Profits of banks in the country are expected to continue to decline following moves by them to cut back on loans to customers.
Majority of banks early this year commenced the cut backs following a surge in Non Performing Loans on their balance sheets.
[contextly_sidebar id=”FDLCAAcVTetU51GxaKbdGZ8vOfSPgymP”]Non–performing loans on the books of banks in the country increased by 59.9 percent from GH¢ 3.1 billion in March 2015 to GH¢ 4.9 billion in March 2016.
Loan cut backs
Interests from loans continue to be the main source of income for banks in Ghana, the second highest is from fees and commissions while the rest are from investments including treasury bills, shares and other equities.
The central bank earlier warned while a slowdown in credit delivery may moderate the accumulation of NPLs, it has adverse implications on the profitability of banks.
It argues that since credit delivery is the core business of banks the move will hurt their revenue and rather says banks must intensify their loan recovery efforts alongside tighter credit risk management practices in order to minimize losses from non-performing loans.
Banking industry challenges
The banking industry joined the tall list of sectors that were facing challenges due to Ghana’s economic challenges.
The industry for some time now has been one of few which had recorded impressive gains despite the economic challenges which begun about three years ago.
But by the end of 2015 majority of banks record a dip in their profits while only a few made substantial gains in their revenue.
Projections by industry players show the development will continue into 2017.
In 2015 the central bank’s Financial Stability Report released in November of that year said the key challenges to the sector include the declines in profitability due to rising operating costs as a result of the energy challenges and the rising non-performing loans.
But the central bank was convinced that the coming of the power barges in the last quarter of 2015 will minimize the energy challenges to a large extent and consequently reduce the banks high operating costs and contribute to enhancing banks’ profitability.
Profitability for 2015
Indicators of profitability for the banking industry showed some deterioration in banks’ earnings performance for the period ended September 2015.
The industry net interest income registered a growth of 30.2 percent in September 2015 compared with 41.9 percent growth registered in September 2014.
Growth in the sector’s income before tax declined sharply over the period, from the 54.4 percent growth in September 2014 to 5.9 percent in September 2015.
Profitability for 2016
Fast forward to 2016 first quarter and the story is no different.
According to the BoG’s financial stability report released in late June, 2016 which covers the first quarter of 2016 profitability Indicators of profitability for the banking industry showed some deterioration in banks’ earnings performance for the period ended March 2016.
The industry’s net interest income registered a growth of 14.8 percent in March 2016 compared with 37.3 percent growth registered in March 2015.
The sector’s income before tax registered a negative growth of 1.0 percent in March 2016 compared with a growth of 31.8 percent in March 2015.
Similarly, the industry’s net profit after tax contracted by 2.6 percent in March 2016 compared with 24 percent growth in March 2015.
By: Vivian Kai Lokko/citibusinessnews.com/Ghana