Profitability of banks in Ghana dropped by about 10% – BoG figures reveal

Ernest Addison, governor of the Bank of Ghana, pauses during a Bloomberg Television interview in London, U.K., on Tuesday, Oct. 23, 2018. The global policy tightening cycle could cause "significant challenges" for Ghana after the nation cut its key lending rate to a four-year low, Addison said during the interview. Photographer: Chris Ratcliffe/Bloomberg via Getty Images

Figures from the Bank of Ghana (BoG) have shown that the profitability of commercial banks in the country declined by almost 10 percent in 2018, but the central bank says overall, the banking industry remains strong.

The profit growth of the banks which stood at 21.7 percent as at December 2017, dipped to 12.5 percent as at December 2018, something that is attributable to the BoG’s reforms and clean-up of the banking sector.

The reforms, which saw the minimum capital requirements of banks moved up from 120 million cedis to 400 million cedis, saw the total of 34 banks in the country downsized to 23 between 2017 and 2018 as some were collapsed over liquidity challenges, bad corporate governance among others.

Speaking at the first CEOs Breakfast meeting of 2019 by the Ghana Investment Promotion Centre (GIPC) Senior Partner at PwC, Vish Ashiagbor said “profit growth did come down, but the sector actually still remains quite profitable”

[L-R] Vish Ashiagbor, Osei Gyasi and CEO of GIPC, Yoofi Grant
In the wake of the reforms, he said there were negative press which suggested the banking sector had collapsed, but indicated the situation on the ground, per the BoG figures, shows otherwise.

“There have been a lot of press and sometimes it’s been significantly adverse and you might think that the whole sector is at the verge of collapse but that’s not quite the case,” he said

Quoting BoG figures, he said the total assets of the banks moved up from a total of 93.6 billion cedis in 2017 to 107.3 billion cedis in 2018; thus a growth rate of 14.7 per cent within a year.

The issue of non-performing loans which affected a lot of the collapsed banks, he noted, has improved within a year.

“You can see that it’s actually improved because the ratio is reduced so the level of nonperforming loans has actually come down,” he said.

Vish Ashiagbor

Per BoG figures, non-performing loans ratio dropped by 3.4 per cent between 2017 and 2018, that is from 21.6 per cent in 2017 to 18.2 per cent in 2018.

Return on equity also moved from 18.7 per cent in 2017 to 18.5 per cent in 2018.

Mr Ashiagbor said capital adequacy ratio by virtue of capitalisation and other initiatives introduced by the central bank has gone up.

“We haven’t really seen a significant downward trend in the sector as a whole. The sector is dynamic…what the figures are today, what the figures are tomorrow it’s dynamic, it will continue to change.

“That is precisely why the reforms are important because what you see today depending on how we manage thing going forward, these numbers will change. Despite all the bad news, the banking sector remains strong,” he stated.

For his part, the head of banking supervision at BoG, Osei Gyasi, justified the decision to reform the banking industry, stating the overall objectives were to ensure resilience and efficiency of the sector, to protect deposits of customers placed at the disposal of the banks.

Osei Gyasi

He agreed with the assertion that the Banks and Specialised Deposit Taking Act [Act 930] is one of the “very dangerous Acts” to have been enacted, considering the fall out of its implementation within the last two years.

Bank deposits rising

Notwithstanding, he said the reforms has “significant improvement” in the liquidity positions of banks.

He said the banks have now started recording high deposit taking after some customers withdrew their savings in the wake of the reforms.

“We saw people taking their monies out of the banks because of what happened but available returns that we have received recently indicate that bank deposits are growing… deposit levels are rising” he indicated.

The development, he said, confirms that people now have confidence in the surviving banks.

They “think that the banks that have survived, have come out of the reforms, are capable of maintaining the deposits that they put at the disposal of these banks” Mr Gyasi said.

Meanwhile, he said to move the country’s economy forward, the banks need deposits that are medium to long term, noting that will enable the banks to finance long term projects and give them brighter opportunities.