Industry Analysis
Ghana’s Banking Industry Analysis 2023
The banking sector is very pivotal in the development of the economy because of the key intermediary role it plays. A hit in the sector affects all the other sectors of the economy. Ghana currently has 23 universal banks and 365 SDI’s consisting of Savings and Loans, Finance Houses, Rural and Community Banks and Microfinance Institutions
Source: Bank of Ghana Annual Report
The sector has been quite stable following the impact of the covid 19 pandemic. However, the economic difficulty affected the operations of the banks as some banks slowdown on credit especially to the private sector. The IMF bail- out request by the government to restore economic stability necessitated the restructuring of the public debt which was over 100% of GDP to a sustainable level of about 55%.
The government hence announced a Domestic Debt Exchange Programme. The banks hold a substantial amount of the government bonds and the programme could have a dire consequences on operations of the Banks. Due to the impact of the DDEP on the banks, the Bank of Ghana announced some policy and regulatory reliefs for banks that fully participated in the debt exchange to reduce the effect on their operations. These policy and regulatory reliefs were informed by stress tests on banks that revealed the potential impacts of the exchange on banks’ solvency, liquidity, and profitability.
The reliefs include reduction of Cash Reserve Ratio (CRR) from 13% to 12% on foreign currency deposits to be held in foreign currency and reduction of Capital Conservation Buffer from 3% to zero, effectively reducing the minimum Capital Adequacy Ratio (CAR) from 13% to 10%.
The Central Bank also set at 0 percent the risk-weights attached to New Bonds for CAR computation and at 100% for Old Bonds. It pointed out that it is fully equipped to provide liquidity support to banks, while banks can access the Emergency Liquidity Assistance (ELA) using the New Bonds as collateral.
Banks record huge losses of about GHS 6Billion mainly due to the impairment losses from investment in government securities. The Bank of Ghana in its January 2023 Monetary Policy Report said banks operating in Ghana wrote-off about GH¢5.9 billion as bad debt in December 2022.
Public Confidence in the Banking Sector
The banking business thrives on trust and confidence of the populace. Hence public confidence in the financial sector is vital to a well-functioning financial system. Loss of trust or confidence in the financial system could trigger crisis in the sector and the economy as a whole. Confidence crisis in an economy can lead to bank distress and failure. Donovan (2012) defines public confidence in the banking sector as a sense of self-assurance stemming from a belief in their bank’s ability to deliver when needed. It reflects in the pattern of savings, investment, portfolio dynamics and participation in the financial market. Following the banking sector clean up in 2017 and the covid 19 impact, confidence in the banking institutions seem to be restoring as the banks became more liquid and well capitalized. The Afrobarometer survey round 8 indicates that Ghanaian have confidence in the Banks, though less confidence was repose in the Non-Bank financial institutions. However, the introduction of the Domestic Debt Exchanage Programme (DDEP) and the bad publicity regarding possible hair -cut and associated losses brought uncertainty and panic in the banking sector. Bank of Ghana survey indicate a drop of consumer confidence index from 88.1 in 2021 to 79.2 in December 2022. In 2022, consumer confidence index has been declining consistently. There is therefore the need for banks and the regulator to take immediate measures to restore confidence in the Banking sector.
Banking Fraud Analysis
Fraud cases continue to be a canker in the banking industry. The sector recorded fraud losses amounting to approximately GH¢ 56 million in 2022 compared to approximately GH¢ 61million in 2021. This represents a 7.88% decrease of total loss value. The year 2022 recorded 2998 cases of attempted fraud cases for the banking and SDI sectors, as compared to 2347 cases in 2021, representing a 27.74% increase. Though the number attempted fraud cases minimally declined in 2021 by 12.09% compared to 2020 recorded cases. The significant fraud types that accounted for this figure included forgery and manipulation of documents, fraudulent withdrawals, cheque fraud, cyber/email fraud and cash suppression.
Cash suppression was the highest recorded fraud type which occurred predominantly in the rural and community banks. There was an increase from 1530 in 2021 to 1622 in 2022, an increase of 6.01%.This may be due to weak internal controls in these banks. Cyber/email fraud also saw an upsurge in the number of cases recorded in 2022. A rise from 50 cases in 2021 to 422 in 2022 representing 744% increase. There was also an increase in the fraudulent withdrawals cases in the year under review compared to the previous year. The number of fraudulent withdrawals from customers account increased from 19 cases in 2021 to 347 cases in 2022 representing 1726.32% increase.Impersonation also saw an increase from 20 cases in 2021 to 285 cases in 2022, representing 1325% increase. E- money recorded 149 cases in 2022 compared to 166 cases in 2021, an increase of 28.45%.
However, we saw a decrease in the following fraud types; forgery and manipulation of documents from 255 cases in 2021 to 62 cases in 2022, cheque fraud from 113 cases in 2021 to 32 cases in 2022, lending/credit fraud from 43 cases in 2021 to 29 cases in 2022, remittances and others also recorded decreases in the number of cases.
In terms of real value losses; Forgery and manipulation of documents recorded the most losses in 2022 amounting to approximately GHS 33million from GHS 7million in 2021.Most affected institutions were the universal banks which booked a loss value of GHS 32million. This constitutes 97% of the total loss recorded. Fraudulent withdrawals also jumped from GHS 0.62million in 2021 to GHS7million in 2022, an increase of 1039.09%.The universal banks accounted for the highest success rate of 98% whiles the savings and loans accounted for 2%. Cheque fraud which was mainly cloned cheques recorded an increase from GHS 0.62million in 2021 to GHS 5million in 2022, an increase of 1254.46%.This occurred predominately in the universal banks with less incidence in the rural and community banks.
Cyber/email fraud recorded a loss of GHS 4.3 million in 2022 as compared to GHS 2.6 million in 2021, an increase of 65.55%. Due to the nature and sophistication of this fraud, the universal banks were mainly affected by it. Cash theft (Cash Suppression) also remain high though it recorded a 7.12% decrease in 2022.This incidence mainly occurred in the rural and community banks. PSP fraud as reported by the payment service providers were mobile money related fraud. PSP recorded 12,166 mobile money related fraud incidence in 2022 with a total loss value amounting to GHS 26million which was a significant increase from the previous year value of GHS 12 million.
Performance and Summary Statistics
The banking industry recorded a total asset of GHS 221 Billion in 2022 from GHS 179.8 Billion in 2021 represent a year on year growth of 22.91%. Total Deposit grew by GHS36.8Billion represent 30.39% from the previous year. The Deposit growth is quite impressive and highest growth since 2016.The banking industry loan size reached GHS 70 Billion in 2022 from GHS 53.8 Billion in the previous year. The total loans and advances grew by 30.11%. In terms of industry’s efficiency, the cost to gross income ratio was a bit higher compared to the previous years. The total cost to gross income was 87.5% in 2022 from 79.8% in 2021. The banks net interest margin grew from 9.6% in 2021 to 16.1% in 2022.The industry’s asset quality or the non- performing loans declined from 15.2% in 2021 to 14.8% in 2022.The banks need to improve their asset quality to reduce their provision and impairment losses.
Liquidity in the industry improved from 25.9% to 35.3% though it’s expected that the Domestic Debt Exchange Programme which was concluded in February 2023 to impact negatively on the banks liquidity. The banks capital adequacy ratio also declined from 19.6% in 2021 to 16.6% in 2022.
The reference rate and the average lending rate increased astronomically from 13.89% in 2021 to 32.83% in 2022 and 20.04% to 35.58% respectively. This is a result of high inflation and monetary policy hike experienced. This makes the cost of borrowing very high, a challenge to the private sector. Businesses would find it expensive to access funding for investment and expansion. This will increase their cost of production and limit their ability to employ. The industry return on asset declined from 4.5% in 2021 to 3.1% in 2022. Return on equity also dropped from 20.6% in 2021 to 14.6% in 2022. The return on equity in 2022 is the lowest from 2016.
