The Ghanaian banking industry has registered an average loss of 1.0 per cent in the first seven months of 2016, according to the latest Financial Stability Report by the Bank of Ghana (BoG).
This is compared with 15.0 per cent profit achieved the same period 2015.
Similarly, the sector’s income before tax registered a negative year-on-year growth of 0.5 percent from January to July 2016 compared with a growth of 18.2 percent for the same period 2015.
Though some banks including Ecobank, CAL, GCB and Stanchart recorded some appreciable earnings during the period, others like UT and HFC registered losses which accounted for the negative 1.0 percent recorded by the industry.
According to the report, there were declining trends inannualised after-tax Return on Equity (ROE) and pre-tax Return on Assets (ROA).
The banking industry’s ROA decreased to 4.8 percent in the first seven months of 2016 from 5.6 per cent recorded same period 2015, while ROE decreased from 27.3 percent to 23.5 percent over the same period.
The ratio of gross income to total assets or asset utilisation was 5.6 percent in year start to July 2016 compared with 5.8 percent in the corresponding period in 2015. Banks also recorded a net interest spread of 9.2 percent in for the same period this year compared with 7.1 percent in 2015.
With regards to composition of banks income, interest income from loans continued to be the main source of income for the banking industry.
From January to July 2016, interest income from loans constituted 51.1 percent of total income compared with 48.7 per cent in recorded in 2015.
The share of investment income in banks’ total income also increased from30.5 per cent same period 2015 to 33.2 percent in 2016 while that for fees and commission declined to 10.6 per cent in 2016 from 11.9 percent in the same period of last year.
With regards to operational efficiency, cost to income ratio increased to 83.6 percent in 2016 from 79.8 percent in 2015, indicating a general decline in efficiency within the first seven months of the year compared to the same period last year.
On developments in banks’ offshore balances and external borrowing, banks cut back significantly on foreign borrowing relative to domestic borrowing in 2016. The proportion of banks’ foreign borrowing in banks’ total borrowed funds declined from 43.4 percent in the period under review in 2015 to 27.8 percent in 2016; while that of domestic borrowing increased from 56.6 percent to 72.2 percent during the same period.
Similarly, long term external borrowing increased relative to short term external borrowing over the same period. The proportion of long term borrowing in banks’ external funds increased from 50.8 percent in July 2015 to 52.0 percent in July 2016; while that of short term external borrowing declined from 49.3 percent to 48.0 percent.
About liquidity, the report noted that the banking sector remained relatively liquid. This was gauged by the operational liquidity measure of total liquid assets as a percentage of total deposit liabilities and liquid assets to volatile funds, which improved and remained well within acceptable thresholds during the period under review.
Regarding capital adequacy, the industry’s Risk-Weighted Assets (RWA) to total assets declined to 70.2 percent in July 2016 from 75.7 percent in July 2015. This was associated with a decline in the industry’s Capital Adequacy Ratio (CAR), measured by the ratio of capital to risk-weighted assets from 17.7 percent to 16.7 percent during the period under review.
The decline in the industry CAR was partly on account of a slowdown in banks’ adjusted capital.
The BoG said the banking industry remained sound and solvent as at July 2016 though some marginal declines were recorded in key financial soundness indicators. The key risks to the banking sector as at July 2016 it stated included the high non-performing loans and significant exposure to the energy sector.
However, it explained that the performance of the banking sector is expected to further improve following the restructuring of VRA debt and release of the first tranche of payment by the Ministry of Finance to banks in September 2016.
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