Ghanaian businesses resilient: Source of Banks bouncing back to profitability — Nana Dwemoh Benneh

CHIEF Executive Officer of UMB Bank, an indigenous bank, Nana Dwemoh Benneh, says banks returning to profitability is an indication of the resilience of Ghanaian businesses to the challenges posed by the economy on account of the global vulnerabilities and uncertainties.

Banks’ profitability in the first quarter of this year have seen profits bounce back after a domestic debt exchange programme (DDEP) that totally wiped out banks’ profitability last year.

In an interview with the Graphic Business on a wide range of topics, Nana Benneh said the banks’ financial performance speaks to the resilience of the Ghanaian entrepreneurs, adding that “what we see is some level of creativity from Ghanaian businesses in very difficult economic circumstances”.

That, he explained, was because businesses were also re-engineering their processes to become efficient, the result of which was flowing through the financial performance of the banks.

I also think the forbearance that has been given by the Bank of Ghana is beginning to wean off and a lot of the banks are out there looking for capital to build themselves up to create more stability”, he said, adding that the industry was focused on ensuring enhanced financial stability going forward”.

“In terms of the recovery of the business, it is a reflection of the resilience of our clients”, the CEO emphasised, saying “we are primed for a take-off”.

DDEP

Ghana’s economy has been faced with a myriad of challenges ranging from high inflation, which hit a 22-year high of 54.1 per cent in December 2022, and an unsustainable public debt of GH¢575.7 billion.

This prompted the country to seek help from the IMF in July last year and although the government was able to reach a staff-level agreement with the fund in December last year, a board-level approval, which will pave the way for the disbursement of the US$3 billion support was hinged on the country’s ability to restructure both its domestic and external debt.

Government last Thursday indicated a second round of domestic debt exchange programme related to holders of government’s two dollar denominated bonds worth US$809 million after a “successful” first round of DDEP ended in March this year.

Government intends to swap the two bonds which were maturing in November 2023 and November 2026 with new bonds maturing at 2027 and 2028 with a reduced coupon of 2.75 and 3.25 per cent respectively.

The domestic debt exchange programme (DDEP) hit hard at the banking industry, with 16 out of the 23 universal banks operating in the country recording significant losses for the 2022 financial year.

However, first quarter results for 2023 have seen banks recover from the DDEP.

Mid-year Budget expectations

On the expectation of the financial sector on the mid-year budget, Nana Benneh said “we hear a lot more opportunities that will help create financial stability”.

He noted that even though the projections from economic managers indicated a contraction rather than expansionary, however, there were opportunities to provide advisory service to bank customers.

Banks, he said, were seeing the contractions that has come with the IMF conditionalities such as upsurge in electricity tariffs and taxes in general. Besides, government was also looking to rationalise its expenditure which would lead to further contraction of the economy.

We are confident because the Ghanaian entrepreneurs have always been creative and can always adjust to challenges,” Nana Benneh noted.

The banks’ work currently, he noted, is a deep level of advisory to their clients on what they could do to cut down the cost of their business operations and not how much loan a client could take on in these current times.

Our message to our clients now is re-look at your business model and figure out how we can make it work, for an example, your cash management and how to manage the cost of managing cash,” Nana advised.

The use of digital platforms such as Speed Pay launched by the bank for an example is one sure way to reducing your cash management, the CEO explained.

On the Financial Stability Fund established by the Central Bank, Nana Benneh said, it was still work in progress as banks were working with the authorities to operationalise the fund to support banks who might need liquidity or capital for their operations.

Background

The debt restructuring programme which saw the participation of all the 23 banks forced the banks to set aside huge amounts of money as impairment losses and this is what has led to majority of the banks recording losses in 2022.

In its March 2023 Monetary Policy Committee release, the Bank of Ghana indicated that developments in the banking sector broadly reflected the challenging operating environment in 2022 on account of macroeconomic conditions, and the recent implementation of the DDEP.

The BoG’s preliminary assessment of the impact of the DDEP on the banking sector, based on December 2022 data, indicated significant losses on account of impairment of banks’ holdings in GoG bonds.

MPC on banks’ profitability

Reports by the Monetary Policy Committee (MPC) of the Bank of Ghana have pointed to a decline in the profitability levels in the banking sector on the back of the mark-to-market losses on investments, among other factors.

Net interest income, however, witnessed some growth by 23.0 per cent to GH¢15.8 billion, higher than the growth of 14.5 per cent in 2021.

Operating expenses rose by 32.2 per cent in December 2022, compared with 14.2 per cent growth in 2021.

Net fees and commissions went up by 27.4 per cent to GH¢3.7 billion, from the growth of 24.8 per cent recorded in 2021.

Accordingly, operating income increased by 30.9 per cent, compared with 14.6 per cent recorded a year earlier.

The strong outturn in operating income, according to the MPC report, was, however, moderated by increased operating expenses and provisioning during the year.

Provisions also increased sharply by 184.0 per cent in December 2022 relative to a contraction of 4.7 per cent a year earlier, due to the strong uptick in credit growth, elevated credit risks and impairments on investments.

Consequently, profit before tax declined by 13.5 per cent to GH¢6.4 billion in December 2022, compared with an annual growth of 22.1 per cent a year earlier.