BoG optimistic of banking outlook

The Bank of Ghana says the introduction of the Internal Capital Adequacy Assessment Process (ICAAP) under the Basel II framework in July 2017 would further enhance the capital position of the industry and the sector’s overall performance.

The Central Bank, in its latest Monetary Policy Report for the first quarter of this year, said the finalization of the restructuring arrangements for Bulk Distributing Companies’ debt, continued repayments of the restructured Volta River Authority (VRA) and Tema Oil Refinery debts, and conclusion of the minimum capital requirements for banks will boost the stability and liquidity of the banks.

The report however said there was mixed performance of key financial indicators.

Instructively, the performance of the banking sector reflected strong asset growth on the back of increased foreign assets and investments, as well as a pickup in credit extension.

The industry’s Capital Adequacy Ratio also posted 37-months high of 18.5 percent in February 2017 against 17.8 percent in December 2016 on the back of strong growth in the adjusted capital.

Asset quality continued to improve as non-performing loans ratio declined to 17.7 percent in February 2017 from the 17.3 percent in December 2016. It was however 18.0 percent in January 2017.

The increase in the NPL ratio between December 2016 and January 2017 was partly explained by outcome of the Asset Quality Review and downgrading of loans by some banks.

The industry’s annualized profitability indicators improved in the year.

Return on Assets declined marginally from 4.1 percent in December 2016 to 4.0 percent in February 2017. Similarly, Return on Equity fell to 19.6 per cent in February 2017, from 24.3 percent in January (18 percent in December 2016) on account of decline in banks’ net profit after tax over the first two months of 2017.

The banking industry’s other liquidity indicators, however, broadly improved over the period.

Banks in Ghana registered a negative 4.3 percent for the 2016 financial year, according to the Financial Stability Report by the Bank of Ghana.

This was however an improvement from a negative growth of 7.4 percent recorded during the same period last year.

The banking sector’s income before tax registered an annual growth of 0.9 percent for the period ending December 2016 compared to a year-on-year contraction of 3.1 percent in December 2015.

According to the report, the year-on-year growth of the industry’s net interest income declined from 35.2 percent in December 2015 to 17.1 percent in December 2016.