Multilateral institution the World Bank has described as bank dominated and shallow, Ghana’s financial sector.
In a new Country Economic Memorandum report by the World Bank and titled Ghana Rising – Accelerating Economic Transformation and Creating Higher Quality Jobs, the Bretton Wood Institution asserts the total value of Ghana’s financial assets forms 52 percent of its Gross Domestic Product (GDP).
Giving a breakdown of the 52 percent, the World Bank noted banks control 37 percent of the nation’s financial assets with Fund Management Companies, Insurance firms, Pension firms and Specialised Deposit-Taking Institutions controlling 3%, 2%, 8% and 2% respectively.
Despite banks making up 37% of the country’s financial sector and thereby dominating the sector, the World Bank notes that the dominance by banks is however lower when compared to the Sub Saharan Africa median of 48 percent.
The World Bank in the report however, adds that banks in the country are largely sound, liquid and profitable.
The Bank attributed the soundness and profitability of Ghanaian banks to the financial sector clean-up exercise undertaken by government in 2017.
In the clean-up exercise undertaken by government, nine domestically-owned banks were resolved with 411 SDIs (MFIs, Savings & Loans, Finance Houses, and Micro Credit Companies) closed and licenses of 50 fund management companies revoked.
Despite the soundness and profitability of the banking sector, the World Bank in the report notes that some key vulnerabilities to the sector remain.
These vulnerabilities, the Bank pointed out include;
- High NPLs (increased to 15.3 percent in Feb. 2021) and the outlook somewhat negative, depending on recovery path
- Some SDIs may require resolution, with possible spillovers/feedback loops to the insurance and fund management sectors
- New and small deposit insurance fund
BoG says banking sector is sound and well-capitalised
According to Central Bank, the banking sector remains sound, and well-capitalised with strong growth in total assets, investments and deposits.
In the first ten months of the year, total assets of banks increased by 16.1 percent to GH¢173.8 billion, reflecting strong growth in investments in government securities by 25.5 percent to GH¢83.4 billion.
The gradual growth in gross advances has continued, with 8.9 percent growth as at end October 2021 compared to the end-June position of 5.2 percent growth. Deposits grew by 17.2 percent year-on-year to GH¢117.4 billion on the back of strong liquidity flows.
The industry’s Capital Adequacy Ratio of 19.8 percent as at end-October 2021 was well above the current regulatory minimum threshold of 11.5 percent. Core liquid
assets to short-term liabilities was 24.6 percent in October 2021 compared with 27.0 percent in October 2020. Net interest income grew by 15.2 percent to GH¢10.5 billion, compared with 19.9 percent growth over the same review period.
Net fees and commissions recorded a stronger growth of 22.9 percent to GH¢2.3 billion, relative to 6.1 percent growth for same period last year, reflecting continued recovery in trade finance-related and other ancillary businesses of banks.
Accordingly, total operating income grew by 14.3 percent to GH¢14.1 billion, marginally lower than the previous year’s growth of 16.6 percent. Operating costs increased by 11.0 percent, relative to the 9.9 percent growth for same period in 2020. Growth in loan loss provisions, however, moderated to 6.5 percent as at end-October 2021 from 18.9 percent a year ago.
These developments resulted in profit before tax of GH¢6.0 billion, representing a year-on-year growth of 21.8 percent at the end of October 2021.
Meanwhile, annual nominal growth in private sector credit slowed to 10.1 percent in October 2021 compared with 13.4 percent a year ago. In real terms, private sector credit contracted marginally by 0.8 percent compared with a 3.0 percent growth, recorded over the same review period.
New loans and advances for the year thus far by banks, totalled GH¢28.4 billion in the year to October 2021, marginally above the GH¢27.1 billion for the same period in 2020.