Banks expected to rebuild capital buffers quickly - Central Bank

The Bank of Ghana Governor, Dr. Ernest Addison, has expressed optimism about the banking sector’s ability to rebuild capital buffers swiftly with support from an equity capital infusion by shareholders, amid significant growth in profits within the industry during the first half of 2023.

This growth is expected to stimulate economic activity in the real sector and bolster the banking industry’s overall resilience.

Following the July 2023 Monetary Policy Committee (MPC) meeting, Dr. Addison highlighted during an engagement with media in Accra the substantial rebound in profits during the first half of 2023 – which came as a recovery from the significant losses incurred in the previous year due to the domestic debt exchange programme (DDEP).

“If this trend persists we expect banks to rapidly rebuild capital reserves, with additional support from equity capital injections by shareholders,” he remarked,

To further ensure stability of the banking industry, Dr. Addison emphasised the importance of activating the Financial Stability Fund, which will provide crucial recapitalisation assistance to eligible banks.

During the first half of 2023, the banking sector witnessed notable growth in profitability. Net interest income surged by 41.4 percent to GH¢9.9billion, surpassing the 12.4 percent increase recorded in the previous year’s corresponding period.

Additionally, net fees and commissions experienced substantial growth – rising by 30.6 percent to GH¢2.2billion compared to 27 percent growth in the previous year. This robust performance in operating income led to a sharp 46.1 percent increase, outperforming the 22.6 percent growth observed in 2022.

However, Dr. Addison noted that data provided by banks for the first half of 2023 indicated that lingering effects of the DDEP persisted, despite the strong rebound in profitability following the losses incurred at end-2022 due to impairments of holdings in Treasury bonds.

As of June 2023, the industry’s total assets amounted to GH¢242.4billion, reflecting a moderated growth rate of 21.2 percent compared to 22.8 percent in June 2022. On a positive note, total deposits experienced significant growth, reaching GH¢187.6billion in June 2023 and representing a 42.8 percent increase from GH¢131.3billion recorded for the same time in 2022. In contrast, total borrowings contracted by 39.1 percent to GH¢16billion; down from GH¢26.4billion a year earlier.

Dr. Addison revealed that the banking industry’s investments saw a sharp increase, bolstered by significant deposit growth. Total investments rose to GH¢89.9billion in June 2023 compared to GH¢81billion in June 2022.

This growth was primarily driven by a 149.6 percent growth in short-term investments to GH¢39.9billion, while medium-to-long-term investments declined to GH¢50.1billion due to portfolio rebalancing following the DDEP.

Despite the industry’s increased cost of operations, with operating expenses rising by 44.9 percent during the first half of 2023 compared to 22.9 percent growth in the same period of 2022, the overall effect resulted in a 51.2 percent increase in profit-before-tax in June 2023 – far exceeding the 20.8 percent growth seen in June 2022.

The industry’s profit-after-tax stood at GH¢4.3billion, reflecting a substantial 51.4 percent increase from GH¢2.8billion in 2021. As a result, the banking sector saw a higher return-on-equity of 37.6 percent in June 2023; up from 21.9 percent in June 2022, as well as a higher return-on-assets of 5.5 percent compared to 4.6 percent in June 2022.