CAL Bank aims at more T-Bills, less loans
CAL Bank Limited says it will increase its investments in government securities and other safe haven instruments and reduce its lending.
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The Managing Director, Mr Frank Adu Jnr, said the decision was informed by the high interest paid on the short-dated securities.
“The thing is, we will do less loans and buy more T-Bills. If the rate is 25 pe cent and 26 per cent, what is the motivation to do more loans, which is riskier?" he asked after the bank took its turn at the Ghana Stock Exchange's Facts Behind the Figures programme in Accra.
CAL Bank ended last year with a loan book of GH¢1.94 billion and a non-performing loan (NPL) ratio of seven per cent, compared to the industry average of 5.6 per cent as reported by the Bank of Ghana.
An Executive Director of the bank, Mr Philip Owiredu, explained in an interview that the move was to help preserve the quality of the bank's balance sheet, which earned it the position of eighth most profitable bank in the country last year, according to the results of a survey of bank performance conducted by and published in the GRAPHIC BUSINESS on May 26.
The move of the bank gives credence to calls on the government to reduce the interest on its securities to make them unattractive to the banks which will have no otpion than to lend out to businesses..
Trend so far
Already, the bank's 2015 first quarter results showed that while investments in government securities, comprising treasury bills (T-Bills) and other fixed income assets, rose by 127.7 per cent (from GH¢393 million in the first quarter of 2014 to GH¢895 million in the first four months of this year), loans and advances rose by only 42.5 per cent within the period, rising from GH¢1.03 billion in the first quarter of last year to GH¢1.47 billion the same period this year.
On quarter on quarter basis, the results showed that although loans and advances grew by only 9.7 per cent between the fourth quarter of last year and the first quarter of this year, the bank's investments in government securities increased by 118.7 per cent within the period under review.
Commenting on the development to the paper, the executive director of CAL Bank said the move was deliberate and aimed at helping to preserve the quality of the bank’s balance sheet.
The GRAPHIC BUSINESS survey, which was based on the 2014 audited results of the 26 banks, showed that CAL Bank was ranked among the top 10 banks in the country, using key performances indicators (KPIs) such as return on equity (RoE), return on assets (RoA), profit after tax margin, share of industry deposits, assets, shareholders' funds and loans and advances, among others.
While attributing those performances to the aggressive growth strategy pursued in the past, the bank's executive director said his outfit would now aim at consolidating and preserving them in the coming years.
As a result, he said instead of seeking high yields from risky investments such as loans and advances, as had been the case over the years, his outfit would, this year, buy more treasury bills and other short-term investment instruments with less risk.
"We are looking at safe haven investments, and as such we want to move our assets into areas such as T-Bills and other things like that so that when the economy turns around, we can redeploy," he said.
He added that the decision to slow down on credit disbursement was further anchored by the current economic challenges, explaining that indications were that the drop in business confidence and growth could trigger a rise in loan default rates.
"It is the quality of balance sheet that we now want to preserve and it will certainly lead to some slowdown in credit because the economy as it is, if you push too much credit in there, people may not be able to pay," Mr Owiredu told the paper.
First quarter
Its first quarter results showed that compared to the first quarter of last year, the bank's net profit grew by 38.8 per cent in the first four months of this year, rising from the GH¢29.2 million in the first quarter of 2014 to GH¢40.5 million in the first quarter of this year.
The strong growth in net profit was influenced by a corresponding growth in net interest income, which rose from GH¢40.1 million in the first quarter of last year to GH¢56.2 million in the first four months of this year.