Forex controls shore up CAL Bank earnings

CAL Bank has capitalised on the silver lining in the Bank of Ghana’s measures on controlling foreign exchange use in the economy, as the commercial bank has significantly improved earnings from its currency trading.

CAL Bank is one of 10 banks that deal in currency trading in the country, and it has found an innovative way to shore up its foreign currency inflow, with which it trades and assists customers to settle their transactions abroad.

Net trading income

CAL Bank increased its earnings from trading in forex to GH¢15.66 million in the first quarter of 2014, representing 170.3 per cent increase over the GH¢5.79 million recorded in the first quarter last year.

This is against the backdrop that many individuals and some corporate bodies have complained about what the restrictive conditions the measures announced by the central bank in February have brought on them, besides the runaway rate of depreciation the Ghana cedi witnessed in the first quarter of the year.

“It’s the opportunity that we identified in the foreign currency market. One key factor is we have been able to increase our foreign currency supply at the bank as a result of our relationship with customers that generate foreign currency. We obtain it from them and trade with it,” an Executive Director of CAL Bank, Mr Philip Owiredu, told the GRAPHIC BUSINESS in an interview shortly after presenting facts behind the bank’s first quarter performance.

The bank recorded an unaudited first quarter profit before tax of GH¢41.56 million, up from the GH¢28.39 million recorded for the same period last year. The bank’s total income for the first quarter was GH¢67.81 million, up from GH¢49.56 million, as profit after tax is estimated at GH¢29 million, up from the GH¢21.35 million recorded for the same period last year.

Mr Owiredu explained that the Bank of Ghana measures came in at a time when the rate was high and the cedi was fast losing grounds to major currencies. In such volatile situations, smart traders would find the opportunity to make some revenues, he added.

For CAL Bank, it managed to increase its foreign currency inflows and sources to meet the demand from its customers for their foreign exchange requirements.

“The Bank of Ghana measures were really to restrict physical access and not to prevent settlements in dollars. But the most important thing is we educated our customers as to the law and how to access their funds, and things have calmed down since, and customers are happy to approach the bank,” the executive director of CAL Bank said.

For him, as of many analysts, the shortage of the dollar was a perception, festering within the retail market, rather than an actual situation where demand outstripped supply. This compelled individuals to hedge in the dollar.

The measures holding?

The International Monetary Fund (IMF), in a statement on May 13 cast doubt about the Bank of Ghana directives to control the cedi depreciation, saying the directives were not holding and if not reviewed could further lead to worsening conditions for the private sector.

But the banker thinks that in the short term the Bank of Ghana measures had helped to stem the fast depreciation of the value of the cedi.

“In terms of the figures, the first quarter’s depreciation of 17.6 per cent is not the same as the 1.8 per cent depreciation since the introduction of the measures. Looking at it this way, one can say the measures are holding; but whether it could continue until the end of the year is another issue,” Mr Owiredu said.

Although the cedi had cumulatively depreciated by 21.29 per cent as of the end of April, the pace of depreciation has slowed, as the monthly changes show smaller weakening.