Banks’ profits decline

Profitability in the country’s banking sector declined for the period ending June 2017 compared with the same period last year.
Profitability indicators such as the banks’ return on assets (ROA) and return on equity (ROE) were declining.
The industry’s income before tax of GH¢1.53 billion contracted by 0.4 percent year-on-year in June 2017 compared to a 3 percent annual growth in June 2016.
The decline was due to factors such as modest growth in loans and advances, increasing non-performing loans, lower yield on investments and net interest income.
The latest banking sector report released by the Central Bank, which made these known, said growth in operational costs also led to further declines in income before tax for the industry.
The industry’s net income of GH¢1.00 billion contracted by 5.2 percent year-on-year in June 2017.
RoE, RoA
The two key profitability indicators, namely, after-tax return on equity (ROE) and pre-tax return on assets (ROA), recorded declines during the period under review.
The banking industry’s ROA decreased from 4.9 percent in June 2016 to 3.7 percent in June 2017, while the ROE declined from 22.9 percent to 17.7 percent over the same review period.
Interest margin, spread
Banking sectors’ ratio of gross income to total assets (asset utilisation) declined from 9.8 percent in June 2016 to 9.2 percent in June 2017, an indication that the banks generated relatively less income from the use of their assets in June 2017 compared with June 2016.
Banks’ interest spreads also declined from 7.8 percent to 6.3 percent during the same review period.
Banks’ income
Interest income from loans remained the main source of income for the banking industry for the period ending June 2017, although the contribution to total income declined during the review period.
Interest income from loans constituted 44.1 percent of total income in June 2017 compared with 51.2 percent a year ago while the share of investment income in banks’ total income increased from 32.9 percent in June 2016 to 40.3 percent in June 2017.
The proportion of fees and commission in total income, however, declined from 10.7 percent in June 2016 to 10.0 percent by the end of the first half of this year.