The Bank of Ghana (BOG), has revealed that Ghanaian banks experienced a notable resurgence in profitability in 2023, signaling a recovery from the adverse effects of the Domestic Debt Exchange Program (DDEP), which had previously inflicted significant losses on the sector.
The BOG’s latest report, the Monetary Policy Report for January 2024, has outlined the sector’s robust performance in 2023, with profits soaring to GHS8.3 billion from a staggering loss of GHS6.6 billion in December 2022.
The report showed substantial improvements across key income streams, which underpinned the remarkable profit surge in 2023.
“Net interest income surged by 41.5 percent in 2023, compared to a growth of 18.7 percent in 2022. Additionally, fees and commissions expanded by 22.7 percent in 2023, relative to a growth of 25.2 percent in 2022,” the BOG noted.
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The surge in net interest income in December 2023 was primarily attributed to elevated interest income on loans and investments resulting from increased lending rates and interest rates on money market instruments. Moreover, the report pointed out a moderation in interest expenses, owing to a contraction in borrowings throughout the year, which further fueled the growth in net interest income.
The banking sector reported reduced impairments on financial assets in 2023, further bolstering the improved profit performance. Total provisions and impairments contracted by 79.2 percent in December 2023, after a sharp escalation in December 2022 due to substantial impairments on restructured bonds.
Operating expenses saw a notable uptick, with a growth rate of 34.9 percent in December 2023, compared to 27.2 percent in December 2022, primarily driven by increased other operating expenses and staff costs, according to the BOG.
In a related development, Fitch Solutions, an international rating agency, affirmed that the banking sector’s profitability in 2023 helped mitigate the impact of the DDEP. The agency also credited the profitability to capital-raising initiatives spurred by the Bank of Ghana (BOG) through the Ghana Stabilization Fund (GSF), which is expected to continue supporting capitalization recovery.
The losses stemming from the DDEP were estimated to have amounted to GHS 37.7 billion for Ghanaian banks, with private and domestic banks accounting for GHS 19.9 billion in losses, while their foreign-owned counterparts incurred GHS 17.7 billion in losses.