Recapitalisation by banks in 2018/19 and the clean-up process from 2017 to 2019 were meant to position the banking sector to withstand shocks such as what emerged in 2020 and 2022, Bank of Ghana Governor Ernest Addison has said. 

According to him, the 2022 audited financial statements of banks, following the Domestic Debt Exchange Programme (DDEP), pointed to "significant" impairments in capital levels of banks. 

Speaking at the Chartered Institute of Bankers' Governor's Day, Dr Addison said: "This impact was largely attributable to the significant percentage holdings of assets in GoG bonds". 

"Thus, the mark-to-market valuation losses following the DDEP, coupled with higher impairments on loans and rising operating costs, resulted in significant losses in 2022", he explained.

He said the main profitability indicators, namely, return-on-assets and return-on-equity, turned negative because of the industry’s loss position. "It is, however, important to note that the banking industry would have been in a far worse situation with this kind of shock had the earlier reforms not occurred", he argued. 

He said to moderate the potential impact and help safeguard financial stability, the central bank gave temporary regulatory reliefs for banks and SDIs who participated in the DDEP. 

While these reliefs were intended to cushion banks and SDIs from the impacts of the DDEP, the Bank of Ghana, he noted, "expected them to fully restore capital gaps caused by the DDEP proportionally over the next three years, ending 31 December 2025, in line with capital restoration plans approved by the Bank of Ghana". 

The Government of Ghana, he added, has also published the operational framework for eligible banks to access recapitalisation support from the Ghana Financial Stability Fund.

Dr Addison pointed out that despite the significant DDEP-related losses in 2022, prudential data in the year to October 2023, show relative stability in the banking sector. 

Total assets have increased by 16.7 per cent year-on-year to GH¢257.89 billion funded by deposits, which recorded 26.6 per cent growth to GH¢199.94 billion from GH¢172.09 billion, he reported.

Total borrowings by banks, however, contracted by 21.0 per cent to GH¢14.94 billion from GH¢30.41 billion a year earlier, he added.

Profitability of banks has remained "relatively strong, on the back of higher interest income on loans and investments as well as other income sources", he added.

Dr Addison said these developments culminated in an industry profit-after-tax of GH¢7.10 billion, representing a 60.4 per cent annual growth, compared with 17.2 per cent growth in 2022. 

Capital Adequacy Ratio, adjusted for the regulatory reliefs, was 13.4 per cent in October 2023, higher than the revised prudential minimum of 10 percent. 

However, he saod, the industry’s non-performing loan ratio increased to 18.3 per cent in October 2023, from 14.0 per cent in October 2022, attributable to elevated credit risk associated with the lagged effect of the macroeconomic crisis in 2022.