Banks register 38% profit in first 2 months of the year

Banks in Ghana posted 38.8% growth in profit for the first two months of this year despite the coronavirus pandemic.

According to the April 2020 Banking Sector Report, banks profit outturn was stronger in the first two months of 2020, and higher than the 31.5% growth in the same period last year.

This is because of significant increases in banks’ income, which outpaced the growth in operating expenses.

Net interest income grew by 25.9% on the back of a 22% growth in interest income, higher than the 14% increase in interest expenses.

In terms of the composition of banks income, strong credit growth resulted in an increase in the share of income from loans compared with the share of other income sources.

The share of interest income from loans in total income increased to 38.7% from 35.9% during the review period.

Other sources of income for banks, namely, investments and fees and commissions recorded declines in their relative shares within the same comparative period.

In spite of these developments, the components of the banking industry’s income continued to reflect its assets composition.

As such, the share of income from investments remained the largest, followed by income from loans, fees and commissions and other income.

Return on Assets & Return on Equity

According to the report, the stronger profit outturn translated into improved profitability indicators.

Return on Equity (ROE) went up by 25.5% at end-February 2020 from 20.1% at end-February 2019.

On the other hand, Return on Assets (ROA) also grew by 4.9% compared with 4.2%. Increases in both ratios signify enhanced resource utilisation of both shareholders’ funds and total assets over the comparative periods.

Operational Efficiency

Key efficiency measures also showed broad improvements.

Notably, the industry’s cost-to-income ratio improved to 76.5% in February 2020 from 79.4% in February 2019, while cost to total assets remained unchanged at 2.0 percent over the period.

Despite the high annual growth in operational cost in February 2020, the ratio of operational cost to gross income declined from 52% to 50% on account of the higher growth in gross income during the period.

The Bank of Ghana said the major risk in the outlook is the potential impact of the COVID-19 pandemic on the financial sector.

As such, proactive policy measures should provide some support and help moderate some of the potential risks from the COVID-19 pandemic.