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321 bank branches closed down due to sector consolidation

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By Elorm Desewu

The banking sector has closed down 321 branches due to bank consolidation. Data from the statutory regulator, the Bank of Ghana indicate that the branch network of banks across the 16 regions of the country stood at 1,225 branches as at end February 2019, from 1,546 as at end-February 2018.

This reflects bank consolidations and the resulting branch rationalisation within the industry. It is also to cut down on their operational expenses. It has also resulted into massive jobs loses in the country.

Following the completion of the recent reforms and recapitalization exercise, the industry currently comprises 23 banks, 14 of which are foreign-controlled with the remaining nine being domestically-controlled.

The banking industry recorded an after-tax profit of GH¢549.70 million, representing a year-on-year growth of 31.5 percent, at the end of February 2019 higher than the 14.0 percent growth recorded for the same period last year.

The higher growth in net profit was underpinned by an increase in the growth of net interest income coupled with a slowdown in the growth of operating expenses and total provisions.

The net interest income grew by 17.9 percent on account of higher interest income from investments and lower borrowing cost from reduced borrowings resulting from the strong deposits mobilization. Fees and commissions however inched up by only 0.4 percent compared to the 16.8 percent growth witnessed during same period last year.
The growth in operation was somehow contained at 7.7 percent, lower than the previous year’s growth of 8.6 percent, due largely to efficiency gains from bank consolidations and the rationalization of bank branches. This also contributed to lower growth in provisions for fixed assets.

The total provisions on loans and fixed assets depreciation grew by only 2.2 percent, significantly lower than the 11.9 percent recorded for the same period a year earlier on account of reduction in fixed assets and lower NPLs.

The improved profitability levels positively reflected in the main indicators, namely, after-tax Return on Equity (ROE) and before-tax Return on Assets (ROA). The industry’s after-tax ROE measured as the ratio of after-tax income to average shareholders’ funds increased to 20.1 percent in February 2019 from 19.0 percent in February 2018. Similarly, the before-tax ROA measured as the ratio of income before-tax to average total assets increased to 4.2 percent from 4.0 percent during the same comparative period, pointing to improved profitability within the banking industry.

Total assets of the banking sector grew by 14.5 percent year-on-year to GH¢108.90 billion at end of February 2019, higher than the 13.7 percent growth in the corresponding period in 2018. The higher growth in the industry’s total assets reflected increases in both domestic and foreign assets.
While growth in domestic assets increased from 14.9 percent in February 2018 to 15.2 percent in February 2019, growth in foreign assets increased from 3.5 percent to 6.9 percent during the same period. The share of domestic assets in total assets also increased marginally in February 2019 to 91.5 percent f
rom 90.9 percent a year earlier, resulting in a marginal decline in the share of foreign assets from 9.1 percent to 8.5 percent during the period under review. 
Banks’ investment in bills and securities increased from GH¢32.59 billion at end-February 2018 to GH¢43.45 billion at end-February 2019, representing a year-on-year growth of 33.3 percent, similar to the 33.6 percent growth for same period in 2018.

It is worth noting that growth in investments partly reflected the issuance of bonds by the government to finance the gap between the liabilities and good assets of the defunct banks absorbed by the Consolidated Bank Ghana (CBG).  There is however a continuous shift in the investment portfolio mix of banks in favour of longer-dated instruments.

Banks’ investments in short term bills accordingly showed a further decline of 18.6 percent to GH¢14.22 billion at end-February 2019, much higher than the 6.1 percent contraction recorded in February 2018. Investments in long term securities on the other hand almost doubled from GH¢14.69 billion to GH¢28.82 billion during the period, albeit lower than the 174.8 percent growth recorded a year ago.  

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