Banks’ balance sheet healthy despite weakening asset quality – BoG

The Bank of Ghana says the banking sector’s performance in the first eight months of 2023 was robust despite weakening in some key financial soundness indicators, particularly asset quality and solvency.

According to the Central Bank, the balance sheet of the industry remained healthy, evidenced by sustained increases in total assets, deposits, and loans.

“Prudential data for the first eight months of 2023 also pointed to higher profit levels, which signals some turnaround from the losses incurred in December 2022 because of Phase I of the Domestic Debt Exchange Programme. Additionally, sustaining the high profits recorded during the review period could be capitalised by banks to improve their solvency positions”.

However, it said the key risks in the outlook remain asset quality which are on the upside and could potentially erode some of the gains to be realised from the high profits being posted by the industry, and the potential risk to financial stability from the Phase II of the DDEP.

Also, the key financial soundness indicators posted a mixed performance but broadly remained within regulatory and prudential benchmarks.

The industry’s Capital Adequacy Ratio (CAR) was above the revised regulatory minimum of 10% but declined in August 2023, reflecting impairment losses on investments from the domestic debt restructuring. The industry’s NPL ratio, however, increased due to a higher increase in the NPL stock relative to the growth in loans and advances.

“Broadly, the outlook remains stable in the medium term on the back of the regulatory reliefs and other interventions, including the anticipated Ghana Financial Stability Fund”, the Central Bank concluded.

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