The Royal Bank shows signs of positive recovery

The Royal Bank Limited, one of the wholly owned Ghanaian banks, has bounced from its loss-making position last year to profit ways in the first half of the year.

According to its half year unaudited financial account, the bank posted a profit of GH¢2.6 million after tax, having recorded a heavy loss of GH¢38 million at the end of the 2016 financial year.

The Managing Director (MD) of the bank, Mr Osei Asafo-Adjei, described the performance of the bank so far as most encouraging on the back of an anticipated loss of about GH¢8 million at the close of the year.

Speaking to a cross section of financial reporters in Accra last Wednesday, Mr Asafo-Adjei explained that the loss “was largely due to impairment of charges of GH¢68million that was recorded in 2016.”

“Our exposures to hard-hit sectors of the economy such as the construction and agriculture sectors adversely affected the bank’s asset quality and resulted in a rise in non-performing loans,” he said.

Subsequently, however, he said, “The bank demonstrated resilience in the face of a challenging macroeconomic environment which had a particular impact on small and medium enterprise (SME) sector, the bank’s core client base.”

Mr Asafo-Adjei also noted that the bank successfully grew its interest income by 18 per cent, year on year, largely due to increases in loan and advances, adding that the growth in non-funded income also remained strong, rising by 20 per cent year on year on the back of increased trade transactions and expansion of the forex product offering.

According to him, the gradual decline in Treasury Bill rates has positively impacted “our cost of funds” while the bank also posted a 17 per cent year on year growth in loans and advances.

He further attributed the positive turn of events to increase in demand deposits which went up by 52 per cent and recoveries of some of the bad loans that the bank had provisioned for at the end of 2016.

“We have collected more than GH¢50 million and still pushing hard to collect the remaining amount after strengthening our risk management unit,” he said.

Three-pronged approach

On the way forward, he said, “Management has adopted a three-pronged approach to turn around the fortunes of the bank; focusing on recoveries, improving on asset quality and increasing operational efficiency and human capital.”

Mr Asafo-Adjei said the bank had set up a recovery department with the mandate to recover its non-performing loan portfolio, while it reviews and improves its credit policies to ensure that the loan asset created, going forward, were of the best quality.

“Our strategy to improve efficiency is built on improving revenue through income diversification and reducing our cost of funds,” he said.

In this regard, Mr Asafo-Adjei said the bank would continue to grow its non-funded income by cementing the gains achieved in expanding its trade finance portfolio and increasing income from transactional banking obtained through the use of its well-established e-banking platforms and other innovations.

He admitted that the current situation would not be overturned overnight, but assured that management would consistently pursue growth and recovery.

Bank’s financial health

Mr Asafo-Adjei said the bank was in a sound financial position and “we are also very liquid.”

According to him, the bank had excess liquidity which it constantly released to its competitors on the interbank market and, therefore, rumours about the bank in financial distress were not accurate and must be disregarded.

He said the bank was ready for any leap forward and assured its customers and potential customers, as well as its shareholders that all efforts were being put in place to ensure that “The Royal Bank” sustained its growth through sound and prudent management.

Bank’s base rate

On the bank’s high base rate, Mr Asafo-Adjei said “the bank was working hard to reduce its base rate.” He explained that “the base rate calculation includes a number of parameters but relies mainly on the bank’s nature and cost of deposits, which in the case of The Royal Bank is skewed towards more expensive deposits.”

Mr Asafo-Adjei noted, however, that “the bank is committed to putting in place measures to attract cheaper deposits to enable it to reduce its base rate before the end of the year.”