Banks profit before tax surge 249% — A function of accounting adjustments

The profit before tax (PBT) position of banks in Ghana showed a dramatic turnaround in 2023, increasing to GH¢11.8 billion from a loss position of GH¢7.9 billion in 2022. 

This represents a 249% improvement over the prior year. 

The 2024 PWC banking Sector report attributed the significant rebound primarily to improvements in the industry’s impairment and modification assessments. 

In 2022 for instance, the banks, according to the report, had impaired investment securities to the tune of GH¢4.2 billion. 

However, in 2023 they reported GH¢8.7 billion in impairment write-backs and modification gains, a remarkable 307% surge.

The development, the report said, overshadowed the fact that the industry’s general and administrative costs surged by 19%, from GH¢10.7 billion to GH¢12.8 billion, a situation exacerbated by high inflation rates during the year.

Thus, while the profit before tax improvement was dramatic, it was more a function of accounting adjustments related to impairments and modifications, rather than effective cost-control measures by most of the banks in the face of high inflation.

The report said all 20 participating banks saw an improvement in their profit before tax margins compared to the prior year, except for Prudential Bank Limited (PBL) which worsened from (79.8%) to (138.6%). 

Standard Chartered Bank (SCB) and Guaranty Trust Bank (GTB), however, surpassed the industry average of 37.5%, ranking in the 70th percentile at 79.2% and 73.3% respectively compared to (31.7%) and 19.8% in the prior year.

Amalgamated Bank Ghana (ABG), Zenith Bank Limited (ZBL), and SBG followed in the 60th percentile also surpassing the industry average, with PBT margins of 64.3%, 64.1%, and 61% respectively (compared to (38.3%), (52.9%), and (2.5%) in 2022). 

ABSA Bank, First Bank Limited (FBL), Societe General Ghana (SG-GH), and FBN were in the 50th percentile, surpassing the industry average as well, with PBT margins of 59.7%, 57.4%, 53.4%, and 52.9% respectively (compared to (27.2%), (36.2%), 21%, and 22.5% in 2022).

Earning assets

The report further revealed that growth in earning assets of the banking sector is attributable to the increase in assets- creating liabilities especially customer deposits in line with the financial intermediary role of the banks. 

With average interest rates on loans and advances remaining high and the continued high returns on Government treasury bills and Bank of Ghana’s OMO instruments, profitability in the banking sector returned to the pre-Domestic Debt Exchange Programme (DDEP) era for many banks.

Cost of doing business

The report said the banking sector was not spared of the increasing cost of doing business in Ghana in 2023 as operating costs increased but not proportionately to the level of increases noted in income. 

GCB Bank ranked 10th with a 40.8% PBT margin (compared to (23.8%) in 2022). This performance was also above the industry average.

Bank of Africa (BOA), Republic Bank Limited (RBL), First Atlantic Bank Limited (FABL), and United Bank for Africa (UBA) were in the 30th percentile, with PBT margins of 37.4%, 34.1%, 30.9% and 30.5% respectively, all below the industry average, (compared to 3.8%, (5.3%), 4.3%, and 13.4% in 2022).

First National Bank (FNB), Consolidated Bank Ghana (CBG), Cal Bank Limited (CAL), and Prudential Bank Limited (PBL) all had negative profit before tax margins of (0.8%), (83.6%), (118.4%) and (138.6%) respectively; these banks had the same negative PBT in the prior year.

Standard Chartered Bank (SCB) achieved the highest profit before tax margin, due to making the largest amount of impairment write-backs compared to the other banks, some of which were still recording impairment and modification losses.

Guaranty Trust Bank (GTB) also saw a boost in profitability from its cost-cutting strategies. Its expenses were just GH₵292.5 million, which was only 2% of the industry’s total expenses of GH₵12.8 billion. 

In contrast, the bank with the highest expenses was GCB Bank, which incurred GH₵1.8 billion, representing 14% of the industry total.

The strong performances of SCB and GTB were driven by their differing approaches. For instance,  SCB benefited from significant impairment write-backs, while GTB focused on reducing its overall cost structure.

Net interest margin

The banking industry’s net interest margin (NIM) increased slightly from 7.9% in 2022 to 9.3% in 2023. 

Both net interest and total interest-bearing assets, the report said, increased by GH₵6.5 billion and GH₵40 billion respectively, representing 43% and 21% growth. 

However, the growth in the interest-bearing assets was less proportionate to the growth in the net interest income explaining the marginal growth of 1.45% during the year.

FBN topped the chart with a remarkable NIM of 18.9% which is above the industry average of 9.3% compared to that of the prior year of 8.6%.

Six banks followed: GCB with 11.9%, EBG with 11.7%, ABSA with 11.6%, GTB with 11.2%, SG-GH with 11.2% and UBA with 11% compared to those of prior year of 10.6%, 11.3%, 8.2%, 7.8%, 8.7% and 9.3% respectively. 

The report described this as a remarkable improvement for these banks this year.

SCB and BOA also exceeded the industry average with 10.4% and 10.2% compared to prior year NIM status of 7.9% and 7.2% respectively.

FBL and OBL saw a marginal  increase over the industry average with 9.8% and 9.7% respectively against prior year performance of 6.6% and 4.1%; a remarkable performance from prior year.

The remaining banks (SBG, RBL, ZBL, FABL, FNB, PBL, CAL, ABG and CBG) fell below the industry with NIM of 9.1%, 8.8%, 8.6%, 7.4%, 6.0%, 5.6%, 5.6%, 5.3% and 4.6% respectively. 

However, SBG, RBL, FABL and FNB improved upon their prior performance of 7.1%, 8.0%, 7.7%, 6.8% and 4.3% respectively while PBL, CAL, ABG and CBG declined in performance compared to prior year of 8.1%, 6.1%, 6.1% and 5.8% respectively.

FBN topping the NIM chart as mentioned above is attributable to increase in both net interest income and interest-bearing assets. 

The bank’s operating assets increased by GH¢805.9 million, representing 30% increment over the prior year while net interest income increased by GH¢411.5 million representing 201%; a more proportionate increase relative to the increase in interest-bearing assets.

Cost-to-income ratio

In the year under review, GTB was the most improved performer in terms of cost-to-income ratio efficiency with 19%, even though lower than prior year’s 23%, representing a 17% decrease. 

Looking at the broader Ghanaian banking industry, operating expenses grew by 19% in 2023 driven by high inflation averaging 39.6% ranging from 52% in Jan 2023 to 23% in Dec 2023 month on month.

The industry recorded GH₵8.9 billion in income growth representing 39% over the prior year, more than double the growth of 19% in operating expenses.

While most banks (ABG, EBG, ZBL, SCB, FABL, SBG, SG-GH, FBL, BOA, GCB, RBL, OBL and FNB) recorded efficiency improvements over the prior year, with GTB achieving the most significant efficiency, ABSA, FBN, CAL, PBL and CBG all saw their cost-to-income ratios worsen by 11%, 12%, 14%, 35% and 33% respectively. 

However, UBA maintained its cost income ratio at 27% as prior year.