Banks’ revenue will decline amid slower loan growth – Moody’s

Business News of Wednesday, 31 January 2018 Source: thebftonline.com The BoG released summary of economic and financial data noting a slowdown in growth of bank loans Ratings agency...

Business News of Wednesday, 31 January 2018

Source: thebftonline.com

Moodys Bank Graph 1 The BoG released summary of economic and financial data noting a slowdown in growth of bank loans

Ratings agency Moody’s has said it expects revenue of banks to shrink on the account of a slowdown in growth of loans advanced.

Last Friday, the Bank of Ghana released its summary of economic and financial data, noting a continued slowdown in the growth of bank loans and advances in 2017. Specifically, loans and advances grew by just 5.9% in 2017, compared with 18.3% in 2016 and 24.9% in 2015.

According to Moody’s in its latest forecast, it expects the muted loan growth to reduce banks’ revenue, straining their efficiency ratios and profitability.

Commercial banks expanded their loan books significantly in 2014 and 2015, supported by robust economic growth. System loans grew almost twofold to GH¢30 billion in 2015 from GH¢17 billion at year-end 2013.

However, the country’s operating environment deteriorated considerably in 2016 as real GDP growth slowed to 3.5 percent from an average of 7.7 percent during 2010-15.

“The slowdown in loan growth will reduce interest income from loans and loan-related fee income and commission income, reducing bank operating revenue.

“Already, interest income from loans and advances declined to 44.9% of total revenue as of October 2017 from 50.4 percent in October 2016, although it remains the largest contributor to revenue. This reduction in loan growth is occurring amid declining interest rates,” the ratings agency said.

Declining t-bills rates, rising costs

The Moody’s Investor report also observed that the country’s 360-day treasury bill rate declined by 650 basis points, the 182-day treasury bill rate by 472 basis points, and the average lending rate dropped by 238 basis points pushing down the industry interest spread to a still-high 9.5% in October 2017 from 12.7% in 2016.

“Consequently, banks’ costs, which partly reflect a high inflation rate of 11.8% as of December 2017, are at risk of growing faster than operating revenue in 2017 and 2018, negatively affecting their efficiency ratios.

‘The banks’ cost-to-operating income ratio already deteriorated to 54% as of October 2017 from 49% in October 2015 and the return on assets declined to 3.0% from 5.3% over the same period,” the agency stated.

Commenting on the issue of high non-performing loans, Moody’s stated that it expects loan-loss provisioning to remain elevated because of the high NPLs, further straining profitability.

NPLs increased to 22.7% of gross loans as of December 2017 from 17.3% in December 2016 and 14.7% in December 2015

It observed that, despite the restructuring of some problem loans relating to state-owned enterprises in 2017, banks continued to face high asset risks, reflecting Ghana’s economic slowdown in 2016.

“High concentration risks will continue to compound banks’ asset risks: the commerce and finance, services, and electricity, water and gas sectors contributed 61% of total NPLs as of October 2017.

“However, the slowdown in loan growth likely will subdue the formation of new NPLs in 2018 and 2019, owing to the muted flow of new, untested loans in the overall loan book in 2017,” Moody’s said in its report.


Source: Ghanaweb news

Categories
New Content!
No Comment

Leave a Reply

*

*

GH TV Online is a one-stop digital platform for current affairs concerning Africa from a Ghanaian perspective.

The YouTube Platform is now an open space for content creators to submit their content for the platform. Please use the
Submit Content section of the website at www.ghtvonline.com/submitcontent or register as a content creator for more information.

The purpose of the website is to extend our YouTube content into 3 sections
Read - Up-to-date current affairs stories aggregated from known News publishers from around the World with a focus on Africa and/or Ghana
Watch - for all Youtube content and videos aggregated from across the web
Listen- Latest music releases, Podcasts and Radio streams

For advertising, partnerships and more, get in contact.

RELATED BY

Eh Chale,

Subscribe here!

Good  work!