DDE Programme: Banks’ profitability to suffer again
Dr Ernest Addison — Governor, BoG

DDE Programme: Banks’ profitability to suffer again

Players in the financial service sector have said the profitability of banks who sign on to the government’s Domestic Debt Exchange Programme (DDEP), will severely contract this year.

According to them, the impact of the introduction of mark-to-market, a prelude to the DDEP, had already delved severe damage to their books so they fear a worse situation this year once banks sign on to the programme.


“Our profit-after-tax was GH¢3.9 billion at the end of December 2022, representing 18.9 per cent contraction year-on-year, compared to 12.3 per cent annual growth recorded in 2021,” one insider with a tier one bank told the paper in an interview.

The source also brought to the fore, the industry’s Capital Adequacy Ratio (CAR), which declined to 16.6 per cent, and noted that although it remained above the prudential minimum of 13 per cent as of December 2022, from 19.6 per cent in December 2021, the development was still attributed to losses on mark-to-market investments.

The source said the uncertainties in the economy would further shrink banks’ exposure to investments on all fronts.

It said that had already begun to manifest as total investments contracted by 4.8 per cent to GH¢79.2 billion in December 2022, relative to a 29.0 per cent annual growth in 2021.

This is because banks rebalanced their asset portfolios in response to the DDEP and reiterated that “this phenomenon is likely to be worse this year for obvious reasons”.

There was also the case of an increase in risk-weighted assets of banks from the high growth in actual credit and the price effect of the depreciation of the Ghana Cedi on foreign currency-denominated loans.

The sector’s profitability indicators, namely, the return on equity and the return on assets also declined during the period, in line with declining profit-after-tax and profit-before-tax respectively.

Another source argued that the terms of the DDEP would limit their ability to lend, as well as engage in investment activities that tend to improve their bottom line and their continuous sustenance.

According to the source, the DDEP which would come with a more severe ‘haircut’ would impact the already high lending rates, which presently hovered at an average of 35 per cent, making it more difficult for businesses to borrow.

The source said although new loans and advances in 2022 increased sharply to GH¢53.7 billion, reflecting annual growth of 47.5 per cent, compared with the growth of 6.8 per cent in 2021, that scenario this year was likely to be reversed under the DDEP.

It said much as the Bank of Ghana had pledged its commitment to support banks to be liquid to be able to carry out their operations, the “promise is farfetched” because the dynamics and communication around the programme were not clear.

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.



Meanwhile, trends in Financial Soundness Indicators were mixed, reflecting heightened risks faced by the industry.

The non-performing loans (NPL) ratio, however, improved to 14.8 per cent in December 2022, compared with 15.2 per cent in December 2021, on account of high credit growth, relative to the increased stock of NPLs between the two periods.

Total assets increased to GH¢221.0 billion, representing an annual growth of 22.9 per cent in December 2022, compared to a growth of 20.4 per cent a year earlier. Total deposits ended the year at GH¢157.9 billion, representing an increase of 30.4 per cent in 2022, relative to a growth of 16.6 per cent in 2021.

Credit continued to increase, recording a growth of 30.2 per cent to GH¢70.0 billion from GH¢53.8 billion in December 2021.


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