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Banks profit growth drop significantly

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By Elorm Desewu
Banks’ profit growth for 2018 declined significantly compared to 2017. The industry’s net profit after tax of GH¢2.40 billion in 2018, signalled a slower growth of 12.5 percent year-on-year in December 2018 compared with 21.7 percent growth a year earlier. 

According to reports by Bank of Ghana, both interest income and interest expense respectively declined by 7.0 percent and 18.0 percent in 2018, partly as a result of the general decline in interest rates during the year and lower levels of loans and borrowings.

These developments resulted in a marginal growth of 1.5 percent in net interest income, compared to 9.2 percent growth recorded a year earlier. Fees and Commissions however grew by 14.6 percent in 2018, compared with 12.7 percent growth in 2017. While the industry benefitted from a decline in growth of operating expenses, increasing costs related to provisions on non-performing loans and depreciation moderated the positive impact of lower operating costs, resulting in the lower growth rate in both profit before tax and profit after tax.

Asset quality in the banking sector improved following enforcement of the loan-write off directive issued in June 2018. Consequently, non-performing loans (NPLs) declined to GH¢6.65 billion in December 2018 from GH¢8.19 billion in December 2017, representing 18.9 percent contraction against a 33.4 percent growth recorded a year ago. 

The loss component of NPLs contracted by 32.4 percent and accounted for 49.2 percent of total NPLs in December 2018 compared with a growth of 40.1 percent and a share of 59.0 percent a year ago.  Accordingly, the ratio of NPLs to gross advances declined to 18.2 percent from 21.6 percent during the review period.

Also, the industry’s NPL ratio which was adjusted for fully-provisioned loss-category loans increased marginally to 11.7 percent in December 2018 from 11.3 percent in December 2017, signalling a slight uptick in the proportion of the substandard and doubtful loans in NPLs

The Commerce & Finance sector, the largest recipient of industry credit also accounted for the biggest share of industry NPLs of 25.4 percent.  The Mining and Quarrying sector, being the least recipient of credit, accounted for the least share of 1.3 percent. 
However, the Electricity, Gas and Water sector with a share of 8.6 percent of outstanding credit balances accounted for the second largest share of industry NPLs of 17.8 percent.  Notably, the sector had the highest NPL ratio of 37.8 percent.

The Commerce & Finance sector recorded an NPL ratio of 18.8 percent indicating that almost a fifth of loans to the sector had been downgraded. Credit risk to the Mining & Quarrying sector appeared better managed than all the other sectors with only 7.2 percent of the total loans to the sector being classified as non-performing.

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