sound, supported largely by the regulatory reliefs provided by the Bank. Among others, the minimum Capital Adequacy Ratio (CAR) required to be maintained by banks was reduced from 13 percent to 10 percent as of 31st December 2022, and losses from the DDEP are to be reflected in the computation of CAR over a period of up to three (3) years.
“Accordingly, the industry’s average CAR adjusted for the regulatory reliefs was 15.7 percent in December 2022, compared with the CAR of 16.6 percent as of December 2022 without the DDEP. The adjusted CAR reflected valuation losses on GoG bonds, elevated credit risk, and revaluation losses on foreign currency denominated loans.
“Asset quality marginally improved, with the industry’s Non- Performing Loans (NPL) ratio at 15.1 percent in December 2022, almost unchanged from 15.2 percent in December 2021, reflecting the higher growth in credit, which outpaced the growth in the NPL stock.”
Dr. Ernest Addison
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