Banking: Industry’s CAR decline by 5.6% due to current macroeconomic conditions
Capital Adequacy Ratio (CAR) of banks in the country dropped to 14.2% in October 2022 from the previous year’s figure of 19.8%.
Per the November 2022 Monetary Policy Report by the Bank of Ghana, the marked decline in the industry’s CAR is due to prevailing macroeconomic conditions.
“The industry’s solvency position, measured by the Capital Adequacy Ratio (CAR) was 14.2% in October 2022, higher than the prudential minimum of 13%, but a decline from the 19.8% recorded during the same period last year”.
“The marked decline in the industry’s CAR is reflective of the current macroeconomic developments, particularly the impact of the currency depreciation, the mark-to-market investment losses by some banks, and the expansion of banks’ weighted assets on the back of the sharp credit growth which is weighing down the industry’s CAR,” stated the report.
For liquidity, the banking industry’s liquidity position remained strong with improvements in the core measures.
The ratio of core liquid assets (mainly cash and due from banks) to total deposits increased to 39.5% in October 2022, from 28.0% in October 2021.
Similarly, the ratio of core liquid assets to total assets increased to 27.2%, from 18.9% over the same comparative period.
Overall, the industry’s Financial Soundness Indicators as of October 2022 remained broadly positive despite the moderation in some indicators.
Meanwhile, banks wrote off GHS 2.92 billion as bad debt in the first 10 months of 2022, the Domestic Money Bank’s Income Statement has revealed.
The bad debt which was 66.8% more than the previous year was as a result of loan losses, depreciation, among others. During the same period in 2021, GHS 1.75 billion was written off as bad loans.
According to the Bank of Ghana, the banking industry’s Non-Performing Loans (NPLs) stock increased to GHS 11.3 billion in October 2022, from ¢8.4 billion in October 2021. This is partly reflecting the revaluation of the foreign currency NPLs and deterioration in some domestic currency portfolios.
However, the industry’s asset quality (NPL ratio) improved during the period under review from 16.4% in October 2021 to 14.0% in October 2022.
When adjusted for the fully provisioned loan loss category, the industry’s NPL ratio declined sharply from 6.2% to 3.9%.
The decline in the NPL ratio, according to the Bank of Ghana, was due to higher growth in total loans (57.7% year-on-year growth) relative to the NPL stock (34.2% year-on-year growth) during the review period.
