The Non-Performing Loans (NPL) ratio of banks in Ghana have deteriorated to 18% in April 2023 from the 14.3% in April 2022, according to a report by the Bank of Ghana.
The Governor of the central bank, Dr. Ernest Addison revealed at the monetary policy committee meeting held on Monday, 22 May 2023.
He also opined that deteriorating NPL has caused higher loan impairments and elevated credit risks.
He also said the industry’s liquidity indicators have also improved following the implementation of the revised Cash Reserve Requirement.
The 2022 audited financial statements of banks, according to Dr Addison, reflected the full impact of the Domestic Debt Exchange Programme (DDEP) and the challenging operating environment that prevailed in the year.
Most banks reported significant losses on the back of the mark-to-market valuation losses on their respective holdings in Government of Ghana bonds following the implementation of the DDEP, he said.
Other losses, Dr Addison added, were due to higher impairments on loans and rising operating costs.
He said the industry posted before-tax losses of GH¢8.0 billion in 2022 compared with a profit of GH¢7.4 billion recorded in 2021.
After-tax loss was GH¢6.6 billion in 2022 relative to profit after-tax of GH¢4.8 billion in 2021, he added.
The main profitability indicators, namely, return-on-assets and return-on-equity all turned negative in 2022 because of the industry’s loss position.
The 2022 audited financial statements of banks also pointed to some impairments in capital levels, although most banks posted Capital Adequacy Ratios (CAR) above the 10 per cent regulatory minimum at end-December 2022, he noted.
This was attributed to the effect of the roll-out of the temporary regulatory reliefs extended to the banks to cushion them against the impact of the DDEP as was done at the onset of the pandemic, he explained.
In the first four months of this year, Dr Addison said prudential data show some turnaround in the banking sector’s performance following the conclusion of the DDEP, and following consensus reached among stakeholders on the treatment of losses arising from same.
Banks continue to rebalance their portfolios in response to the impact of the DDEP on their balance sheet shifting away from medium-to-long term investments to short term investments and increases in new loans,'' he added.
In general, he noted, the banks returned to making profits in the first four months of 2023, broadly reflecting higher operating income.
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