Coronavirus impact: Banks’ profitability growth slashed by more than half

Just like every other sector, the country’s banking industry could not escape the devastating impact of the coronavirus pandemic, as new data from the regulator shows declining profit growth rate and escalation in operating expenses.

The Banking Sector Report (May 2020) reveals that the industry’s profit-after-tax outturn was GH¢960.4 million in the first quarter, representing a growth of 16.3 percent, less than half of the 37.3 percent growth recorded in the first quarter of 2019.

According to the central bank, the declining profit growth was mainly due to a sharp increase in operational expenses. Operating expenses growth shot up by near double to 16.2 percent during the first quarter from 8.8 percent a year ago. It recorded GH¢1.7 billion against the previous year’s quarter performance of GH¢1.4 billion.

This, the report says, was due to the sharp 21.5 percent increase in banks’ operational costs which could be attributed to costs associated with the protocols and containment measures of COVID-19 as well as activation of Business Continuity Plans (BCPs) – which essentially are preventive and recovery systems put in place to ensure companies continue to operate in the midst of disasters.

The other incomes category, which raked in GH¢376 million for the industry in first quarter of 2019, representing 31.5 percent growth over same period in 2018, contracted by 14.2 percent and recorded GH¢322 million.

There was, however, a positive development which banks could harness on, going forward, to keep their profit growth up. Due to surge in usage of electronic banking services in the wake of the COVID-19 pandemic, net fees and commissions grew impressively by 16 percent from 3.6 percent recorded in first quarter of last year.

It shows that the stay at home orders and social distancing protocols brought by the pandemic have awakened customers’ desire to limit the use of cash in their business transactions, as well as their frequent movement and visits to banking halls and resorted to online services made available on bank apps.

Despite the negative impact of the pandemic on the banking industry in the first quarter, the Bank of Ghana says it is confident that measures it introduced at the tail end of the quarter will help the sector recover faster and bring it back to improved profitability.

“The policy measures announced by the Bank of Ghana is expected to moderate any adverse effects of the pandemic on the sector. In particular, the liquidity and capital releases through the reduction in primary reserve ratio from 10 percent to 8 percent and the capital adequacy ratio from 13 percent to 11.5 percent will support lending to critical sectors of the economy.

Although the impact of the COVID-19 pandemic is evolving, its duration and scale is still unclear. The stress tests conducted in May 2020 however show that banks are resilient to withstand mild to moderate liquidity and credit shocks based on strong capital buffers and high liquidity positions. The Bank of Ghana would continue to monitor developments in the banking sector and introduce additional policy measures as and when they become necessary,” the report states.