The outlook for Ghana’s banking industry is positive with the restructured VRA debt and commencement of payments. Similar restructuring arrangements have been initiated for debts owed by Bulk Oil Distribution Companies (BDCs) to the banks. Additionally, Government’s efforts to wean state owned enterprises (SOEs) off its balance sheet as well as the ongoing fiscal consolidation is likely to minimize government’s indebtedness to banks.
All these arrangements are expected to reduce the size of banks’ impaired loans, improve the industry’s solvency as well as liquidity, and in boost performance of the banking industry. All these efforts, together with improved loan recovery efforts and improvement in the macro economy, will boost credit delivery to facilitate economic growth. These observations were made in Bank of Ghana’s Financial Stability Report for September 2016, despite a recent report of rising records of bad debt bankersface.
According to the report, banks’ lending conditions showed an easing in overall credit stance to enterprises in July 2016 to the April 2016 survey. The easing of credit stance applied to Small and Medium Enterprises (SMEs) as well as short term enterprise loans. These trends were largely driven by relative improvement in expectations regarding economic activity; monetary policy decision and cost of funds and balance sheet constraints. The banks however reported a tightened credit stance on long term enterprise loans and loans to large enterprises.
Also, the report stated that the banking sector recorded a 24.6% growth in total assets year-on-year from Gh¢53.8 billion in July 2015 toGh¢67.0 billion as of July end 2016. This higher growth, according to the report, was partly due to the sharp appreciation of the cedi during the same period of 2015, which caused banks to reprice their assets denominated in foreign currency (which constitute about a third of bank total assets) at lower exchange rates.
In addition, total deposits remain the main asset funding source for banks. A the end of July, total deposits funded 63.0% of total assets and posted a 23.7% annual growth rate compared to 23.9% recorded during the same period of the previous year.
The report also further revealed that net advances accounted for the largest portion of the banks’ assts constituting 41.9% of their assets in July 2016 as against 46.6 during the same period on 2015. The banks’ share of investments in total assets however increased to 24.0% as at the end of July 2016 from the 23.0% recorded in July 2015 and was almost at par with the share of 25.2% for cash and short term funds in total assets.
The Bank of Ghana Financial Stability reported further stated that the banking sector remained relatively liquid. According to the report, this was gauged by the operational liquidity measure of total liquid assets as a percentage of total deposits liabilities and liquid assets to volatile funds, which improved and remained well within acceptable thresholds during the period under review. Both core and broad measures of liquidity also increased, giving an indication of liquidity easing.
Finally, the report concluded by assuring that the banking industry remained sound and solvent as at July 2016, even though some marginal declines were recorded in key financial soundness indicators.