Banks Record Huge Profits

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Majority of the 23 banks that met the Bank of Ghana’s recapitalization requirement of GH₵400 million, made huge profits in the last financial year.
This is contained in an unaudited results suggesting that the balance sheets of most of the banks have improved significantly. The huge profit was as a result of significant increase in non-funded transactions (income) which increased from GH₵144 million in 2017 to GH₵211 million in 2018.
Ghana’s second biggest bank in terms of assets and market share, Ecobank Ghana realized a 34.0 percent increase in profit in 2018. Profit jumped from GH₵253.6 million in 2017 to GH₵339.9 million last year.

The balance sheet remained very strong as deposits from customers grew from GH₵6.4 billion in 2017 to GH₵7.6 billion in 2018.

However, investment in securities remained virtually unchanged at GH₵2.4 billion last year. The bank’s earning assets were driven by 54.5 percent year-on-year expansion in the loan book to GH₵4.15 billion in 2018.

The huge growth in the loan book was driven by the fact that investment securities, which are mainly government securities, have become unattractive on the back of significant drop in treasury yields in the last year. The loan-to-deposit ratio of 54.5% gives the bank an opportunity to further expand the loan book in 2019.

The bank’s stated capital increased from GH₵226 million in 2017 to GH₵416 million in 2018 due to the recapitalization programme by the Bank of Ghana. Income surplus however reduced from GH₵198 million in 2017 to GH₵189 million in 2018.

The move towards digital banking and other cost control measures also helped to limit the growth of operating expenses (+15.1 percent year-on-year), which pushed the cost-to-income down by 0.9 percent to 51.5 percent in 2018 from 52.4 percent in 2017. Ecobank’s migration to digital banking could support further improvement in operating efficiency in the future,.

On some important financial soundness indicators, the capital adequacy ratio increased from 12.57 percent in 2017 to 14.62 percent in 2018. Non-performing loans (NPL) also went down to 11.50 percent last year from 20.04 percent the previous year.
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Standard Chartered Bank, a tier 1 bank, however saw its profit declining by 25 percent, from GH₵283 million in 2017 to GH₵210 million last year. The drop in the bottom line was purely as a result of a GH₵100 million loan written off.

As a result, interest income largely from loans and advances for 2018 was GH₵612 million as against GH₵587 million the previous year. Interest income growth slowed to 4.4 percent year-on-year in 2018 versus 6.8 percent in 2017 on the back of 6.0 per cent drop in loans and advances.

Non Interest Revenue also grew lower at 9.9 percent year-on-year as against  27.1 percent year-on-year  in 2017 as a result of pressure on net trading income, which dropped by 7.9 percent year-on-year in 2018 versus growth of 46.6 percent year-on-year in 2017.

For the balance sheet, deposits grew from GHc3.4 billion in 2017 to GH¢4.3 billion in 2018. Stated capital moved from GH¢121 million in 2017 to GH¢400 million in 2018 whilst income surplus stood at GH¢230 million last year as against GH¢361 million in 2017.

Its NPL was 25.1 percent in 2018, from 35.0 percent in 2017, whereas capital adequacy ratio remained strong at 29.59 percent in 2018, from 26.0 percent in 2017.

On the other hand, Cal Bank, an indigenous bank, saw its profit growing by 12 percent in 2018. Profit increased from GH¢145 million in 2017 to GH¢162 million in 2018. Interest income from loans was the major contributor.

On the balance sheet, loans and advances grew from GH¢1.8 billion in 2017 to GH¢2.4 billion last year. Deposits from customers also grew from GH¢2.4 billion in 2017 to GH¢3 billion in 2018.

The stated capital was exactly GH¢400 million in 2018, from GH¢100 million in 2017. For financial soundness indicators, capital adequacy ratio was largely unchanged at 21.8 percent and NPL was at single digit of 8.0 percent in 2018, from 10.9 percent in 2017.

Guaranty Trust Bank (GT bank) made a whopping profit of GH¢150 million, about 70 percent growth from the previous year of GH¢88 million. All the income lines contributed significantly to the growth in the bottom line.

The bank which has been in Ghana since 2005 saw its deposits growing from GHc1.4 billion in 2017 to GH¢1.6 billion in 2018. Stated capital also increased from GH¢82 million in 2017 to GH¢404 million in 2018. Total shareholders’ funds however stood at GH¢580 million.

The bank’s capital adequacy ratio is one of the biggest in the industry at 52.76 percent. NPL was however low at 4.12 percent in 2018, from GH¢19.90 percent in 2017.

The banking industry recorded an improved income statement with after-tax profit of GH¢1.95 billion in October 2018, representing a year-on-year growth of 22.3 percent, compared with GH¢1.59 billion representing a modest 1.0 percent growth in October 2017.

The sharp increase in banks’ net income came from the 10.0 percent increase in net operating income to GH¢4.02 billion in October 2018 from GH¢3.66 billion (7.6percent y/y growth) a year ago. Net operating income of banks increased following the slower growth of banks’ interest income compared with interest expenses.

Banks’ interest income declined due to the slowdown in loans and advances which constitute the bulk of interest-bearing assets of the banks, while the decline in money market rates and the Monetary Policy Rate (MPR) between October 2017 and October 2018 led to a decline in the interest expense of banks, especially the interest paid on deposits.

Upon assuming office in 2017, the Governor of the Bank of Ghana, Dr. Ernest Kwamina Yedu Addison, in a state of the financial sector report, indicated at the time that, the financial sector had been in a considerable state of turmoil with the DKM crisis in 2016 and nine banks already identified as undercapitalized after the Asset Quality Review (AQR) exercise undertaken by the Bank of Ghana.

This saw the take over of UT bank and Capital bank two Banks through a Purchase and Assumption transaction with GCB Bank in 2017. Last year, five banks were merged to form the now, Consolidated Bank of Ghana (CBG). The Banks were; Construction Bank, Beige Bank, Royal Bank, UniBank and Sovereign Bank.

In the conclusion of its state of financial sector of Ghana report, the Governor noted that, the outlook for the financial sector is positive and BOG remains committed to promoting strong, viable and stable banks, SDIs, RCBs, and MFIs to support the country’s growth and development process. In the months ahead, we will engage with stakeholders as we design specific measures to strengthen systems and processes that would improve the industry.

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