Investments in government bonds by the various banks in the country grew by some 58.5 percentage points from 2016 to 2020.
This is according to a report by Asset Management Company, Tesah Capital, on the 2020 performance of the country’s banking sector.
Banks’ holdings of government bonds as a percentage of total investments in 2016 according to Tesah Capital, was 19.1 percentage points. This, however, increased to 77.6 percent as at the end of 2020.
Treasury bills which used to dominate the investment portfolio of banks with a 79 percentage share in 2016, decreased significantly to 20 percent at the end of 2020.
Investments in equity or shares by banks over the 4 year review period also declined from 1.9 percent in 2016 to 0.4 percent in 2020.
“Although investment holdings of banks increased in 2020, the structure of their investment portfolio remained largely the same. The movement towards longer dated instruments which led to an increase in the share of securities in total investments from 1.1% in 2018 to 1.8% 2019 was reversed in 2020 to 0.4%.”
“Banks’ appetite for GoG securities remain strong as they reduce the size of their loan books in response to the risks presented by the pandemic on banking activities,” stated Tesah Capital.
Investment holdings of banks increased significantly in 2020 as banks’ restricted credit to the private sector and diverted the funds into government securities which are less risky.
Risks associated with credit to the private sector became elevated as a result of the adverse impact of the Covid pandemic on businesses as the private sector faced loan repayment challenges.
According to Tesah Capital, banks’ investments, particularly in government securities constituted 43 percent of their asset structure at the end of 2020, indicating an increase of 16 percent from the 27 percentage share of banks’ assets structure in 2016.
“Total assets of the banking sector stood at GH¢ 149.3billion as at December 2020, indicating a y/y growth of 15.7% (2019: 20.2%). The lower growth in 2020 was due to adverse impact of Covid-19 pandemic on banking activities in 2020. Net advances formed the larger proportion of the asset mix until 2018 where investment began to dominate.”
The sharp growth in total investments in 2018 was largely due to the special resolution bonds issued to Consolidated Bank Ghana (CBG). Investment holdings increased in 2020 as banks move to less risky assets i.e. GoG securities as a result of the pandemic-induced elevated credit risks,” asserted Tesah Capital.
