Financial sector withstood 2022 shocks; positive signs ahead – BoG

The assessment of the country’s financial system has shown strong signs of resilience.

Per the Bank of Ghana’s 2022 Financial Stability Review, the financial sector is on the path to recovery with the rebound expected to be sustained further in the short to medium term.

The Central Bank in the review maintains that the Domestic Debt Exchange Programme (DDEP) was a significant threat to the financial sector due to the huge impartments suffered by banks, insurance, pension and other specialized deposit-taking institutions.

The impairments were also exacerbated by lingering effects of the COVID-19 pandemic and macro-economic shocks both at the national and global level.

“The DDEP has adversely affected the financial sector with significant solvency shortfalls for some banks, insurers, etcetera as a result of impairment losses suffered from audited financial statements”, the report read in parts.

2022 outlook in the wake of impairments

With growth in financial system for the year ending 2022, all sectors of the financial securities sector saw growth except for the securities sector.

In total, assets for 2022 increased to GHS 3.12 billion from the 260.43 billion posted in 2021.

Specially, the insurance, banking and pensions sectors grew at 22.3 percent, 21.7 percent and 19.9 percent respectively in 2022.

However, the total assets of the securities sector declined by 2.7 percent.

The financial system assets to Gross Domestic Product (GDP) decreased to 51.2 percent at end of December 2022, from 56.4 percent in 2021.

The decrease in the financial system to GDP mainly reflected marked-to-markets losses in holdings of government bonds arising from the DDEP resulting in a relatively lower growth on the financial statements.

Way forward based on H1 results

However, the first-half year results of accounts of the various actors in the financial system is showing some signs of gradual recovery.

The review shows that the performance is positive with some elements of decent growth following a raft of mitigating measures.

Growth is therefore expected to increase and remain more robust and resilient.

Based on the results, banks are expected to remain profitable by year-end. Stress test results on the recently announced restructuring of cocoa bills and the locally issued US$ denominated bons show that the banking industry will be able to withstand additional impairment charges.

With insurance, the sector maintained its growth trajectory in the first half of 2023. Total insurance assets grew marginally to GHS 11.56billion at end-June 2023 from the 11.06 billion at end-June 2022.

Similarly, total investment assets grew to GHS 8.61 billion in June 2023 from GHS 8.23 billion in June 2022.
In terms of profitability performance, the expense ratio remained elevated in the first half of 2023.

The pension industry for example remains resilient as of June 2023.

Private pension fund assets rose from GHS 34.5 billion in December 2022 to GHS 37.7 billion as at the end of March 2023.

This has been attributed to increased contribution mobilization through the impact of prosecution of defaulting employers and enhanced industry surveillance.

Source: Ghana Business

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