Ghana: Commercial Banks Show Resilience Despite Inflation and Currency Depreciation

(Ecofin Agency) – Ghana’s economy is currently affected by high inflation and a weak currency. Commercial banks have resisted so far, but it is uncertain whether their performance will remain as strong as in 2021.

Despite the current economic environment, commercial banks operating in Ghana are showing signs of resilience. In its Monetary Policy Committee press release issued on May 23, the country’s central bank, Bank of Ghana, highlighted the strong performance of the banking sector in April 2022.

“Banking sector developments indicated strong performance, despite the rollback of COVID-19 regulatory relief measures in March 2022. Total assets increased to GH¢194.3 billion at end-April 2022, which represents an annual growth of 24.8%, against 16.4% growth in the previous year. […] The non-performing loan ratio declined to 14.3% at end-April 2022 from 15.5% the previous year, signaling some improvement in asset quality over the year,” the release explained.

However, the actual performance of the banks can only be assessed from the publication of the Q2-2022 performance reports. Currently, according to market data assessed by the Ecofin Agency, inflation is high (+23% in April 2022) and the local currency is at its lowest for 10 years. Currently, the inflation rate is higher than the interest rate on 10-year government bonds (the interest rate is currently 21.8%).

The situation is currently favorable to banks whose shareholders are mainly national. Indeed, although the central bank‘s prime rate is raised to 19%, these banks can still earn good profits from their investments in government securities with a maturity period of less than six months (the rate of average interest on these bonds is 16.2%).

On the other hand, it is less favorable for banks whose performance is consolidated in foreign currencies. Their parent companies may suffer losses due in particular to the depreciation of the cedi. Financial institutions in this category are the local subsidiaries of Ecobank, Societe Generale, Standard Chartered Bank and Cal Bank, whose shareholding includes several international investment companies like the Saudi Investment Fund and the International Finance Corporation (IFC) .

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