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Banking sector continues to grow

By Kofi Ahovi
The banking sector has shown a positive growth, compared to the same period last year, according to the latest Monetary Policy Committee report of the Bank of Ghana (BoG).

Total assets of the banking industry grew by 27.2% to GH¢18.1 billion at the end of May 2011, on top of the 29.8% growth achieved during the corresponding period of 2010.

Total liquidity relative to deposits increased to GH¢10.8 billion in May 2011, up from GH¢7.2 billion in May 2010. Bank profitability also increased by 21.9% to GH¢199.9 million, on top of the 53.3% growth recorded in May 2010. “The industry continued to be highly liquid and profitable,” the report stated.

However, the asset quality of the banking system continues to remain a source of concern to BoG. At the last MPC meeting, the Non-Performing Loan Ratio (NPL) of the banking system stood at 16.2% in March 2011. The NPL ratio deteriorated to 17.5% in April 2011 and has, in May this year, improved to 17.2%.

The Capital Adequacy Ratio (CAR) of the banking industry which stood at 19.3% in December 2010 declined to 17.7% by the end of May 2011, well above the statutory threshold of 10%. A year ago in May 2010, the CAR was 20.3%. Currently all the banks satisfy the minimum capital requirement.

Evidence from the latest Credit Conditions Survey showed that banks eased credit stance for both enterprises and households in June this year. Net demand for credit by Small and Medium Enterprise (SME’s) and large enterprises declined while preference for long term loans by households for consumer loans increased.

The stance on credit for mortgage purposes remained tightened by the commercial banks. The overall ease in the stance of credit for households and firms reflected largely the commercial banks favourable expectations about future economic prospects.

The Deposit Money Bank’s (DMB) lending rates have come down in the period. From January to May 2011, the average base rate quotations of the banks have declined by 160 bps to 24.2% while average lending rates were reduced by 10 bps to 27.5% over the same period.

The average three-month deposit rates of the commercial banks were also reduced in May 2011 by 160 basis points to 8.9%; from 10.5% in December 2010. The average savings deposit rate went up by 50 bps to 6.4%.

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