The Ghana banking industry report 2023 — An annual performance review

The banking industry has experienced a significant decline in performance, primarily driven by substantial impairment losses, resulting in a notable decrease in profitability.

Only six banks reported profits before tax in the review year, in contrast to the 20 banks that achieved this milestone in 2021 and twenty-one in 2020.

One of the key indicators reflecting the industry’s decline is the shareholders’ equity, which decreased from GH₵‎26.49 billion to GH₵‎20.53 billion, representing a reduction of 22.49 per cent.

This decline was primarily attributed to the review year’s retained losses, which marked a departure from the positive gains of 16.23 per cent witnessed in 2021.

On the other hand, total deposit liabilities experienced a significant increase in 2022, with an upswing of GH₵‎36.85 billion, representing a substantial growth rate of 29.92 per cent.

This stands in contrast to the previous year, which saw a comparatively lower increase of GH₵‎19.17 billion, translating to an 18.43 per cent growth rate.

Despite the challenging environment, the industry managed to improve its balance sheet through an increase in deposit liabilities.

Overall, while the banking sector in Ghana demonstrated commendable performance in enhancing its balance sheet, the incidence of impairment losses had a significant impact on profitability thereby affecting the balance sheets.

Reductions in impairment losses would have positively influenced the sector’s profitability, thus highlighting the importance of addressing this issue in the coming period.

This report delves deeper into the factors influencing the banking industry’s performance, examining strategies to mitigate impairment losses and further enhance financial stability in the sector.

Total assets

Four banks have remained in the top 4 biggest banks by total assets for the last three years.

Ecobank Ghana emerged the biggest bank by total assets with GH₵‎25.77bn in total assets as at December 2022; followed by GCB Bank with GH₵‎21.35 billion, Stanbic Bank with GH₵‎18.60 billion and Absa with GHS17.10 billion.

All banks saw an increase in growth of total assets in 2022 in line with the general performance of the industry.

The ranking of banks in Ghana based on total assets as of December 2022 generally reveals a mix of indigenous and non-indigenous banks dominating the top positions, demonstrating the strength and expansion of the Ghanaian banking sector.

Profits/losses before tax

Banks like Ecobank, GCB Bank, and Stanbic Bank consistently ranked in the top ten in previous years but faced larger losses in 2022 due to factors like the Domestic Debt Exchange Program (DDEP).

Ecobank Ghana, for example, dropped to 9th place due to increased net impairment losses on financial assets.

Similar patterns were observed in other banks such as Cal Bank and Consolidated Bank. These losses highlight the impact of bad loans and investments on banks’ financial performance.

GT Bank was the most profitable in absolute terms, followed by Société Générale Ghana Limited and FBN with profits of GH₵‎191m, GH₵‎168m and GH₵‎102m profits before tax respectively.

Share of industry deposits

Our analysis provides insights into the market share of each bank. Non-indigenous banks like Ecobank, Absa, Standard Chartered, Access Bank, and Zenith Bank dominate the top positions, indicating their dominance in the deposit market.

However, indigenous banks like GCB Bank, Fidelity Bank, Consolidated Bank, and Cal Bank also secured spots in the top ten.

Notably, banks outside the top ten collectively held 28.6% of the industry deposits, indicating room for competition in the market.

The ranking of banks in Ghana based on their share of industry loans and advances reveals the market presence of each bank in lending activities.

Ecobank Ghana holds the highest share, followed by Stanbic Bank, Absa Bank, and GCB Bank. Agricultural Development Bank of Ghana, Cal Bank, and Société Générale Ghana also feature in the top positions.

Liquidity

The Government’s Domestic Debt Exchange Program had a significant impact on banks’ balance sheets in 2022, resulting in decreased values of trading assets and retained earnings compared to the previous year.

Capital adequacy and efficiency

In the review of the performance of banks in Ghana, several key observations were made regarding their capital adequacy and efficiency ratios, particularly the cost to income and cost to asset ratios.

Cost to Income

FBN Bank improved its cost significantly and positioned itself as the best bank in terms of income spent on cost in 2022, despite falling out of the top 10 in 2021.

Guaranty Trust Bank consistently maintained its position as the second-best bank in this category.

Access Bank retained its position in the top 3, although it dropped to the 3rd position in 2022 after being the top bank in 2020 and 2021.

OmniBSIC showed significant improvement by placing 9th in 2022, indicating successful cost- cutting measures.

Capital adequacy ratio

FBN Bank consistently held the top position in the capital adequacy ratio, with a range of 56 per cent to 74 per cent from 2020 to 2022, maintaining a significant lead over other banks.

Bank of Africa experienced a decline in its position, moving from 2nd in 2020 to 5th in 2022, possibly due to the impact of the DDEP.

Guaranty Trust Bank maintained a relatively stable position, moving from 3rd in 2020 to 4th in both 2021 and 2022.

Zenith Bank’s position fluctuated, going from 4th in 2020 to 3rd and 4th in 2021 and 2022, respectively.

Profitability

This report further analyzes the profitability of Ghanaian banks, focusing on key profitability ratios: Profit Before Tax Margin, Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM).

Profit before tax margin

The average Profit Before Tax Margin in the banking industry decreased from 45 per cent in 2021 to -33 per cent in 2022.

This decline was mainly due to impairment losses on financial investments, particularly losses on investments in government securities resulting from the implementation of the Domestic Debt Exchange Program (DDEP).

FBN Bank emerged the most profitable by profit before tax margin with a rate of 22.50 per cent, followed by Société Générale Ghana at 21 per cent, GT Bank at 19.80 per cent, UBA at 13.40 per cent, First Atlantic Bank at 4.2 per cent and Bank of Africa at 3.8 per cent.

Return on assets

The industry’s ROA experienced a steady decline, averaging 2.1 per cent from 2.8 per cent in 2020 to -3.0 per cent in 2022.

Despite a 10.16% increase in total assets from 2021 to 2022, the lower Profit Before Tax Margins resulted in a significant decline in ROA.

Several banks that were market leaders in ROAs, such as GT Bank and SCB, experienced declines in 2022 due to decreased Profit Before Tax Margins.

On the other hand, banks like FBN, SG, GT Bank, UBA, and BOA recorded the highest ROAs in 2022, primarily due to impressive Profit Before Tax Margins and lower net impairment losses on financial assets.

Return on equity

A sustainable and increasing ROE over time indicates a company’s ability to generate shareholder value. FBN, SG, GT Bank, and UBA recorded the highest ROEs in 2022, experiencing significant growth in Net Interest Income.

Factors contributing to the ROE growth for these banks include improved Net Interest Income and increased efficiency in reinvesting earnings.

On the other hand, CBG, CAL, FNB, and UMB recorded the lowest ROEs due to significant losses on derecognition of renegotiated loans and net impairment losses.

Credit risk efficiency

In 2022, Guaranty Trust Bank (GT Bank) emerged as the bank with the lowest NPL ratio.

This performance is consistent with their previous year results, where they also ranked favorably.

GT Bank’s strong performance indicates effective credit risk management policies and financial soundness.

Following two years of severe decline in 2021 and 2020, Access Bank showed significant improvement in its NPL ratio in 2022.

This suggests that the bank has made efforts to address its credit risk and improve the quality of its loan portfolio.

While Consolidated Bank Ghana recorded the best NPL performance in 2021 and 2020, their NPL ratio sharply declined in 2022. This indicates a deterioration in the bank’s loan portfolio and increased credit risk.

Several banks, including GT Bank, Zenith Bank, Stanbic Bank, First National Bank Ghana, and Fidelity Bank Ghana Limited, consistently maintained top ten rankings in terms of NPL ratio over a three-year period.

Their consistent performance suggests effective credit risk management practices and a focus on maintaining a healthy loan portfolio.

The NPL ratio of Ghanaian banks is an important indicator of credit risk and financial soundness. GT Bank, Access Bank, and several other banks demonstrated improvements or maintained strong NPL performances in 2022.

However, Consolidated Bank Ghana experienced a decline in their NPL ratio. Monitoring and managing the NPL ratio is crucial for banks to mitigate credit risk and ensure financial stability.

Conclusion

In conclusion, the banking industry in Ghana experienced a significant decline in performance in the review year, primarily driven by impairment losses, resulting in a notable decrease in profitability.

Only a few banks reported profits before tax, highlighting the impact of bad loans and investments on financial performance.

Despite these challenges, the industry managed to improve its balance sheet through an increase in deposit liabilities.

The ranking of banks based on total assets showcased a mix of international and regional banks dominating the top positions, indicating the strength and expansion of the Ghanaian banking sector.

Non-indigenous banks held a significant share of the deposit market, but indigenous banks also secured spots in the top positions, suggesting room for competition.

In terms of lending activities, several banks demonstrated a strong market presence in Ghana, with Ecobank Ghana holding the highest share of industry loans and advances.

Liquidity ratios revealed the capacity of certain banks to absorb deposit-related and balance sheet shocks, indicating their ability to meet cash demands.

Capital adequacy ratios showed varying performances among banks, with FBN Bank consistently leading in this area.

However, the industry’s profitability ratios, such as profit before tax margin, return on assets, return on equity, and net interest margin, experienced declines due to impairment losses and the implementation of the Domestic Debt Exchange Program.

Credit risk efficiency was highlighted by the NPL ratios of banks, with GT Bank showing the lowest ratio and demonstrating effective credit risk management policies.

While some banks consistently maintained strong performances in this area, others experienced fluctuations and deterioration in their loan portfolios.

Addressing impairment losses and credit risk management will be crucial for the future of the banking industry in Ghana.

Efforts to improve profitability, strengthen balance sheets, and enhance financial stability should remain a priority for banks.

In conclusion, based on the Expanded LIMA CAMEL Banking Performance Index (ELCBPI), FBN Bank demonstrated exceptional performance and emerged as the top-performing bank with an impressive index score of 9.03.

Following closely behind was Guaranty Trust, securing the second position with an ELCBPI of 8.83. Access Bank claimed the third position with an ELCBPI of 8.40.

Société Générale, Bank of Africa, Zenith Bank, and Absa ranked fourth, fifth, sixth, and seventh respectively.

Standard Chartered Bank, Fidelity Bank, and Stanbic Bank also secured positions within the top 10.

However, UMB Bank faced significant challenges and ended up as the least performing bank. Consolidated Bank Ghana ranked at the 21st position, while ADB held the 20th position.

These rankings highlight the varying degrees of success and performance across the banks evaluated, ultimately showcasing FBN Bank as the frontrunner in terms of overall performance