BoG back to profit ways; Cedi fall, strong gold prices drive gain to GH¢1.8bn in 2019

THE Bank of Ghana (BoG) has returned to profitability after two strings of losses in 2017 and 2018 discoloured its years of profit-streak run.
The bank successfully overturned its two years of losses last year to post a net profit of GH¢1.8 billion, according to BoG’s 2019 annual report released this June.

The report showed that the bank’s 2019 profit was driven largely by the cedi fall, which increased the value of BoG’s foreign currency-denominated assets, and the rise in gold prices in that year, which led to similar appreciation in the value of gold reserves held by the central bank.

The 2019 profit is now the biggest annual gain in the central bank’s recent history; with the closest being in 2012, when BoG posted an annual profit of GH¢1.54 billion.

In 2017 and 2018, the bank posted losses of GH¢1.6 billion and GH¢793 million respectively.

Profiting from pain    
BoG’s annual report showed that a chunk of the profit arose from a revaluation of the bank’s cedi-denominated assets on the back of the cedi fall and the rebound in gold prices in 2019.

The report showed that price and exchange rate differences, which capture the impact of the cedi depreciation and gold price movements on the bank’s assets more than quadrupled from GH¢614.4 million in 2018 to GH¢2.65 billion.

An economist, Mr Leslie Dwight Mensah, added that the drivers of the bank’s profit showed that although the cedi depreciation was a pain to the economy and BoG, the central bank stood to gain from it through the appreciation of its foreign currency denominated assets.

In 2019, the cedi depreciated by 12.9 per cent against the US dollar while gold prices rose by 18.4 per cent.

Dividend
Until 2017 when BoG posted a loss, the bank was habitual in the payment of dividends, with its most recent dividend being GH¢250 million in 2016.

The bank, however, said in the annual report that it would not be paying dividend for the 2019 financial year – in spite of posting a historic profit in that year.

A management member of BoG, who declined to be named, said the bank was looking at investing the profit in its capital expenditures, including the construction of its head office building, which would commence later in the year.

“I do not think there was a commitment to paying dividend this year,” it said, noting that the return to profitability was also timeous, given the economic situation.

It explained that the profit would help strengthen the bank’s balance sheet and make the central bank more resilient to be able to respond to the havoc that the raging novel Coronavirus (COVID-19) pandemic was wrecking to the economy.

Beyond using policy and regulations to lessen the burden of the virus spread on the economy, BoG last month committed to supporting the government with a total of GH¢10 billion through the bank’s asset purchase programme.

Impact of profit
A retired Deputy Governor of BoG, Mr Emmanuel Asiedu-Mante, said the bank’s return to profitability was positive for its operations.

He said it showed that the bank was efficient and that could enhance its operations and mandate of ensuring price stability and supporting the government to develop the economy.

Mr Mensah, who is a Research Fellow at fiscal policy think tank, the Institute for Fiscal Studies (IFS), said a profitable central bank was a necessity to the proper execution of its mandate.

Every central bank needs to be well capitalised because “do not forget that it is the lender of last resort and it also conducts its operations such as the buying and selling of securities.”

“Now, remember that these require money to execute and if a central bank is profitable, it improves the operations,” Mr Mensah, who is a Research Fellow at fiscal policy think tank, the Institute for Fiscal Studies (IFS), added.

He explained that consistent posting of losses could lead to the depletion of a central bank’s capital, thereby by putting it in a precarious situation to be able to comfortably execute its mandate.

Causes of losses    
Meanwhile, BoG’s 2017 and 2018 losses, which were the first of their kind in more than a decade, were driven by exceptional factors, key among them being the introduction of the International Financial Reporting Standards (IFRS 9), which was a new accounting rule, into the computation of the bank’s financial statement; the financial sector clean up exercise and the stability in the currency market.

In 2017 and 2018, the bank posted losses of GH¢1.6 billion and GH¢793 million respectively.