Commercial banks’ decision to reduce their levels of loans and advances to businesses have rather affected their profitability.
As a result of this position, the profits of commercial banks had dropped by 40 percent as at June 2017.
Figures from the Bank of Ghana on the banking sector indicate that the profits of commercial banks went down from 2.55 to 1.53 billion cedis between June 2016 and the same period in 2017.
According to the banking sector stability report, the modest growth in loans and advances, increasing non-performing loans, lower yield on investments and net interest income which is the interest earned on loans granted by banks, accounted for the drop in profits of the banks.
Also, other profitability indicators such as the banks’ Return on Assets (RoA) and Return on Equity (RoE) witnessed declines within the period under review.
The banking industry’s Return on Assets which how efficient management is at used the respective banks’ assets to generate earnings, decreased from 4.9 percent in June 2016 to 3.7 percent in June 2017.
Similarly, the Return on Equity which reveals how much profit a bank generates with the money shareholders have invested; declined from 22.9 % to 17.7% over the one year period.
Meanwhile interest income from loans remained the main source of income for the banking industry although the contribution to total income declined during the review period.
While interest income from loans accounted for 44 percent of total income in June 2017; a decline from the 51 percent last year, income from banks’ investments increased from 32.9 percent in June 2016 to 40.3 percent in June 2017.
The proportion of fees and commission in total income however, declined from 10.7 percent in June 2016 to 10.0 percent by the end of the first half of this year.
It is however worth noting that the Non-Performing Loans (NPLs) of commercial banks in Ghana has reached almost 8 billion cedis.
Of this, the private sector mainly local enterprises, accounted for as much as about 7.6 billion cedis or 95 percent.
By: Pius Amihere Eduku/citibusinessnews.com/Ghana