Business News of 2014-04-30

Ghana’s economic crises begin to hit banks hard

Banks in the country have begun experiencing declines in their profits following the continuous decline in the performance of the major macroeconomic indicators in the country.

According to the Bank of Ghana the Cedi’s continuous depreciation against the major trading currencies –the US dollar, British Pound and the Euro as well as the continuous hikes in inflation is having a toll on profits of banks.

In the central bank’s latest financial stability report released in March this year the bank of Ghana says though the banking sector remains sound and solvent as evidenced by the financial soundness indicators of earnings, portfolio quality, liquidity, and capital adequacy, the continued decline in the performance of major macroeconomic indicators has resulted in marginal declines in banks’ profitability.

Banks for the past three years have been recording impressive profits. It was one of few sectors in the country that was making impressive strides despite the current economic challenges. This appears to be a thing of the past now.

A look at highlights from Banks Income Statement showed some slowdown in their earnings performance for the period ended February 2014. The banking industry’s net interest income for example registered a growth of 40.4 percent in February this year as compared with 60.2 percent growth recorded in the same period last year.

The industry’s income before tax grew, in year-on-year terms also went up by 32 percent in February this year compared with the 76 percent growth it recorded in February 2013. Similarly, the industry’s net profit after tax also grew by 28.3 percent in February 2014 compared with 70.9 percent growth in February 2013.

The banking industry’s return on assets (ROA) decreased marginally to 6 percent as at February 2014 from 6.2 percent in February 2013. Similarly, return on equity (ROE) decreased to 29.4 percent in February 2014 from 31.2 percent in February 2013.

Banks paid up capital also showed an annual growth of 10.9 percent to GH¢2.41 billion by the end of February 2014, compared with 31.6 percent growth in February 2013. Industry players fear if the performance of major macroeconomic indicators continues to decline the plunge in profits may deepen.

Meanwhile Interest income from loans continues to be the main source of income for the banking industry. Interest income from loans constituted almost 44 percent of total income in February this year for banks.

Investment income came in second with a share total income of 31.6 percent, while share of income from fees and commission which is the third for banks declined to 13.5 percent in February this year.