COVID-19 protocols erode banks’ profits — BoG

Banks’ profits grew at a slower pace in the first half of this year compared to the same period last year.

It followed a sharp rise in their operational costs within the period, mainly as a result of increased investments in COVID-19 safety protocols and other initiatives occasioned by the pandemic.

The Head of Research at the Bank of Ghana (BoG), Mr Philip Abradu-Otoo, told the specialised programme on banking and finance, Banking & More, that following from the development, the rate of growth in profitability of the banking sector in the first half of this year fell by more than half to 15.5 per cent from the 37.6 per cent recorded in the same period last year.

This means that unlike in the first half of last year when banks’ profits were growing at 36.3 per cent, the growth rate slowed to 15.5 per cent in the same period this year, as operational costs rose.

The drivers
Mr Abradu-Otoo said while banks had generally been resilient in the midst of the pandemic, recent data showed that increased bad debts and additional expenses occasioned by the virus were beginning to have a toll on the sector’s profit levels.

“What the pandemic has succeeded in doing from the data  we see is that we are beginning to see some rise in Non-Performing Loans (NPLs).

“What this means is that we are beginning to see some default in repayment of loans back to the banking sector,” BoG’s head of Research said in the interview that is available on the Daily Graphic’s Facebook page and YouTube channel.

“Also, growth in profitability of the banking sector is slowing down because we understand that the banks are investing heavily to ensure the safety of their customers.

“We understand that the banks are ensuring that their customers are protected; they are acquiring Personal Protective Equipment (PPEs) and they are also putting in place infrastructure to ensure that their customers can leverage the safe mobile and electronic payments platforms.

“All these cost money and that has eaten into their profits,” he said.

Should the pandemic intensify, Mr Abradu-Otoo said the growth in profitability would worsen to the detriment of the individual banks, the private sector and the economy in general.

On what the slowdown in profitability growth rate meant to the industry, Mr Abradu-Otoo explained that although the banks had largely weathered the COVID-19 storm, the data on profitability gave cause for worry.

Given that banks based their decisions to expand and recruit more staff on their profitability levels, he said a decline in profits meant that new jobs could be affected, especially in the short to medium term.

“Also, the banks will have to make decisions on even the loans that they extend to the private sector and the economy as a whole; and when that is happening, it could impact on the growth in the long term,” he added.

Nominal terms
Mr Abradu-Otoo, however, explained that profit levels of the sector grew in nominal terms from the GH¢1.67 billion recorded in June 2019 to GH¢1.93 billion in June this year.

The central bank’s Summary of Economic and Finance Data released last month showed that gross return on assets declined from 4.5 per cent in June 2019 to 4.1 per cent in June this year, the second lowest in the 12-month period.

It shows further that the net return on equity also fell to 20.6 per cent in June this year from 21.2 per cent a year earlier.

Response to BoG measures
Mr Abradu-Otoo added that the central bank had noticed a positive response from the banking sector to the mitigation measures that it introduced to help fight the pandemic.

He said the reduction in the capital adequacy ratio and the reserve requirement ratio had freed more money to the banking sector, leading to increased credit outflow to the private sector.

Banking & More
The interview with Mr Abradu-Otoo discussed the role of data in BoG’s operations, how it was gathered and its impact on the policies and the decisions by the central bank.

It also touched on the measures that the central bank had put in place to maintain the integrity of its data.

The head of Research was the first central bank staff to feature on the specialised programme that seeks to throw more light on banking and related issues.

The Banking & More is a pre-recorded interview that is broadcast on the YouTube channel and the Facebook page of the Daily Graphic and the Graphic Business every Monday at 9 a.m.

The discussions are also available on and the Graphic NewsPlus, the digital version of the Graphic newspapers.

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