Total banking sector assets as at end-February, 2021 increased by 18.5 percent year-on-year to GH¢152.0 billion, marginally higher than the annual growth of 17.8 percent as at end-February 2020.
The higher growth in total assets reflected similar stronger growth in domestic and foreign assets of 19.1 percent and 11.1 percent; compared to the respective rates of 18.7 percent and 8.2 percent a year earlier.
A recent report by the Bank of Ghana, which made this known, stated that the growth in banks’ investment holdings outpaced other asset classes due to the higher propensity of banks to invest more in less risky government instruments as a result of the pandemic-induced elevated credit risks and slowdown in credit demand.
Investments shot up by 45.9 percent to GH¢67.9 billion, compared to the growth of 7.2 percent in the prior year. Accordingly, the share of investments in total assets scaled up further from 36.3 percent to 44.7 percent over the review period.
Gross loans and advances continued to experience a subdued growth, at 3.6 percent, a sharp decline from the 26.0 percent growth in the corresponding period last year.
This is attributable to weak credit demand, higher repayments and banks’ increasing appetite for less risky assets. Adjusting gross loans for provisions and interest in suspense, net loans and advances grew by 2.2 percent to GH¢41.4 billion, down from 27.2 percent over the same comparative periods.
New loans and advances for the first two months of 2021 of GH¢4.7 billion also reflected the sluggish credit market condition with a 24.6 percent decline from the pre-pandemic level of GH¢6.2 billion for the first two months of 2020. The expanded assets size of the industry was largely funded by deposits.
Total deposits grew by 25.1 percent (year-on-year) to GH¢104.0 billion as at end-February 2021, compared to 15.6 percent a year earlier.
Liquidity flows within the domestic economy from the COVID-19 fiscal stimulus as well as payments to contractors, SDI depositors, and clients of SEC-licensed fund managers provided additional funding to the banking sector to support asset growth.
Additionally, increased savings by individuals and firms against the pandemic-related slowdown in consumer and investment spending in some sectors also contributed to the strong observed deposit growth.
Growth in shareholders’ funds was stronger and is indicative of adequate capital buffers within the banking sector to withstand shocks. Shareholders’ funds grew by 21.2 percent to GH¢22.2 billion as at end-February 2021, compared with a 14.6 percent growth a year earlier, reinforcing the stability and resilience of the banking sector.
The sustained growth in banks’ total net worth was driven by strong profit retention. Banks continued to cut back on borrowings as they relied on relatively cheaper sources of funding from deposits and shareholders’ funds to fund assets’ growth.
Total borrowings at end-February 2021 therefore contracted by 23.4 percent to GH¢14.3 billion, in sharp contrast to growth of 30.7 percent a year earlier.
The decline in borrowings reflected mainly in short-term borrowings while long-term borrowings increased during the year. In summary, the balance sheet performance of the industry for the first two months of 2021 shows sustained growth in key indicators except for the pandemic-induced weakness in credit growth.
It is expected that growth in the sector will remain strong as the economic recovery process takes hold in 2021.