The Bank of Ghana says the country’s banking sector has seen marked improvement following the drastic reforms that started in August 2017, some two years ago.
Presenting the Monetary Policy Committee’s report to the media last Friday September 20, 2019 in Accra, the Governor of the Bank, Dr. Ernest Addison indicated that latest assessment shows marked improvement in banks’ performance which is reflective of the positive impact of the recent reforms.
“Let me briefly highlight some of the pre- and post-reform key financial indicators. At the start of the reforms in August 2017, total assets were GH¢89.1 billion for a sector that had 36 banks, and two years after the reform process started, total assets have increased to GH¢115.2 billion at end August 2019 even with 23 banks.
In the same direction, total deposits have improved from GH¢55.7 billion to GH¢76.0 billion over the same comparative period, reflecting a stronger deposit base owing to more trust and confidence in the banking sector with fewer but stronger banks. Banks are beginning to refocus on their core mandate of financial intermediation based on the strong capital base after recapitalization,” he said.
When the Bank of Ghana raised the minimum nominal capitalization threshold of GH¢400 million by year-end 2018 most banks failed to meet it. Five banks were consolidated into a single bank, six were merged to create three larger banks, and four banks had their licences revoked, converted into a savings and loans license or exited the country.
Earlier in the year Moody’s had observed that before the consolidation, Ghana’s proportion of commercial banks to its population was high, but this ratio has declined, although it remains relatively high compared with other sub-Saharan African banking sectors.
The credit rating agency noted that the consolidation removed weaker, undercapitalized banks that posed a risk to financial stability, and cited Premium Bank as an example. It pointed out that Premium Bank had a capital adequacy ratio of negative 125 per cent – its license was revoked.
On private sector credit, the Bank said growth has moderated slightly after peaking at 22.1 per cent in March 2019 as credit conditions tightened marginally. Annual growth in private sector credit was 13.4 per cent in August 2019, compared with 15.8 per cent growth in the same period of 2018. In real terms, private sector credit expanded by 5.2 per cent, it stated.
Dr. Addison noted further that the central bank’s recent credit conditions survey indicated some tightening of credit stance on loans to enterprises and households despite increased demand for loans as banks continued to improve their credit risk management systems.
“Money market rates have broadly remained unchanged for both short-dated and long-dated instruments since the last MPC meeting. The 91-day Treasury bill rate has remained steady at 14.7 per cent since July 2019 from 13.3 per cent a year ago. Similarly, the 182-day instrument is at 15.1 per cent from 14.9 per cent over the same period a year ago. Rates on the secondary bond market have eased marginally with yields on the 7- year, 10-year, and 15-year bonds trending down to 19.26, 19.57 and 19.71 per cent in August 2019, relative to 19.64, 19.75 and 20.03 per cent in June,” he said.
According to him, the weighted average interbank lending rate has remained at 15.2 per cent since March 2019, having declined from 16.2 per cent in August 2018. Lending rates of banks averaged 23.9 per cent in August 2019. 17. The banking sector remains well-capitalised, solvent, liquid, efficient and profitable with improved Financial Soundness Indicators.
The industry’s Capital Adequacy Ratio (CAR), computed in accordance with the new Capital Requirement Directive (CRD) under the Basel II/III capital framework, stands at 19.8 per cent in August 2019, well above the 13 per cent minimum regulatory benchmark, he said, adding that, asset quality has continued to improve with a decline in the NonPerforming Loans (NPL) ratio from 21.3 per cent in August 2018 to 17.8 per cent in August 2019. Excluding loans in the ‘loss’ category, however, the NPL ratio has declined from 11.7 per cent to 8.9 percent over the same comparative period.
“The NPL ratio is trending in the right direction and is expected to be sustained by continued implementation of the NPL write-off policy, intensified loan recovery efforts, and stronger credit risk management practices,” he said.
By Emmanuel K. Dogbevi