Ghanaian banks struggle to turn profit as foreign-owned banks dominate, says report of 2022 financial performance
Global InfoAnalytics Ltd’s comprehensive analysis of Ghanaian banks for the fiscal year ending 2022 has revealed a concerning trend in the country’s banking sector. With only six out of twenty-two banks recording a Profit Before Tax (PBT), and none of them being domestically owned, Ghanaian banks find themselves grappling with profitability challenges.
The adverse effects of the Debt and Distressed Entities Programme (DDEP) have become evident, as impairments soar, reaching alarming heights for some institutions. This article delves into the key findings of the analysis, shedding light on the struggles faced by Ghanaian banks, the dominance of foreign-owned entities, and the various performance metrics shaping the sector’s landscape.
Profitability Challenges
The analysis reveals a distressing picture of profitability in Ghanaian banks. Out of the twenty-two banks studied, a mere six managed to record a Profit Before Tax, leaving the majority struggling to generate positive financial results. What is particularly noteworthy is that none of the profitable banks are domestically owned, underscoring the profitability gap between local and foreign-owned institutions. This raises concerns about the competitiveness and resilience of Ghanaian banks in the face of evolving market dynamics.
Impairments and the DDEP Impact
The implementation of the Debt and Distressed Entities Programme (DDEP) has had a profound impact on Ghanaian banks, amplifying the challenges they face. The analysis reveals a surge in impairments, with nine banks reporting impairments exceeding GHS1 billion. Leading the pack are Absa Bank, Consolidated Bank, and GCB Bank, with impairments reaching staggering amounts of over GHS2 billion each. Such significant impairments reflect the arduous task faced by banks in managing distressed assets and the knock-on effect on their financial health.
Dismal Performance of Ghanaian-Owned Banks
Among the bottom five worst-performing banks in terms of Profit Before Tax, three are Ghanaian-owned. The Consolidated Bank emerges as the weakest performer, reporting a Loss Before Tax (LBT) of GHS2 billion. It is closely followed by Cal Bank and GCB Bank, with LBTs of GHS1 billion and GHS0.7 billion, respectively. While foreign-owned banks also grapple with losses, the presence of Ghanaian-owned banks among the poorest performers raises concerns about their ability to compete effectively and maintain profitability in a challenging banking environment.
Customer Deposits and Ownership Dynamics
Examining customer deposits, the analysis highlights the dominance of foreign-owned banks. The top five ranked banks collectively hold GHS72 billion in customer deposits, with Ecobank claiming the lion’s share at 27%. GCB Bank, Stanbic, Absa, and Fidelity Bank follow with shares of 24%, 20%, 15%, and 13% respectively. While two local banks, GCB Bank and Fidelity Bank, manage to secure positions in the top five rankings based on customer deposits and total assets, only GCB Bank stands out as a Ghanaian-owned entity in terms of equity. This underscores the challenges faced by domestic banks in attracting and retaining customer deposits compared to their foreign counterparts.
Capital Adequacy and Financial Health
The Capital Adequacy Ratio (CAR) serves as a crucial indicator of a bank’s financial health and ability to withstand risks. The analysis reveals that, apart from Stanbic, all foreign-owned banks recorded CARs above 13%, surpassing the regulatory requirements. In contrast, only four out of the eight Ghanaian-owned banks analyzed achieved CARs of 13% or higher. Cal Bank’s CAR stood at 11.9%, raising concerns about its ability to meet regulatory standards. ADB registered a CAR of 7.36%, highlighting potential vulnerabilities. Moreover, two local banks, UMB and Consolidated Bank, reported negative CARs of -0.21% and -4.5% respectively, signaling a precarious financial position and the urgent need for remedial actions.
Non-Performing Loan Ratio and Loan Quality
Examining the Non-Performing Loan Ratio (NPLR), it becomes evident that Ghanaian banks face varying degrees of loan quality challenges. GT Bank emerges with the lowest NPLR of 2.42%, indicating a relatively healthier loan portfolio. On the other end of the spectrum, UMB records the highest NPLR at a staggering 33.38%, underscoring significant concerns regarding the quality and performance of its loan book. These varying NPLRs further accentuate the disparity in loan management practices and credit risk assessment across Ghanaian banks.
The FYE2022 analysis of banks in Ghana conducted by Global InfoAnalytics Ltd paints a challenging picture for the country’s banking sector. Profitability remains elusive for the majority of Ghanaian banks, with foreign-owned institutions outperforming their domestic counterparts. Impairments, driven by the DDEP, have reached alarming levels, adding further strain to the financial health of banks. The poor performance of Ghanaian-owned banks raises questions about their competitive positioning and long-term sustainability. As the sector grapples with capital adequacy concerns, loan quality issues, and deposit dynamics, stakeholders must address these challenges to foster a more resilient and robust banking landscape in Ghana.
