ES
57
BA
F
O GHA
T. 1 9
NA
NK
Bank of Ghana
Monetary Policy Report
Financial Stability
Volume 5: No.1/2012
February 2012
5.0 Introduction
5.0.1 The December 2011 Global Financial Stability Report (GFSR) identified increased risks
to stability of the global financial system despite various policy measures initiated to
accommodate the Euro area sovereign debt crisis and banking sector problems. Sovereign
financing continued to pose a challenge with increased vulnerability of the banking sector.
5.0.2. The GFSR proposed improvements in market confidence as a major step towards
resolving the crisis and this may involve increasing the buffer for sovereign financing and
also ensuring adequate bank funding. Emerging market economies were further
encouraged to implement prudent macroeconomic policies with sound financial sector
reforms to minimise funding and credit strains which may stem from external liquidity
shocks.
5.1 Credit Conditions Survey
5.1.1 Loans or credit lines to Enterprises
Banks tightened credit stance on loans for enterprises as at January 2012 survey period
with the net tightening affecting enterprises with different sizes and maturities (See Chart
1). The tightening of credit stance reflected banks’ expectation of economic activity, banks’
ability to access market financing, risk related to the current performance of 50 largest
borrowers, changes in adversely classified loans in banks’ portfolio, cost of fund and
balance sheet constraints. Other factors such as security requirements, margins on average
and riskier loans and changes in pressure from competition contributed to the net
tightening of credit (See Chart 2).
Page | 1
Chart 1: Overall Credit Stance
80
60
Net tightening
NPR (%)
40
20
0
-20
Net easing
-40
Overall Credit Stance for Enterprises
Notes: (NPR) -Net percentage refers to the difference between the sum of the percentages for “tightened
considerably” and “tightened somewhat” and the sum of the percentages for “eased somewhat” and “eased
considerably”. The net percentages for the questions related to the contributing factors are defined as the
difference between the percentage of banks reporting that a given factor contributed to a tightening and the
percentage reporting that it contributed to an easing
Chart 2: Enterprise Credit Stance
80
60
Net tightening
40
NPR (%)
20
0
-20
-40
Net easing
-60
Small and Medium Enterprises
Large Enterprises
5.1.2 Loan Demand
Request for loan for fixed investment, inventories and working capital showed an increase
(see Chart 3a). Net overall demand for credit however declined (see Chart 3b).
Page | 2
Chart 3a: Usage of credit
60
NPR (%)
40
20
0
-20
Fixed Investment
Inventories and working capital
Debt restructuring
Changes in terms on loans to corporates
Chart 3b: Enterprise Demand for Credit
70
60
NPR (%)
50
40
30
20
10
0
Overall
Small and Medium Enterprises
Large Enterprises
Notes: The net percentages for the questions on demand for loans are defined as the difference between the
sum of the percentages for “increased considerably” and “increased somewhat” and the sum of the
percentages for “decreased considerably” and “decreased somewhat”.
5.2 Loans to households for house purchase
Banks tightened credit stance on loans to households for house purchase on account of
expected economic performance and loan asset quality of the mortgage sector (see chart
4).
Chart 4: Credit Stance on Households’ Credit
80
60
20
0
-20
-40
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
NPR (%)
40
Overall
Loans for house purchase
Consumer credit and other lending
Page | 3
5.2.1 Loan demand
Households’ demand for credit for mortgages deteriorated in the January 2012 survey
compared with November 2011.
5.2.2 Consumer credit and other lending to households
Banks tightened credit for households using security requirements, non interest loan costs
and maximum size of loans (see Chart 4 and 5).
Chart 5: Measure of Tightening/Easing
60
50
40
NPR (%)
30
20
10
-20
-30
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
0
-10
Your bank’s margin on average loans
Non interest loan costs
Maximum size of the loan
Security / collateral requirements
5.3 BANKING SECTOR STABILITY ANALYSIS
5.3.1 Developments in Banks’ Balance Sheet
The total assets of the banking sector as at December 2011 went up by 26.8 percent
compared with 23.9 percent in the same period in 2010. Domestic currency denominated
assets grew by 25.1 percent by the end of December 2011 compared with the growth of
28.4 percent for the same period in December 2010. Foreign currency denominated assets
also grew by 47.2 percent compared with a contraction of 13.1 percent for the
corresponding period in 2010 (see Table 1).
Net loans and advances of GH¢8.34 billion represented a year-on-year growth of 19.7
percent in December 2011 compared with a slower growth rate of 13.4 percent recorded in
December 2010. Banks’ investment portfolio (bills and securities) reached GH¢6.09 billion
and showed an annual growth of 32.4 percent by the end of December 2011 compared
with a growth of 53.4 percent at end December 2010 (see Table 1).
Page | 4
Deposit liabilities which continues to be the main source of banks’ funding grew by 35.3
percent from GH¢11.82 billion in December 2010 to GH¢15.99 billion in December 2011.
Total borrowings declined by 4.8 percent, from GH¢1.87 billion in December 2010 to GH¢
1.78 billion in December 2011 (see Table 1).
Banks paid–up capital however increased by 20.8 percent to GH¢1.65 billion by the end of
December 2011, compared with the 23.8 percent growth recorded in December 2010 (see
Table 1).
Table 1: Key Developments in Banks’ Balance Sheet
Key Devts in DMBs' Balance Sheet
TOTAL ASSETS
A. Foreign Assets
B. Domestic Assets
Investments
i. Bills
ii. Securities
Advances (Net)
of which Foreign Currency
Gross Advances
Other Assets
Fixed Assets
TOTAL LIABILITIES AND CAPITAL
Total Deposits
of which Foreign Currency
Total Borrowings
Foreign Liabilities
i. Short-term borrowings
ii. Long-term borrowings
iii. Deposits of non-residents
Domestic Liabilities
i. Short-term borrowing
ii. Long-term Borrowings
iii. Domestic Deposits
Other Liabilities
Paid-up capital
Shareholders' Funds
Dec-09
14,043.3
1,527.2
12,516.1
3,000.0
1,809.0
1,131.7
6,150.1
1,656.6
6,920.8
764.0
424.0
14,043.3
8,970.6
2,747.7
1,873.1
1,104.8
519.8
349.7
235.2
11,146.6
877.8
125.8
8,735.4
1,376.0
1,103.7
1,763.7
Dec-10
17,397.7
1,327.6
16,070.0
4,602.4
2,940.3
1,586.4
6,973.5
2,162.8
7,994.7
900.6
499.1
17,397.7
11,816.7
2,889.9
1,871.0
1,113.8
474.3
334.5
305.0
13,947.6
879.6
182.5
11,511.7
1,288.5
1,366.2
2,313.3
Dec-11
Y-on-y Growth (%)
Dec-10
Dec-11
22,059.1
1,953.8
20,105.3
6,094.9
3,501.1
2,468.9
8,344.0
2,806.7
9,352.4
846.2
600.6
22,059.1
15,990.7
4,062.4
1,781.7
1,140.7
381.9
334.8
424.0
17,870.1
799.4
265.5
15,566.7
1,177.6
1,649.9
3,032.5
23.9
26.8
(13.1)
28.4
53.4
62.5
40.2
13.4
30.6
15.5
17.9
17.7
23.9
31.7
5.2
(0.1)
0.8
(8.8)
(4.4)
29.7
25.1
0.2
45.2
31.8
(6.4)
23.8
31.2
47.2
25.1
32.4
19.1
55.6
19.7
29.8
17.0
(6.0)
20.3
26.8
35.3
40.6
(4.8)
2.4
(19.5)
0.1
39.0
28.1
(9.1)
45.5
35.2
(8.6)
20.8
31.1
Shares
Dec-11
100.0
8.9
91.1
27.6
15.9
11.2
37.8
12.7
42.4
3.8
2.7
100.0
72.5
18.4
8.1
5.2
1.7
1.5
1.9
81.0
3.6
1.2
70.6
5.3
7.5
13.7
5.3.2 Asset and Liability Structure of the Banking Industry
Banks’ balance sheet structure as of December 2011 showed significant increases in the
share of investments in total assets relative to the same period in 2010. The share of the
banking sector assets and liabilities is shown in Table 2 below:
Page | 5
Table 2: Asset and Liability Structures of the Banking Sector
Dec-06
Dec-07
Dec-08
Dec-09
Components of Assets (In Percent of Total)
Cash and Due from Banks
23.5
23.3
25.2
26.3
Investments
23.3
17.6
14.5
21.4
Net Advances
45.0
50.3
52.3
43.8
Other Assets
5.2
5.7
4.7
5.4
Fixed Assets
3.1
3.1
3.2
3.0
Total Deposits
Total Borrowings
Other Liabilities
Shareholders' Funds
Components of Liabilities (In Percent of Total)
65.2
63.0
65.0
63.9
11.3
13.5
12.7
13.3
10.7
12.2
11.8
9.8
11.7
10.3
10.4
12.6
Dec-10
Dec-11
25.3
26.5
40.1
5.2
2.9
27.8
27.6
37.8
3.8
2.7
67.9
10.8
7.4
13.3
72.5
8.1
5.3
13.7
Net loans & advances share in banks’ assets of 37.8 percent in December 2011 indicated a
reduction from the 40.1 percent recorded in December 2010. Investments’ (in both bills
and securities) share in total assets however increased from 26.5 percent in December
2010 to 27.6 percent in December 2011.
Total deposits accounted for 72.5 percent of total liabilities in December 2011 compared
with 67.9 percent recorded in 2010. Shareholders’ funds as a proportion of total liabilities
inched up marginally from 13.3 percent in December 2010 to 13.7 percent in December
2011 and shows that 13.7 percent of the banking sector assets are backed by equity.
However, the share of total borrowings in total liabilities declined to 8.1 percent as at
December 2011 from 10.8 percent registered in December 2010 (see Table 2).
5.3.3 Share of Banks’ Investments
Chart 6 shows the distribution of the banks’ investment portfolio between December 2006
and December 2011.
Banks’ investment in securities (long term investments) as a share of total investment
increased significantly from 34.5 percent in December 2010 to 40.5 percent in December
2011. However, investment in treasury bills as a share of total investment declined to 57.4
percent in December 2011, from 63.9 percent in December 2010 (see Chart 6).
Page | 6
Chart 6: Banks’ Investment (%)
100.0
90.0
80.0
60.0
50.0
Percent
70.0
40.0
30.0
20.0
10.0
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Securities/Total Investments
58.6
64.4
34.2
37.7
34.5
40.5
Bills/Total Investments
39.2
34.3
64.2
60.3
63.9
57.4
-
Chart 7. Portfolio Allocation (%)
100.0
90.0
80.0
60.0
50.0
Percent
70.0
40.0
30.0
20.0
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Investments to Deposit
35.7
27.9
22.3
33.4
38.9
38.1
Credit/Dep + Borrowings
63.5
69.5
71.8
63.8
58.4
52.6
Credit to Deposit
74.5
84.4
85.9
77.2
67.7
58.5
10.0
Credit to deposits ratio declined from 67.7 percent in December 2010 to 58.5 percent in
December 2011. Credit to deposit plus borrowings ratio also followed a similar trend.
Investments to deposit ratio also decreased marginally to 38.1 percent in December 2011
from 38.9 percent in December 2010 and reflected banks’ channelling relatively less
proportion of mobilised funds into investments (see Chart 7).
5.4
Credit Risk
5.4.1 Credit Portfolio Analysis
The banking industry’s Gross loans and advances of GH¢9.35 billion indicated a growth of
7.7 percent in real terms at the end of December 2011 compared with the real growth rate
of 6.4 percent recorded in the same period in 2010. Private sector credit increased in real
terms by 14 percent at end December 2011 compared to 10.9 percent recorded at end
December 2010 (see Table 3).
Page | 7
The composition of banks’ credit portfolio by economic institutions shows that Public
enterprises received the lowest proportion of banks’ credit and accounted for 3.4 percent of
gross loans and advances as at December 2011, compared with 10.9 percent recorded in
December 2010. Private enterprises loans accounted for 76.2 percent of gross loans in
December 2011, up from 72.8 percent recorded in December 2010. The share of
household loans in gross loans also increased to 15.8 percent in December 2011 from 13.7
percent in December 2010. Government and public institutions credit constituted 4.5
percent of gross loans and advances in December 2011, an increase from 2.6 percent
registered in December 2010 (see Table 3).
Table 3: Gross Loans and Real Annual Growth of Credit
Gross Loans and Advances (GH¢m)
Real Growth (y-o-y)
Private Sector Credit (GH¢m)
Real Growth (y-o-y)
Dec-06
Dec-07
Dec-08
2,519.7
4,146.5
5,966.8
Dec-09
6,920.85
Dec-10
7,994.69
Dec-11
9,352.42
27.1
46.0
21.8
0.01
6.4
7.7
2,088.5
3,378.5
4,834.4
5,746.2
6,916.2
8,560.89
22.2
43.5
21.1
2.5
10.9
14.0
Distribution of Gross Loans by Economic Sector ( percent )
Private Enterprises
Household Loans
Govt & Public Institutions
Public enterprises
68.0
14.9
5.1
12.0
64.0
17.5
4.7
13.8
63.4
17.6
5.3
13.7
67.6
15.5
2.5
14.5
72.8
13.7
2.6
10.9
76.2
15.8
4.5
3.4
The sectoral allocation of credit showed that Commerce & Finance continued to receive the
highest proportion of credit though in year-on-year terms its share in total credit declined
from 32.8 percent in December 2010 to 27.1 percent in December 2011. The services
sector’s share in total credit however improved from 20.3 percent in December 2010 to
26.9 percent in December 2011.
Construction, mining and quarrying, electricity, gas and water, and transportation, storage
and communication sectors’ shares in total credit recorded some improvement, while the
shares of manufacturing and agriculture, forest and fishing sectors declined during the
review period (see Chart 8).
Page | 8
Chart 8: Sectoral Credit Allocation
8.1
7.2
Miscellaneous
Services
20.3
26.9
4.2
3.8
Transp., Stor. & Commu.
27.1
Commerce and Finance
32.8
6.7
6.4
Elect., Water & Gas
8.0
7.5
Construction
8.9
Manufacturing
13.2
4.3
2.8
Mining & Quarrying
5.7
6.0
Agric, Forest. & Fishing
0.0
5.0
Dec-11
10.0 15.0 20.0 25.0 30.0 35.0
Dec-10
Off-Balance Sheet Activities
Off-balance sheet items (contingent liabilities) increased by 60.7 percent to GH¢3.38 billion
as at December 2011 compared with a growth of 42.2 percent in the corresponding period
in 2010 (see Table 4).
Table 4: Contingent Liabilities
Contingent Liabilities (GH¢)
Growth (y-o-y)
Share in Total Liabilities (%)
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
915.9 1,253.8 1,750.0 1,477.4 2,101.2 3,377.2
5.4
36.9
39.6
(15.6)
42.2
60.7
17.7
16.1
16.4
10.5
12.1
15.3
5.4.2 Asset Quality
The indicators of asset quality at end December 2011 pointed to improvement relative to
the same period last year. The banking sector’s non-performing loans ratio declined from
17.6 percent at December 2010 to 14.1 percent in December 2011 (see Table 5).
The loss loan category of the total loans classifications continued to account for the
greatest proportion of 62.2 percent of banks’ impaired loan asset, compared with
substandard and doubtful categories constituting 19.6 percent and 18.1 percent
respectively. Loss loans category accounted for 64.9 percent of the total impaired loan
Page | 9
asset, followed by substandard, 18.4 percent and doubtful loans 16.8 percent in the same
period of 2010.
The ratio of NPL net of provisions to capital of 10.4 percent at end December 2011 was an
improvement over the December 2010 position of 29.2 percent. Loan loss provisions to
gross loans ratio also improved from 9.4 percent to 7.7 percent over the same periods (see
Table 5).
Table 5: Asset Quality
Dec-06
SUB-STD (GH¢m)
42.9
DOUBTFUL (GH¢m)
47.8
LOSS (GH¢m)
106.9
NPL (GH¢m)
197.6
NPL Ratio (%)
7.9
NPL Net of Provision to Capital (%)
1.88
Loan provision to Gross loan (%)
5.77
Dec-07
62.8
77.9
125.2
266.0
6.9
4.76
4.73
Dec-08 Dec-09 Dec-10 Dec-11
124.0
322.8
265.7
239.9
129.2
321.3
242.3
259.7
205.0
477.1
937.6
823.4
458.1 1,121.2 1,445.6 1,323.0
7.7
16.2
17.6
14.1
7.66
19.87
29.23
10.37
5.13
9.42
9.37
7.68
The private sector received 92.1 percent of total credit and accounted for 91.2 percent of
the total non-performing loans as at the end of December 2011. Similarly, the public
sector’s share of total credit was 7.9 percent and contributed 8.8 percent of nonperforming loans as at December 2011 (see Table 6).
Table 6: Distribution of gross loans and NPLs by Borrower TYPE
Distribution of Gross Loans and NPLs By Borrower Type: December 2011
share in Total Credit share in NPLs
a. Public Sector
7.9
8.8
i Central government
2.7
0.2
ii Public Institutions
1.5
0.7
iii Public Enterprises
3.7
7.9
b. Private Sector
92.1
91.2
i Private Enterprises
74.5
83.0
o/w Foreign
10.4
3.4
Indigeneous
64.1
79.7
ii Households
15.8
7.0
iii
Others
1.7
1.2
Grand Total
100
100
Commerce and finance, and services sectors together received 54 percent of total credit
and accounted for 51.1 percent of NPL at end December 2011(see Chart 9).
Page | 10
Chart 9: Sectoral Distribution of Total Credit and Non- Performing Loans
as at December 2011
6.0
Miscellaneous
8.1
15.7
Services
26.9
4.1
4.2
Transp., Stor. & Commu.
Commerce and Finance
35.4
27.1
3.2
Elect., Water & Gas
6.7
9.2
8.0
Construction
Manufacturing
8.9
13.5
5.9
4.3
Mining & Quarrying
6.8
5.7
Agric, Forest. & Fishing
0.0
5.0
10.0
15.0
Share of Total NPL
20.0
25.0
30.0
35.0
40.0
Share of Total Credit
Manufacturing and Mining and Quarrying sectors continued to have the highest proportions
of impaired loans to their gross loans. However, the proportion of impaired loans of the
mining and quarrying sector decreased significantly from 37.2 percent in December 2010 to
19.4 percent in December 2011. Similarly, the proportion of impaired loans in other sectors
also declined except Electricity, Water and Gas, construction, Transportation, Storage and
Communication and miscellaneous sectors which recorded relatively higher non-performing
loans in December 2011 (see Chart 10).
Chart 10: Proportion of Loans Impaired in Each Sector
Miscellaneous
11.6
6.5
8.7
Services
Transp., Stor. & Commu.
6.6
10.5
14.0
18.4
19.4
Commerce and Finance
Elect., Water & Gas
3.9
6.7
15.3
15.1
Construction
22.1
22.7
Manufacturing
19.4
Mining & Quarrying
37.2
16.5
15.7
Agric, Forest. & Fishing
0.0
10.0
Dec-11
20.0
30.0
40.0
Dec-10
5.5 Liquidity Indicators
Liquidity in the banking sector remained strong as evidenced by increases in both broad
and core measures of liquid assets to total assets in December 2011 relative to the same
Page | 11
period in 2010. Other measures of liquidity such as liquid assets to total deposits also
registered some improvements in year-on-year terms (see Table 7).
Table 7: Liquidity Ratios
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
Liquid Assets (Core) - (GH¢'million)
Liquid Assets (Broad) -(GH¢'million)
Liquid Assets to total deposits (Core)
Liquid Assets to total deposits (Broad)
Liquid assets to total assets (Core)
Liquid assets to total assets (Broad)
1,216.8 1,816.9 2,692.8 3,689.0 4,406.9 6,139.1 #
2,398.1 3,170.3 4,215.5 6,629.7 8,933.6 12,109.1 #
36.0
37.0
38.8
41.1
37.3
38.4 #
70.9
64.5
60.7
73.9
75.6
75.7 #
23.5
23.3
25.2
26.3
25.3
27.8 #
46.3
40.7
39.4
47.2
51.3
54.9 #
5.6 Capital Adequacy Ratio
The industry’s capital adequacy ratio (CAR) as measured by the ratio of risk-weighted
capital to risk-weighted assets declined from 19.1 percent in December 2010 to 17.4
percent in December 2011 (see Chart 11). However, the CAR was well above the 10
percent prudential and statutory requirements.
Chart 11: Capital Adequacy Ratio – Industry (%)
25.0
90.0
80.0
Percent
20.0
70.0
60.0
15.0
50.0
40.0
10.0
30.0
20.0
5.0
10.0
-
5.7
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
RWA/Total Assets (RHS)
73.2
78.1
69.8
67.0
68.8
CAR
15.7
13.8
18.2
19.1
17.4
TIER 1 CAR
13.6
12.8
17.0
18.6
15.5
0.0
Profitability
5.7.1 Highlights from the Banks’ Income Statement
Indicators of profitability of the banking industry showed some improvement in banks’
earnings performance for the period ended December 2011. Growth in the banking sector’s
profit before tax in year-on-year terms slowed down from 73.2 percent in December 2010
to 28.3 percent in December 2011. Similarly, the industry’s net profit after tax also dipped
from a growth of 75.1 percent in December 2010 to 30.1 percent in December 2011. Net
Page | 12
fees and commission annual growth was however up from 18.8 percent in December 2010
to 29.6 percent in December 2011 while other income also posted significant increases (see
Table 8).
The banking industry’s interest expenses declined by 12.1 percent in December 2011 from
5.3 percent recorded in December 2010, reflecting reduction in interest rates (see Table 8).
Table 8: DMBs Income Statement
DMBs' Income Statement Highlights
Dec-09
Dec-10 Dec-11 Dec-10 Dec-11
(GH ¢'million)
Y-on-y Growth (%)
Interest Income
Interest Expenses
Net Interest Income
Fees and Commissions (Net)
Other Income
Operating Income
Operating Expenses
Staff Cost
Other operating Expenses
Net Operating Income
Total Provision (Loan losses, Depreciation & others)
Monetary Loss
1,831.4
(858.1)
973.3
366.0
272.5
1,611.8
(939.5)
(376.9)
(562.6)
672.3
(330.1)
(1.2)
2,270.2
(812.6)
1,457.6
434.7
205.4
2,097.7
(1,142.1)
(532.2)
(609.9)
955.6
(365.9)
0.9
2,171.8
(714.1)
1,457.7
563.2
382.7
2,403.5
(1,339.0)
(605.9)
(733.1)
1,064.5
(312.7)
5.7
24.0
(5.3)
49.8
18.8
(24.6)
30.1
21.6
41.2
8.4
42.1
10.8
-
(4.3)
(12.1)
0.0
29.6
86.3
14.6
17.2
13.8
20.2
11.4
(14.5)
-
Income Before Tax
Tax
Net Income
Gross Income
341.0
(97.9)
243.1
2,469.9
590.6
(164.8)
425.8
2,910.3
757.5
(203.5)
554.1
3,117.6
73.2
68.3
75.1
17.8
28.3
23.5
30.1
7.1
5.7.2 Interest Margin and Spread
The ratio of gross income to total assets (i.e. assets utilisation) declined from 16.7 percent
in December 2010 to 14.1 percent by the end of December 2011. Similarly, interest spread
also narrowed over the period from 11.1 percent in December 2010 to 9.7 percent at the
end of December 2011 (see Table 9).
5.7.3 Return on Assets and Return on Equity
The banking industry’s return on assets (ROA) declined from 28.6 percent as at end
December 2010 to 27.2 percent by end December 2011. However, return on equity (ROE)
Page | 13
increased marginally from 2.7 percent in December 2010 to 2.8 percent in December 2011
(see Table 9).
Table 9: Profitability Indicators (%)
Gross Yield
Int Payable
Spread
Asset Utilitisation
Interest Margin to Total Assets
Interest Margin to Gross income
Profitability Ratio
Return On Assets (%) Before tax
Return On Equity (%) after tax
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
16.0
5.9
10.2
15.1
7.8
51.8
19.0
39.6
3.3
14.9
6.6
8.4
14.0
6.4
46.1
16.2
35.8
2.6
17.0
8.4
8.6
15.9
6.6
41.3
13.3
30.1
2.5
20.4
11.2
9.1
17.6
6.9
39.4
9.8
23.6
2.1
19.5
8.3
11.1
16.7
8.4
50.1
14.6
28.6
2.7
15.3
5.6
9.7
14.1
6.6
46.8
17.8
27.2
2.8
5.7.4 Composition of Banks’ Income
Interest income from loans which remained the main source of income for the banking
industry and constituted 46.4 percent of total income in December 2011 compared with
55.9 percent in December 2010. Investment income share of 23.3 percent of total income
was an improvement over the 22.1 percent recorded in December 2010. The share of
income from fees and commission improved from 14.9 percent in December 2010 to 18.1
percent in December 2011 (see Chart 12).
Chart 12: Composition of Income (%)
100.0
90.0
80.0
70.0
Percent
60.0
50.0
40.0
30.0
20.0
10.0
-
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
7.6
12.7
11.0
7.1
12.3
Commissions & Fees
21.5
17.8
14.8
14.9
18.1
Loans
49.4
55.3
58.7
55.9
46.4
Investments
21.5
14.3
15.4
22.1
23.3
Other Income
5.8 Operational Efficiency
Indicators of operational efficiency as at December 2011 broadly indicated some
improvement relative to the same period the year earlier. All the efficiency ratios improved
Page | 14
with the exception of operational cost to gross income. Specifically, cost to income ratio
declined from 85.4 percent in December 2010 to 82.4 percent in December 2011 and
operational cost to total assets decreased from 9.6 percent to 8.4 percent over the same
period (see Chart 13).
Chart 13: Efficiency Indicators
100.0
18.0
90.0
16.0
80.0
14.0
70.0
12.0
Percent
60.0
10.0
50.0
8.0
40.0
6.0
30.0
4.0
20.0
2.0
10.0
-
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Cost to income
83.9
86.9
90.1
85.4
82.4
Operational Cost to gross income
59.1
58.6
55.4
57.5
59.5
Cost to total assets (RHS)
11.7
13.8
15.8
14.3
11.6
8.3
9.3
9.7
9.6
8.4
Operational Cost to total assets (RHS)
-
5.9 Banks’ Counterparty Relationships
5.9.1 Developments in Banks’ Offshore balances & External Borrowing
Banks’ offshore balances as at December 2011 registered an annual growth of 50.6 percent
compared with a contraction of 15.7 percent in December 2010 (see Table 10).
Table 10: Developments in Banks’ Offshore Balances (%)
Offshore balances as %
to Networth
Monthly Growth in
Offshore balances (%)
Annual Growth in
Offshore balances (%)
Growth in Industry
Networth (%)
-
Nov-09
Dec-09
Nov-10
Dec-10
Nov-11
Dec-11
75.15
81.52
51.49
52.41
65.63
60.20
8.47
19.60
(3.84)
5.03
7.44
(2.17)
55.42
57.44
(3.97)
(15.67)
61.64
50.56
54.41
58.50
40.17
31.16
26.81
31.09
Long-term external borrowings as a proportion of total external borrowing increased from
27.6 percent in December 2010 to 33.7 percent in December 2011 while short term foreign
borrowings declined from 72.4 percent in December 2010 to 66.3 percent in December
2011 though it continued to represent the largest share of the banking industry’s external
borrowings (see Chart 14).
Page | 15
% of Total Borrowing
Chart 14: Distribution of Banks’ External Borrowings
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
2008
2009
2010
2011
Dec-08
Dec-09
Dec-10
Dec-11
Short-term borrowing
65.40
74.61
72.37
66.30
Long term borrowing
34.60
25.39
27.63
33.70
Banks reliance on external sources of funds continued to decline while banks increased
domestic resource mobilisation. Classification of banks’ borrowings by source is provided in
Chart 15.
% of Total Borrowing
Chart 15: Classification of Banks’ Borrowing by Source
70.00
60.00
50.00
40.00
30.00
20.00
10.00
2008
2009
2010
2011
Dec-08
Dec-09
Dec-10
Dec-11
External Borrowing
52.51
46.42
43.23
40.23
Domestic Borrowing
47.49
53.58
56.77
59.77
6.1 Conclusion
The analysis of the banking sector’s balance sheet, profit and loss accounts and other
prudential reports revealed that:
•
The banking industry is adequately capitalized, liquid and profitable.
•
Generally, the financial soundness indicators of the banking industry, measured in
terms of earnings, portfolio quality, liquidity, and capital adequacy remained strong.
•
Liquidity risks also remained well-contained in the short- to medium term.
•
Non-performing loans, though has been declining, continues to be a major source of
concern to banks’ solvency.
Page | 16
APPENDIX
Appendix A1: Selected Indicators of the Banking Industry
Market Share (Top 5 banks)
Gini Concentration Index
Herfindahl Index
Variation Coefficient (VC)
Asset to GDP
Private Sector Credi/GDP
Total Credit to GDP
Deposits to GDP
% of Revised GDP
Indicators of Concentration and Competition
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
57.4
55.6
51.9
49.8
45.0
44.4
51.8
48.4
45.8
45.1
38.6
40.0
870.7
838.0
744.0
693.1
600.0
590.1
1.02
0.98
0.95
0.91
0.76
0.78
Indicators of Financial Depth and Intermediation
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
45.1
55.8
65.6
64.9
67.1
70.8
18.2
24.2
29.7
26.6
26.7
27.6
21.9
29.7
36.6
32.0
30.8
30.0
29.4
35.2
42.6
41.5
45.6
51.3
Asset to GDP
Private Sector Credi/GDP
Total Credit to GDP
Deposits to GDP
27.7
11.2
13.5
18.1
33.7
14.6
17.9
21.2
35.4
16.0
19.8
23.0
38.1
15.6
18.8
24.3
38.8
15.4
17.8
26.4
38.8
15.1
16.5
28.1
Appendix A2: Balance Sheet (flow data)
Balance Sheet (flow data)
Assets
Credit
Dec-10
343,619.6
of which foreign currency
Investments
Foreign Assets
Total Assets
Share of Assets (flow)
Credit
of which foreign currency
Investments to total Assets
Foreign Assets
Dec-11
614,280.0
68,159.4
281,278.5
2,109,162.9
104,049.0
3,244,530.9
2,323,840.0
786,711.9
4,540,828.4
10.6
13.5
2.1
6.2
65.0
3.2
51.2
17.3
2,438,123.5
3,446,597.4
Liabilities
Deposits
of which foreign currency
Borrowings
Shareholders' Funds
Shareholders' Funds & Liabilities
Share of Liabilities (flow)
Deposits
of which foreign currency
Borrowings
Shareholders' Funds
210,570.2
(32,117.6)
731,118.8
3,244,530.9
931,199.9
399,209.3
615,504.3
4,540,828.4
75.1
75.9
6.5
20.5
(1.0)
22.5
8.8
13.6
Page | 17