High Operating Costs Choke Banking Sector


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The country’s banking sector faced key challenges including the decline in profitability due to rising operating costs as a result of the current energy challenges and the rising non-performing loans.

A Bank of Ghana (BoG) Financial Stability Report for November 2015, which made this known, said apart from the foregoing, credit to the private sector contributed 97.4 percent of the total banking sector’s non-performing loans as at September 2015 compared to 93.1 percent in September 2014.


Non-performing loans

The proportion of banks’ NPLs attributable to the public sector improved from 6.9 percent in September 2014 to 2.6 percent in September 2015.

“Even though private enterprises received only 71 percent of the private sector credit, they accounted for 88.4 percent of NPLs in the sector as at September 2015 compared to 70.5 percent of credit received and 83.8 percent of NPLs respectively in the same period in 12 2014.

“The highly disproportionate level of NPLs associated with the private enterprises was driven mainly by indigenous enterprises, which received 60.9 percent of credit to private enterprises but accounted for 79.1 percent of NPLs as at September 2015. However, while foreign enterprises’ share of private sector credit declined, their contribution to private sector NPLs increased marginally over the period under review. Households’ share of private sector credit and contribution to NPLs increased marginally over the review period.”


Commerce & Finance

Commerce and finance sector continued to account for the largest amount of the banking sector NPLs followed by services and manufacturing. The three sectors accounted for 66.1 percent of NPLs in September 2015 compared to 64.2 percent in September 2014. Electricity, Gas and Water sector accounted for the lowest amount of the industry’s NPLs.


Bank’s Income

Interest income from loans continued to be the main source of income for the banking industry and constituted 50.1 percent of total income in September 2015 compared to 45.2 percent in September 2014.

Investment income share of 29.2 percent of total income in September 2015 was marginally below the 28.4 percent recorded in September 2014.

The share of income from fees and commission declined to 12 percent in September 2015 from 13.1 percent in September 2014.


Bank’s Profitability

Indicators of profitability for the banking industry showed some deterioration in banks’ earnings performance for the period ended September 2015.

The industry net interest income registered a growth of 30.2 percent in September 2015 compared with 41.9 percent growth registered in September 2014.

Growth in the sector’s income before tax declined sharply over the period from the 54.4 percent growth in September 2014 to 5.9 percent in September 2015.

Similarly, the industry’s net profit after tax grew by 3.8 percent in September 2015 compared to 54.1 percent growth in September 2014.


Offshore balances

Growth in banks’ offshore balances and placements dipped in September 2015 compared to September 2014.

Banks’ offshore balances registered a negative growth rate in September 2015 due to the negative growth in placements.

The sharp drop was as a result of the relative stability in the exchange rate and a slow-down in trade finance partly due to the on-going fiscal consolidation.

By Samuel Boadi