BoG gives insight into financial sector performance

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The Bank of Ghana (BoG) on October 11, 2017 published the Monetary Policy Summary for September 2017.

The document was published in keeping with the norm of releasing the report after Monetary Policy Committee (MPC) meetings in March and September.

It provides a brief overview of macroeconomic developments and monetary policy considerations.

“The aim of issuing these monetary policy publications is to provide the public with background materials which served as inputs for the policy decision making process and economic assessments during the MPC session,” the BoG explained.

Below are highlights on the financial sector: 

Financial sector remains solvent despite high nonperforming loans 

Broadly, the financial sector remains liquid and solvent although non-performing loans and concentration risks are high. Total asset base of banks increased to GH¢89.1 billion in July 2017, representing an annual growth of 32.9 percent compared to 24.6 percent growth a year earlier. The growth in assets was funded largely by domestic deposits which went up by 32 percent on a year-on-year basis. The industry’s Capital Adequacy Ratio (CAR) averaged 14.3 percent above the 10.0 percent threshold.

The industry’s asset quality measure, the NPL ratio, remains high at 20.9 percent in July 2017, from 17.3 percent in December 2016 due to the downgrade of some loan facilities after the asset quality review exercise in the banking sector. The adjusted NPL ratio, which excludes the fully provisioned loss category, similarly rose to 11.1 percent from 9.8 percent over the same comparative period. The industry’s Return on Equity (ROE) and Return on Assets (ROA) declined in July 2017 compared with July 2016, an indication of declining profitability within the industry.

Relative stability in the exchange rate continues

The cedi came under marginal demand pressures from the corporate and energy sectors, as well as offshore investors seeking to repatriate their profits. However, improved foreign exchange liquidity conditions helped to ease the demand pressures and maintain relatively stability on the foreign exchange market. In the year to August 2017, the cedi cumulatively depreciated by 4.5 percent, compared to a depreciation of 4.4 percent during the same period in 2016.

In the outlook, the favourable developments in the country’s external position, together with the cocoa syndicated loan are expected to help build foreign exchange buffers against shocks and smoothen volatilities in the exchange rate market.

The nominal effective exchange rate remained broadly stable, while the real effective exchange rate reflected some appreciation supportive of the disinflation process.

Monetary policy stance unchanged 

Headline inflation has broadly trended downwards in line with forecasts. The Bank’s forecast was revised in September 2017 to incorporate new information obtained after the July forecast round. This included new inflation readings for July and August, the percent increase of the upward adjustments in ex-pump petroleum prices during August 2017, and the revised fiscal deficit outturn announced in the 2017 Mid-Year Budget review. These notwithstanding, the forecast showed that inflation is expected to trend towards the medium-term target of 8±2 percent in 2018, contingent on continued fiscal consolidation and exchange rate stability.

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