Banks post GH¢8.3bn profit in 2023

Banks in Ghana have reported an astounding 224.6% growth in profit to

This is a significant turnaround from the losses incurred in 2022 due to the Domestic Debt Exchange Programme (DDEP), GH¢8.3 billion in 2023.

This data, extracted from the January 2024 Monetary Policy Report of the Bank of Ghana, reflects a robust recovery for the banking industry.

The previous year, in 2022, the banking sector had suffered losses amounting to GH¢6.6 billion.

However, the latest report indicates a notable reversal of fortunes, attributed largely to the positive growth in key income lines of banks.

Key contributors to this impressive profit surge include a 41.5% growth in net interest income in 2023, significantly higher than the 18.7% growth seen in 2022.

Additionally, fees and commissions experienced a growth of 22.7% in 2023, although slightly lower than the 25.2% growth recorded in the previous year.

The Bank of Ghana noted that the surge in net interest income in December 2023 was driven by increased interest income on loans and investments, thanks to elevated lending rates and interest rates on money market instruments.

Furthermore, a reduction in interest expenses, stemming from decreased borrowings throughout the year, further bolstered net interest income growth.

Moreover, profitability indicators for the banking sector saw a remarkable improvement, with Return on Assets (ROA) climbing to 5.4% in December 2023 from a negative -3.8% in December 2022. Similarly, Return on Equity (ROE) surged to 34.2% from a negative -25.5% over the same period.

The report also highlighted a significant decrease in impairments on financial assets in 2023, which played a pivotal role in the sector’s improved profit performance.

Total provisions and impairments contracted by 79.2% in December 2023, following a substantial increase in December 2022 primarily due to impairments on restructured bonds.

While operating expenses witnessed a higher growth rate of 34.9% in December 2023 compared to 27.2% in December 2022, driven by increased other operating expenses and staff costs, the overall outlook for the banking sector remains positive.

The Bank of Ghana expects the sector to maintain stability, supported by a rise in assets fueled by increased liquidity flows from deposits and a buildup in shareholders’ funds from the profits accrued by banks in 2023.

Additionally, with the implementation of recapitalization plans throughout the year, the sector is projected to sustain its positive trajectory.

In a related development, the Financial Soundness Indicators (FSI) of banks in Ghana have displayed largely positive trends, reflecting improvements in liquidity, efficiency, and profitability during the review period.

According to the January 2024 Monetary Policy Report released by the Bank of Ghana, the industry’s liquidity position remained robust, supported by increases in core and broad liquidity measures.

The ratio of core liquid assets, primarily cash and due from banks, to total deposits rose from 38.4% in 2022 to 39.3% in 2023.

Similarly, the ratio of core liquid assets to total assets increased from 29.0% to 30.7% over the same period, partly due to an upward revision in the cash reserve ratio during the year.

Moreover, the banking industry’s solvency position, measured by the Capital Adequacy Ratio (CAR) adjusted for regulatory reliefs, stood at 13.9% in December 2023.

Although this figure is higher than the revised prudential minimum of 10%, it represents a decline from the 16.2% ratio recorded in December 2022.

The decrease in CAR between the two periods reflects the recognition of a quarter of impairments on restructured bonds in 2023, as part of measures to mitigate the impact of DDEP.

However, despite these positive indicators, asset quality risks remained elevated in December 2023, stemming from the lingering effects of the macroeconomic challenges experienced in 2022.

The non-performing loans (NPL) ratio increased to 20.7% in December 2023, up from 16.6% in December 2022. Similarly, the NPL ratio adjusted for the fully provisioned loan loss category rose from 6.6% to 8.4% during the same period.

The NPL stock expanded by 37.4% to GH¢15.8 billion in December 2023, compared to a growth of 40.5% recorded in December 2022.

Nevertheless, growth in gross loans and advances moderated to 13.8% from 25.9% over the same comparative period.

Overall, while the banking sector in Ghana has shown positive signs of improvement in various financial indicators, challenges related to asset quality persist, underscoring the need for continued vigilance and proactive measures to ensure stability and resilience in the sector.