Robust Recovery of Banking Sector in 2023 - Findings by GAB Research
Banks in Ghana Shining Bright: Q1 2023 Report
Despite last year's Q4 challenges, courtesy of the government's debt restructuring program, Ghana's banking industry demonstrated a scintillating performance in Q1 2023. The highlight? A strong, robust, and iridescent industry. Let's delve into the numbers.
The industry's balance sheet was nothing short of impressive, with significant growth in total assets, chiefly driven by sustained growth in deposits and increased capital levels. The income statement surged, leading to a considerable growth in revenues relative to operating expenses. Financial intermediation received a major boost, as private sector credit increased from approximately GHȼ47.07 billion in 2022 to GHȼ50.51 billion during Q1 2023—a 7.31% increase.
The industry's resilience to vulnerabilities within the broader financial system was evident in the performance of key indicators, such as asset quality, capital adequacy ratio (CAR), return on equity (ROE), liquidity, non-performing loans (NPLs), and sensitivity to market risk. The industry's CAR exceeded 21.96%, well above the Bank of Ghana's regulatory requirement of 16.60%; in fact, more than twice the minimum capital adequacy ratio (8%) and capital conservation buffer (2.5%) requirements under Basel III (10.5%).
CAR, which signifies a better capital-to-risk-weighted-assets ratio, resonated strong capitalization and improved financial resilience of institutions within the banking industry. With banks maintaining a strong capital position, the higher CAR indicates that even in the event of any credit risk concentration shocks, banks would still maintain capital adequacy ratios above the minimum regulatory capital requirement.
In terms of the overall financial condition, the industry boasted strong risk mitigation measures, with the quality of banks' assets anchored by the quality of loan and investment portfolios, and efficient credit administration programs. This demonstrated an industry characterized by resilience and stability, capable of absorbing potential shocks and deepening financial intermediation.
The liquidity coverage ratio (LCR) for the industry during theperiod under review remained over 92.98%, affirming the availability of high-quality liquid assets to fund short-term cash outflows. The relatively high LCR (over 92.98%) indicated the banks' preparedness to weather any potential market-wide shocks that might disrupt the market.
Indicators of the industry's profitability, such as profit-before-tax (PBT), profit-after-tax (PAT), return on assets (ROA), return on equity (ROE), earning assets, net interest income, and others, showed significant improvement and high levels of operational efficiency during Q1 2023 compared to year-end 2022. Given that investors often perceive ROE as a better metric for gauging the market value and growth of institutions within the banking industry, the industry's high ROE in Q1 2023 is expected to be sustained throughout the current financial year and beyond. This growth potential is projected to serve as an attractive tool for investors seeking to shore up capital and invest in the financial sector and the broader Ghanaian economy.
Further, the improved net worth, high CAR, and sustained NPL ratio (15.92%) attest to the solvency of banks in the current financial year. The industry's asset quality is expected to witness further improvements, as banks strengthen credit risk assessment while creating more loans and expanding their loan books, and intensify their loan recovery efforts. The current financial posture of the banking industry, characterized by robustness and resistance to credit concentration shocks, is a promising sign for Ghana's financial sector and economy.
It's worth noting that banks in the industry have taken proactive steps to bolster their risk management practices and internal control mechanisms, strategically positioning the industry to contain and mitigate potential solvency challenges that may stem from loan concentration. Banks are well aware of their critical role in preserving the stability of the country's financial system, so they are consistently engaging with the Bank of Ghana and other key stakeholders to ensure sustained stability of the banking industry.
In short, Ghanaian banks are gearing up to navigate the economic recovery, armed and ready to do business with well-meaning Ghanaians, from individuals and households to businesses. Capable of withstanding potential economic shocks and financial crises, the industry is poised to provide stable and improved financial services to the economy.
- The growth in banking industry's total assets in Q1 2023 was chiefly driven by increased investments in deposits and capital levels, as displayed in the latest report.
- The private sector credit in Ghana increased significantly from GHȼ47.07 billion in 2022 to GHȼ50.51 billion during Q1 2023, indicating a robust business environment.
- The banking industry's capital adequacy ratio (CAR) exceeded 21.96%, signifying a strong financial position for handling potential risks and shocks in the investment and finance market.
- The banking industry's high return on equity (ROE) in Q1 2023 is projected to be sustained throughout the current financial year, making it an attractive opportunity for investors interested in business opportunities and economic growth.
- Banks in Ghana have proactively improved their risk management practices and internal control mechanisms, ensuring a stable and resilient banking sector capable of supporting the broader Ghanaian economy.
