Ghana bank earnings are poised to tumble to the lowest level in more than two years as measures to contain the coronavirus pummel demand for loans and spur a jump in bad debts.
“The full extent of Covid-19 related risks haven’t yet materialized,” George Bodo, chief executive officer of Nairobi-based Callstreet Research and Analytics, said in an email. “Impairment losses will take a bite out of income statements in 2020.”
The West African nation’s government forecasts that economic growth is heading for a 37-year low of 1.5% this year as business activity grinds to a near halt because of efforts to slow the spread of Covid-19. While Ghana became the first African country last month to ease restrictions on citizens, a resurgence in the number of infections and the ripple effect of the 21-day shutdown and drop in global trade have left many companies and consumers struggling.
Return on equity, a measure of profitability, fell by 540 basis points between January and March to an average 21.1%, according to data compiled by the central bank. ROE could decline to 12% by the end of the year, Bodo said, which would be the lowest since January 2018. Callstreet is also predicting that lending growth could decelerate to 8%-9% after softening to 16.5% at the end of March from 26 .5% in January. The banking industry’s non-performing loans ratio increased to 14.5% in March after easing to 13.6% in January, also indicating a growing pressure on lenders to put money aside for loan losses. Ghana early last year completed a cleanup of its banking industry that started in September 2017 in which lenders were required to triple their capital buffers and improve governance.
While the reforms helped to strengthen the sector, cutting down the number of lenders by a third to 23, the changes rippled through smaller credit providers and spilled over into the asset management industry, resulting in the government having to guarantee billions of cedis of deposits.
“Banks cannot grow their loans book because businesses are not likely to make a profit,” Benjamin Dzoboku, general manager for finance and strategy at Republic Bank Ghana Ltd., said by phone. “This is not a year of thinking excess profit. Just a lean profit or break even and you’re good.”