The Governor of the Central Bank of Ghana, Dr. Ernest Addison, has bemoaned the current emerging signs of the macroeconomic challenges in the country and its negative impact on the banking sector.

Speaking during the 110^th MPC press briefing, the Governor mentioned that profit in the banking industry declined by 18.9% in 2022, driven by the mark-to-market losses on investments, higher impairments on loans, and rising operating costs.

“Profit-after-tax was GH¢ 3.9 billion at the end of December, 2022, representing 18.9 percent contraction year-on-year, compared to 12.3% annual growth recorded in 2021.”
Dr. Ernest Addison

According to him, the Net interest income grew by 23.0% to ¢15.8 billion, higher than the growth of 14.5% in 2021. Net fees and commissions also went up by 27.4% to ¢3.7 billion, from the growth of 24.8% recorded in 2021. “Operating income increased by 30.9%, compared with 14.6% recorded a year earlier,” he indicated.

“The strong outturn in operating income was however moderated by increased operating expenses and provisioning during the year. Similar to the operating income, operating expenses rose by 32.2% in December 2022, compared with 14.2% growth in 2021. Provisions also increased sharply by 184.0% in December 2022 relative to a contraction of 4.7% a year earlier, due to the strong uptick in credit growth, elevated credit risks, and impairments on investments.”
Dr. Ernest Addison

Meanwhile, new loans and advances in 2022 increased to Gh¢53.7 billion, reflecting an annual growth of 47.5%. This is compared with the growth of 6.8% in 2021.

Financial Soundness Indicator

Dr. Addison during the meeting communicated that trends in Financial Soundness Indicators were mixed, reflecting heightened risks faced by the industry.

The industry’s Capital Adequacy Ratio (CAR) declined to 16.6%, but remained above the prudential minimum of 13%, as at December 2022, from 19.6% in December 2021.

The decline in CAR was attributed to losses on mark-to-market investments, increase in risk-weighted assets of banks from the high growth in actual credit, and the price effect of the depreciation of the Ghana Cedi on foreign currency denominated loans.

The sector’s profitability indicators, namely, the return-on-equity and the return-on-assets also declined during the period, in line with declining profit.

The prospects of the non-performing loans (NPL) ratio however improved to 14.8 percent in December 2022 compared with 15.2 percent in December 2021, on account of high credit growth relative to the increased stock of NPLs between the two periods.

Total assets increased to GH¢221.0 billion, representing an annual growth of 22.9 percent in December 2022, compared to a growth of 20.4 percent a year earlier. Total deposits ended the year at GH¢157.9 billion, representing an increase of 30.4 percent in 2022, relative to a growth of 16.6 percent in 2021.

The Governor further stated that credit continued to increase, recording a growth of 30.2 percent to GH¢70.0 billion from GH¢53.8 billion in December 2021. Total investments, on the other hand, contracted by 4.8 percent to GH¢79.2 billion in December 2022, relative to a 29.0 percent annual growth in 2021, as banks rebalanced asset portfolios in response to the Domestic Debt Exchange Programme.