The Governor of the Bank of Ghana, Dr Ernest Addison, has disclosed that the banking sector’s profitability has improved in the first half of 2023 hugely after the initial setback resulting from the debt restructuring.

Dr Addison noted that the banks profit-after-tax stood at GH¢4.3 billion, up from GH¢2.8 billion recorded in the same period last year 2022. Meanwhile, the jump in profit represents a 51.4 percent increase.

According to the Bank of Ghana Governor, the strong profitability performance during the first half of the year translated into a higher return-on-equity of 37.6% from 21.9% in June 2022 and a higher return-on-assets of 5.5% compared to 4.6% in June 2022.

Net interest income increased by 41.4% to GH¢9.9 billion, relative to the increase of 12.4% recorded a year ago. Net fees and commissions also grew by 30.6% to GH¢2.2 billion, compared with 27.0% over the same period last year.

Operating income, as a result, rose sharply by 46.1%, higher than the 22.6% recorded in 2022. However, the industry’s cost of operations increased, with operating expenses increasing by 44.9% during the first half, compared with 22.9% growth for the same period in 2022.

The net effect of these developments were a 51.2 percent increase in profit-before-tax in June 2023, compared with 20.8 percent growth in June 2022.

Financial Soundness Indicators Remain Stable

According to the Bank of Ghana, the key financial soundness indicators remained broadly sound, supported by the temporary regulatory reliefs extended to the banks in the wake of the Domestic Debt Exchange Programme (DDEP).

The industry’s Capital Adequacy Ratio (CAR) for June 2023, stood at 14.3 percent. This is higher than the revised prudential minimum of 10%, but lower than the CAR of 19.4% recorded in June 2022.

The decline in the CAR is explained by the losses on mark-to-market investments from the DDEP as well as the increase in the risk-weighted assets of banks.

The industry’s NPL ratio deteriorated to 18.7% in June 2023 from 14.1% in June 2022, reflecting higher loan impairments and elevated credit risks.

Not only that but also, the Bank of Ghana in its monetary policy report indicated that lending to the private sector increased significantly in the first quarter of 2023 to GH¢65.50 billion, compared with GH¢50.59 billion recorded in the same period last year 2022.  

Consistent with the economic growth rate where the service sector experienced the highest growth rate of 10.1 percent in the first quarter, the sector received the highest credit with a percentage share of 30 percent among other sub-sectors in the private sector.

The Central Bank observed that credit flow to the private sector remained concentrated on sectors, including services, import trade, manufacturing, mining and quarrying, and agriculture, forestry, and Fisheries.  

Compared to the 84.9 percent recorded in the same time of 2022, private sector credit made up 86.4 percent of the overall flow of credit granted to both private and public institutions in February 2023.

Overall, the industry’s liquidity indicators, on the other hand, improved during the period under review.