Income from gov’t securities accounts for 51.3% of banks’ overall income in 2021
Income from investments in government securities remained the largest component of banks’ income streams in 2021, accounting for more than half of banks’ income (51.3 percent), an increase from the 46.6 percent income recorded in 2020.
Investments in Treasury bills and securities continue to be the preferred asset choice of banks during the pandemic, evidenced by banks’ portfolio reallocation in favour of these less risky assets.
The share of bills, securities, and equity in total assets increased to 46.2 percent from 43.1 percent, on account of the 29.0 percent (year-on-year) growth in these investments in December 2021.
The portfolio allocation of banks’ investments as at end-year 2021 remained skewed towards long-term debt instruments (securities). Securities accounted for the largest proportion of banks’ total investments, but its share declined marginally from 77.6 percent in 2020 to 75.3 percent in 2021 following the decline in its growth rate from 52.0 percent to 25.2 percent over the review period.
The share of short-term bills in total investments increased from 22.0 percent to 24.4 percent during the same comparative periods. The share of equity investments, however, remained small, declining marginally to 0.3 percent in December 2021 from 0.4 percent in December 2020.
The fact that majority of banks’ income [51.3%] comes from government securities posses serious risks to banks’ profitability should government default on interest payments on securities owned by banks.
Meanwhile, the share of interest income from loans, however, declined from 33.9 percent to 29.2 percent, in line with developments in credit growth and lower lending rates during the review period.
Read: Current account deficit widens by $400m in 2021
The share of banks’ income from fees and commissions, however, increased to 12.4 percent from 11.5 percent, due to the higher growth of net fees and commissions in 2021.
While, the share of other income declined to 7.1 percent from 8.1 percent during the period under review
Profitability performance of the banking sector, the BoG notes, remained robust in 2021, despite the dip in the growth rate of profits. Profit before tax recorded a growth rate of 22.1 percent in 2021, relative to the 27.2 percent attained in the previous year, but profit after tax saw a relatively larger decline due to the financial sector recovery levy.
The growth outturns for key income lines of banks contributed to the sustained profit performance. However, an increase in the growth of interest expenses, associated with the growth in deposits and borrowings in 2021, culminated in a lower growth in net interest income.
Net interest income grew by 14.5 percent in 2021 compared to a growth of 20.9 percent in 2020. The strong growth in contingent liabilities and trade finance activities supported the growth in net fees and commissions by 24.8 percent in 2021, higher than the increase of 5.0 percent in 2020.
Meanwhile, the stock of gross loans and advances by banks under the review period, amounted to GH¢53.9 billion at end-year 2021, representing an annual growth of 12.9 percent, compared to 5.8 percent growth in 2020.
Private sector credit, which accounts for the biggest share of total credit (90% of total credit), recorded a marginal increase in growth from 10.6 percent to 11.5 percent during the review period.
The Public Sector experienced significant improvement in credit growth contrary to the contraction in credit to this sector in 2020. Public sector credit increased by 27.1 percent in 2021 from a contraction of 27.0 percent in 2020 while its share in total credit inched up to 10.0 percent from 8.9 percent during the same comparative period.
