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On the back of a difficult economic year where the economy was hit by one of the worst Cedi depreciation, high inflation and prolonged power outages, banks profit for the year 2014 dropped significantly.

Profit for the 27 banks dropped from 60.3 per cent in 2013 to 24.8 per cent at the end of December 2014 despite some banks recording outstanding profits.

According to the latest ‘Financial Stability Report’ by the Bank of Ghana, the industry’s net interest income growth of 38.2 percent in December 2014, made of advances and investment in securities, was relatively lower than 50 percent growth registered in December 2013.

Importantly, interest income from loans continued to be the main source of income for the banking industry and constituted 45.5 per cent of total income in December 2014 compared with 45.1 per cent in December 2013. 

Also, the share of income from fees and commission declined to 12.8 per cent in December 2014 from 13.4 per cent in December 2013.

The banking industry’s return on assets increased marginally to 6.4 percent as at December 2014 from 6.2 per cent in December 2013. Similarly, return on equity- of interest to investors-increased to 32.3 per cent in December 2014 from 31.1 per cent in December 2013

With regard to loans and advances, the banking industry grew in year-on-year terms by some 21 per cent at the end of December 2014 compared with 11.6 per cent growth in the same period in 2013. 

Credit to the private sector also grew by 21.2 per cent at end of December 2014 compared with the 10.8 per cent growth at the end of December 2013. Credit to households also grew by 23.7 per cent in December 2014 compared with17.2 per cent growth during the same period in 2013. 

The composition of banks’ credit portfolio showed that the proportion of banks’ loans to government and public institutions increased from 5.3 per cent in December 2013 to 6.8 per cent in December 2014. Credit to private enterprises however declined marginally to 74 per cent of gross loans in December 2014, compared with the 74.3 per cent recorded in December 2013. 

On sectoral performance, the Commerce & Finance sector received the highest amount of credit, accounting for 25.1 per cent as at December 2014 compared with 25.3 per cent in December 2013. The three highest recipient sectors of credit, namely Commerce & Finance, Services, and Electricity, Gas & Water, accounted for 59.4 per cent of credit allocation in December 2014 compared with 63.1 per cent recorded in December 2013. 

Similarly, the non–performing loans (NPLs) of the banking industry was 11.3 percent in December 2014 as against 12 per cent in December 2013.

However, indicators of operational efficiency as at December 2014 showed mixed performance. Cost to income ratio increased to 76.4 per cent in December 2014 from 76.2 per cent in December 2013 but cost to total assets ratio decreased marginally to 12.6 percent in December 2014 from 12.8 per cent in December 2013.

Liquidity conditions of the banking sector remained strong while the industry’s capital adequacy ratio as measured by the ratio of risk-weighted capital to risk–weighted assets declined from 18.5 per cent in December 2013 to 17.9 per cent in December 2014.

Interestingly, banks’ long term external funding increased more than their short term funding. Long term external borrowing increased from 14.7 per cent to 22.0 per cent between December 2013 and December 2014 compared with a decline in the proportion of short term external borrowing over the same period. The share of domestic borrowings in total borrowings was higher than external 

Meanwhile, the Central Bank says the banking sector continues to remain strong on account of asset quality, liquidity, solvency and earnings. 

It added that despite the macroeconomic challenges of 2014, the sector’s non-performing loans recovered and declined during the second half of the year. Similarly, liquidity positions of the sector also improved despite marginal worsening in operational efficiency on account of high cost of operations. 

It therefore urged banks to put in place additional effort to strengthen their risk management practices and also recover overdue loans.