BA
ES
OF GH
A
NA
NK
T. 1 9 5 7
Bank of Ghana
Monetary Policy Report
Financial Stability
Volume 5: No 4/2011
5.0
Sept 2011
Introduction
5.0.1 The Global Financial Stability Report (GFSR) of September 2011 observed that,
weaker growth prospects in advanced economies, the euro zone debt crisis and the credit
downgrading of the United States have increased global financial risks.
5.0.2 A brighter growth prospect, strong economic fundamentals in emerging markets and
low interest rates in advanced economies led to capital inflow into emerging economies
and supported liquidity and credit.
5.0.3 Generally, the domestic banking sector continued to record steady growth in assets,
deposits and networth.
5.0.4 The financial soundness indicators of the banking industry, measured in terms of
earnings, portfolio quality, liquidity, and capital adequacy continued to be strong. However,
the level of non-performing loans in the banking industry continued to pose a threat to the
banking industry.
1
5.1 Credit Conditions Survey
5.1.1 Loans or credit lines to Enterprises
Banks’ credit stance on loans continued to improve during the year with an easing of credit
stance to large enterprises. Credit stance on loans or credit lines to enterprises eased by
end July 2011 (See Chart 1).
Favourable expectations regarding general economic
activities, pressure from competition and margins on average loans were the main
contributing factors for easing of credit stance for enterprises. Small and medium sized
enterprises’ access to credit was however tightened as at July 2011.
Chart 1: Overall Credit Stance
80
60
Net tightening
NPR (%)
40
20
0
-20
-40
Overall Credit Stance for Enterprises
Net easing
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
2
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 inventories and working capital showed an increase (see Chart 3a)
while there was a decline for loan demand for debt restructuring and fixed investment. Net
overall demand for credit declined but demand for short term and large enterprises
increased.
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
3
Chart 3b: Enterprise Demand for Credit
70
Chart 3: Enterprises Demand
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 eased credit stance on loans to households for house purchase as a result of
improved banks’ expected capital position, favourable expectations regarding general
economic activities and changes in competition (see chart 4).
Chart 4: Credit Stance on Households’ Credit
80
60
20
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
-40
Jun-08
-20
Mar-08
0
Dec-07
NPR (%)
40
-60
Overall
Loans for house purchase
Consumer credit and other lending
4
5.2.1 Loan demand
Households’ demand for credit for mortgages improved compared with previous survey of
June 2011.
5.2.2 Consumer credit and other lending to households
Household access to credit improved, due to improved banks’ capital position, favorable
general economic activities and pressure from competition. Banks eased conditions for
consumer credit as at the end of July 2011 (see Chart 4). The net easing of credit stance
for consumer credit was implemented through reduction in margins on average loans and
collateral requirements (see Chart 5).
Chart 5: Measure of Tightening/Easing
60
50
40
NPR (%)
30
20
10
-10
-20
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
0
-30
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
5.3.0 Developments in Banks’ Balance Sheet
The balance sheet size of the banking sector as at June 2011 expanded at a faster pace
(30.4 percent) compared with the same period in 2010 (27.7 percent). Domestic assets
however grew by 27.5 percent by the end of June 2011 compared with a growth of 29.9
5
percent for the same period in June 2010. Foreign assets grew by 60.2 percent compared
with a growth of 8.6 percent for the corresponding period in 2010. (See Appendix A2)
Net loans and advances of GH¢6.83 billion represented a year-on-year growth of 11.3
percent in June 2011 compared with a contraction of 1.8 percent recorded in June 2010.
The banks’ investment portfolio (bills and securities) reached GH¢6.12 billion registering an
annual growth of 61.2 percent by the end of June 2011 compared with a growth of 124.9
percent as at the end of June 2010. (See Appendix A2)
Deposit liabilities which continued to be the main source of banks’ funding grew by 33.8
percent from GH¢ 10.19 billion in June 2010 to GH¢ 13.63 billion. Total borrowings grew in
year-on-year terms by 27 percent, up from GH¢ 1.48 billion in June 2010 to GH¢ 1.88
billion in June 2011. (See Appendix A2)
Paid –up capital also increased at a slower pace by 21.7 percent to GH ¢1.51 billion at the
end of June 2011, compared with the 107.1 percent growth in June 2010. (See Appendix
A2)
5.3.1 Asset and Liability Structure of the Banking Industry
The banks’ balance sheet structure as of June 2011 suggested significant changes in the
various assets and liabilities categories relative to the same period in 2010. The share of
the banking sector assets and liabilities is shown in Table 1 below:
Table 1 Asset and Liability Structures of the Banking Sector
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Cash and Due from Banks
Investments
Net Advances
Other Assets
Fixed Assets
Components of Assets (In Percent of Total)
21.2
23.2
22.3
28.2
23.1
16.3
41.7
45.4
52.2
5.9
4.9
5.7
3.0
3.3
3.4
23.6
14.4
53.4
5.2
3.3
25.0
25.4
41.0
5.2
3.3
25.2
31.4
35.0
5.3
2.9
Total Deposits
Total Borrowings
Other Liabilities
Shareholders' Funds
Components of Liabilities (In Percent of Total)
66.3
63.7
64.4
66.2
9.4
14.8
12.5
12.9
11.2
10.7
11.5
9.4
12.1
10.3
10.8
10.8
68.1
9.9
8.2
13.4
69.9
9.6
7.0
13.4
6
The share of net loans & advances in banks’ assets declined to 35 percent in June 2011
from the 41 percent recorded in June 2010. The proportion of investment (in both bills
and securities) in total assets increased from 25.4 percent in June 2010 to 31.4 percent in
June 2011.
Total deposits accounted for 69.9 percent of total liabilities at the end of June 2011
compared with 68.1 percent recorded in 2010. However, the proportion of shareholders’
funds in total liabilities remained the same at 13.4 percent in June 2011. This suggested
that 13.4 percent of the banking sector assets were backed by equity. The share of total
borrowings in total liabilities declined marginally to 9.6 percent as at June 2011 from 9.9
percent registered in June 2010 (see Table 1).
5.3.2 Share of Banks’ Investments
Chart 6 shows the distribution of the banks’ investment portfolio between June 2006 and
June 2011.
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
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Securities/Total Investments
59.4
62.5
62.9
28.8
41.0
41.8
Bills/Total Investments
38.8
36.4
35.6
68.3
57.4
56.5
Banks’ investment in securities (long term investments) as a share of total investment
increased slightly from 41 percent in June 2010 to 41.8 percent in June 2011. However,
7
investment in treasury bills as a share of total investment declined to 56.5 percent in June
2011 from 57.4 percent in June 2010 (See Chart 6).
Chart 7 Portfolio Allocation (%)
100.0
90.0
80.0
60.0
50.0
Percent
70.0
40.0
30.0
20.0
10.0
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Investments to Deposit
42.4
36.2
25.4
21.8
37.3
44.9
Credit/Dep + Borrowings
61.8
62.0
72.3
73.4
61.2
50.0
Credit to Deposit
70.5
76.3
86.4
87.7
70.1
56.9
The credit to deposit ratio of 70.1 percent in June 2010 declined to 56.9 percent in June
2011. Credit to deposit plus borrowings ratio also followed a similar trend. However,
investments to deposit ratio increased to 44.9 percent in June 2011 from 37.3 percent in
June 2010 (see Chart 7).
5.4
Credit Risk
5.4.1 Credit Portfolio Analysis
Gross loans and advances of the banking industry grew marginally by 0.01 percent in real
terms at the end of June 2011 compared with the decline of 4.08 percent at the end of the
same period in 2010. However, credit to the private sector witnessed a real growth of 7.6
percent as at end of June 2011 compared to a decline of 0.3 percent at the end of June
2010 (see Table 2).
8
Government and Public institutions accounted for 3.3 percent of gross loans as at June
2011, compared with 1.7 percent recorded in June 2010. Loans to private enterprises
accounted for 76.7 percent of gross loans in June 2011, up from 72.4 percent recorded in
June 2010. The share of household loans in gross loans also increased to 16.2 percent in
June 2011 compared with 14.5 percent in June 2010. However, credit to public enterprises
share of credit declined to 3.8 percent of gross loans in June 2011, from 11.4 percent
registered in June 2010 (see Table 2).
Table 2: Gross Loans and Real Annual Growth of Credit
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
1,982.1
2,999.0
4,750.9
6,795.2
7,138.81
7,753.09
19.7
36.7
33.8
18.5
(4.08)
0.01
Private Sector Credit
1,678.6
2,537.4
3,956.8
5,651.9
6,207.4
7,252.4
Real Growth (y-o-y)
NA
36.6
31.7
18.3
0.3
7.6
Gross Loans and Advances (GH¢m)
Real Growth (y-o-y)
Distribution of Gross Loans by Economic Sector ( percent )
Private Enterprises
Household Loans
Govt & Public Institutions
Public enterprises
68.9
15.7
5.4
9.9
68.6
16.0
4.5
10.9
65.0
18.3
4.8
11.9
66.9
16.2
3.8
13.0
72.4
14.5
1.7
11.4
76.7
16.2
3.3
3.8
The sectoral allocation of credit shows that Commerce & Finance continued to receive the
highest proportion of credit though in year-on-year terms its proportion in total credit
declined from 28.8 percent in June 2010 to 26.6 percent in June 2011. The services
sector’s share improved from 20.7 percent in June 2010 to 26 percent in June 2011.
While the proportion of credit to mining and quarrying and agriculture, forestry and fishing
sectors recorded improvement, those of manufacturing, construction, electricity, gas and
water sectors as well as transportation, storage and communication sectors declined during
the review period (see Chart 8).
9
Chart 8: Sectoral Credit Allocation
7.9
8.4
9.7
Miscellaneous
Services
20.7
21.9
26.0
3.9
4.8
3.6
Transp., Stor. & Commu.
26.6
Commerce and Finance
28.8
33.7
5.4
7.1
5.9
Elect., Water & Gas
Construction
6.5
8.2
8.7
12.0
13.2
11.1
Manufacturing
3.4
2.8
2.9
Mining & Quarrying
6.6
5.4
4.6
Agric, Forest. & Fishing
0.0
5.0
Jun-11
10.0
Jun-10
15.0
20.0
25.0
30.0
35.0
Jun-09
Off-Balance Sheet Activities
Off-balance sheet items (contingent liabilities) grew by 43.4 percent to GH¢2.57 billion as
at June 2011 compared with a growth of 28.6 percent in the corresponding period in 2010
(see Table 3).
Table 3: Contingent Liabilities
Contingent Liabilities (GH¢)
Growth (y-o-y)
Share in Total Liabilities (%)
Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11
783.0 933.5 1,639.6 1,391.4 1,789.7 2,566.4
NA
19.2 75.6 (15.1) 28.6 43.4
18.5 15.1 19.2 11.9 12.0 13.2
10
5.4.2 Asset Quality
The indicators of asset quality at the end of June 2011 pointed to marginal improvements
relative to the same period last year. The NPL ratio declined from 18.6 percent in June
2010 to 16.4 percent in June 2011 (see Table 4).
As at June 2011, the loss loans category accounted for 62.3 percent of the impaired assets,
while substandard and doubtful categories accounted for 14.9 percent and 22.8 percent
respectively. For the corresponding period in 2010, loss loans accounted for 51.2 percent,
followed by doubtful loans with 30.9 percent and 17.9 percent for substandard loans.
The ratio of NPL net of provisions to capital of 13.2 percent at end June 2011 was an
improvement over the June 2010 position of 16 percent. Loan loss provisions to gross loans
ratio also improved from 11.2 percent to 8.7 percent over the same period (see Table 4).
Table 4: Asset Quality
SUB-STD (GH¢m)
DOUBTFUL (GH¢m)
LOSS (GH¢m)
NPL (GH¢m)
NPL Ratio (%)
NPL Net of Provision to Capital (%)
Loan provision to Gross loan (%)
Jun-06
38.7
73.8
138.5
251.0
12.7
6.9
8.5
Jun-07
47.0
53.1
109.9
210.0
7.0
1.8
5.2
Jun-08
113.3
136.0
163.5
412.8
8.7
12.7
5.1
Jun-09 Jun-10 Jun-11
193.9
237.5
188.8
169.3
409.2
290.2
280.4
677.6
790.5
643.6 1,324.3 1,269.6
9.8
18.6
16.4
7.4
16.0
13.2
7.3
11.2
8.7
The private sector received 93.5 percent of total credit and accounted for 91.5 percent of
non-performing loans as at the end of June 2010. Similarly, the public sector’s share of
total credit was 6.5 percent and directly contributed 8.5 percent of total NPLs as at June
2011 (Table 5).
11
Table 5: Distribution of gross loans and NPLs by Borrower TYPE
Distribution of Gross Loans and NPLs By Borrower Type: June 2011
share in Total Credit share in NPLs
a. Public Sector
6.5
8.5
i Central government
1.8
0.1
ii Public Institutions
1.4
1.0
iii Public Enterprises
3.3
7.3
b. Private Sector
93.5
91.5
i Private Enterprises
75.6
83.1
o/w Foreign
8.9
3.5
Indigeneous
66.7
79.6
ii Households
16.2
7.6
iii
Others
1.7
0.8
Grand Total
100.0
100
Commerce and finance, and service sectors together received 52.6 percent of total credit
and accounted for 49.7 percent of NPL at the end of June 2011. Commerce and finance,
Services and Manufacturing sectors accounted for the largest shares of non-performing
loans (Chart 9).
Chart 9: Sectoral Distribution of Total Credit and Non- Performing Loans as at
June 2011
6.0
Miscellaneous
7.9
16.3
Services
26.0
2.8
3.9
Transp., Stor. & Commu.
Commerce and Finance
26.6
3.3
Elect., Water & Gas
33.4
5.4
8.7
8.2
Construction
Manufacturing
12.0
Mining & Quarrying
3.4
Agric, Forest. & Fishing
5.2
6.6
0.0
5.0
14.7
9.6
10.0
Share of Total NPL
15.0
20.0
25.0
30.0
35.0
Share of Total Credit
12
Mining and Quarrying, Agriculture, Forestry and Fishing, and commerce and finance were
the sectors with
high proportions of impaired loans to their gross loans. However, the
proportion of impaired loans of the mining and Quarrying, and construction sectors
declined significantly from 55 percent and 27.2 percent in June 2010 to 25.3 percent and
17.4 percent in June 2011 respectively. Similarly, the proportion of loans impaired in the
other sectors declined except Commerce and Finance, Electricity, Water and Gas, and
Transportation, Storage and Communication sectors (Chart 10).
Chart 10: Proportion of Loans Impaired in Each Sector
Miscellaneous
12.5
Services
10.2
12.7
16.3
11.7
9.5
Transp., Stor. & Commu.
20.6
18.4
Commerce and Finance
9.9
7.3
Elect., Water & Gas
17.4
Construction
27.2
20.1
22.8
Manufacturing
25.3
Mining & Quarrying
55.0
23.9
24.2
Agric, Forest. & Fishing
0.0
20.0
Jun-11
Jun-10
40.0
60.0
5.5 Liquidity Indicators
At the end of June 2011, all liquidity indicators (i.e. assets that can be converted into cash
quickly without a significant loss in value) in the banking sector experienced some
improvements. The ratio of liquid assets to total assets improved in terms of both broad
and core measures compared to the same period in 2010. Other measures of liquidity such
as liquid assets to total deposits (broad), also registered some improvement in year-onyear terms (see Table 5).
13
Table 6: Liquidity Ratios
Jun-06 Jun-07 Jun-08 Jun-09 Jun-10
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)
Jun-11
897.2 1,432.0 1,906.4 2,763.3 3,738.7 4,912.2 ##
2,068.2 2,839.3 3,281.5 4,403.6 7,473.8 10,930.2 ##
31.9
36.4
34.7
35.7
36.7
36.0 ##
73.6
72.2
59.7
56.8
73.4
80.2 ##
21.2
23.2
22.3
23.6
25.0
25.2 ##
48.8
46.1
38.4
37.6
50.0
56.1 ##
5.6 Capital Adequacy Ratio
The capital adequacy ratio (CAR) determines the robustness of the banking sector to
withstand shocks to its balance sheet. The industry’s CAR as measured by the ratio of riskweighted capital to risk-weighted assets declined from 19.9 percent in June 2010 to 17.5
percent in June 2011 (see Chart 11).
Chart 11: Capital Adequacy Ratio – Industry (%)
25.0
90.0
80.0
20.0
70.0
Percent
60.0
15.0
50.0
40.0
10.0
30.0
20.0
5.0
10.0
-
-
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
RWA/Total Assets (RHS)
69.3
82.2
76.3
53.9
67.4
CAR
15.2
13.8
14.5
19.9
17.5
TIER 1 CAR
12.4
12.8
18.5
15.9
16.3
However, Tier 1 CAR increased slightly from 15.9 percent in June 2010 to 16.3 percent in
June 2011. The CAR of 17.5 percent was above the prudential limit of 10 percent and
showed a solvent and well capitalized banking industry.
14
5.7
Profitability
5.7.1 Highlights from the Banks’ Income Statement
Indicators of profitability for the banking industry showed some improvement in banks’
earnings performance for the six months ended June 2011.
The banking sector’s profit before tax in terms of year-on-year growth improved strongly
from -7.7 percent in June 2010 to 69.9 percent in June 2011. Similarly, the industry’s net
profit after tax also surged from 12.6 per cent in June 2010 to 66 percent in the
corresponding period in 2011. The increase in the year-on-year growth in net fees and
commission and other income as well as the reduction in interest expense accounted for
the significant improvement in the industry’s profitability (see Table 7).
The banking industry’s interest expenses declined by 19.5 percent in June 2011 from 17.6
percent growth registered in June 2010, and interest income also declined by 2.9 percent
compared with a growth of 29.1 percent recorded in the same periods. These
developments reflected declining interest rates in the economy (see Table 7).
Table 7: Highlights of DMBs’ Income Statement
DMBs' Income Statement Highlights
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
Income Before Tax
Tax
Net Income
Gross Income
Jun-09
Jun-10
Jun-11
(GH ¢'million)
Jun-10
Jun-11
Y-on-y Growth (%)
852.6
(387.5)
465.1
170.6
167.7
803.4
(443.1)
(174.0)
(269.1)
360.4
(150.0)
1.1
1,101.0
(455.8)
645.2
173.9
81.1
900.3
(477.3)
(213.3)
(264.0)
423.0
(227.6)
(0.3)
1,068.7
(367.0)
701.7
270.6
170.1
1,142.4
(642.1)
(289.1)
(353.0)
500.3
(170.5)
1.9
29.1
17.6
38.7
2.0
(51.6)
12.1
7.7
22.6
(1.9)
17.4
51.8
-
(2.9)
(19.5)
8.8
55.6
109.6
26.9
34.5
35.6
33.7
18.3
(25.1)
-
211.5
(48.6)
162.9
1,190.9
195.2
(52.7)
142.4
1,356.1
331.7
(95.2)
236.4
1,509.4
(7.7)
8.5
(12.6)
13.9
69.9
80.5
66.0
11.3
15
5.7.2 Interest Margin and Spread
The ratio of gross income to total assets (i.e. assets utilisation) declined from 9.1 percent
in June 2010 to 7.7 percent by the end of June 2011. Similarly, interest spread also
narrowed over the period from 5.5 percent in June 2010 to 4.8 percent at the end of June
2011 (see Table 8).
Table 8: Profitability Indicators (%)
Gross Yield
Interest 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
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
7.8
2.7
5.1
16.4
4.3
53.1
18.0
18.6
1.5
7.7
3.6
4.1
15.4
3.7
48.3
11.1
13.0
0.9
7.8
3.5
4.3
16.1
3.6
45.0
10.1
12.2
1.0
10.0
5.4
4.7
20.3
4.0
39.0
13.7
15.9
1.5
11.2
5.6
5.5
9.1
4.3
47.6
10.5
11.6
1.1
7.9
3.1
4.8
7.7
3.6
46.5
15.7
13.1
3.7
5.7.3 Return on Assets and Return on Equity
The banking industry’s return on assets (ROA) increased from 11.6 percent by end June
2010 to 13.1 percent by end June 2011. Similarly, return on equity (ROE) increased from
1.1 percent in June 2010 to 3.7 percent in June 2011 (see Table 8).
5.7.4 Composition of Banks’ Income
Interest on loans which continued to be the largest source of income for the banking
industry constituted 45.8 percent of total income in June 2011 compared with 61.4 percent
in June 2010. Investment income share of 25 percent of total income was an improvement
over the 19.7 percent recorded in June 2010. Other income’s share also improved
16
significantly. The share of income from fees and commission improved from 12.8 percent in
June 2010 to 17.9 percent in June 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
-
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
7.5
10.9
14.1
6.0
11.3
Commissions & Fees
20.7
18.3
14.3
12.8
17.9
Loans
46.6
53.3
58.5
61.4
45.8
Investments
25.2
17.5
13.1
19.7
25.0
Other Income
5.8 Operational Efficiency
Indicators of operational efficiency as at June 2011 broadly showed some improvement
relative to the same period last year. Cost to income ratio decreased from 89.5 percent in
June 2010 to 84.5 percent in June 2011 and operational cost to total assets also decreased
from 5.1 percent to 4.7 percent over the same period (see Chart 13).
Percent
Chart 13: Efficiency Indicators
100.0
20.0
90.0
18.0
80.0
16.0
70.0
14.0
60.0
12.0
50.0
10.0
40.0
8.0
30.0
6.0
20.0
4.0
10.0
2.0
-
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Cost to income
89.0
90.0
86.4
89.5
84.5
Operational Cost to gross income
65.6
64.2
53.9
55.9
60.1
Cost to total assets (RHS)
13.7
14.5
17.6
8.1
6.5
Operational Cost to total assets (RHS)
10.1
10.3
11.0
5.1
4.7
17
5.9 Banks’ Counterparty Relationships
5.9.1 Developments in Banks’ Offshore balances & External Borrowing
Banks’ offshore balances as at June 2011 registered a growth of 60.92 percent compared
with 9.14 percent in June 2010 (see Table 9).
Table 9: Developments in Banks’ Offshore Balances (%)
Offshore balances as %
to Networth
Monthly Growth in
Offshore balances (%)
Annual Growth in
Offshore balances (%)
Growth in Industry
Networth (%)
May-09
Jun-09
May-10
Jun-10
May-11
Jun-11
94.02
87.71
60.29
60.71
60.84
74.70
3.53
(3.93)
(4.07)
2.18
(10.63)
25.52
92.82
77.67
2.61
9.14
31.00
60.92
40.47
37.89
60.01
57.67
29.82
30.79
Long-term external borrowings as a proportion of total external borrowing registered a
decrease from 37.68 percent in June 2010 to 24.76 percent in June 2011 (see Chart 14).
Short term foreign borrowings which continued its increases represented the largest share
of the banking industry external borrowings (see Chart 14).
Chart 14: Distribution of Banks’ External Borrowings
% of Total Borrowing
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
2008
2009
2010
2011
Jun-08
Jun-09
Jun-10
Jun-11
Short-term borrow ing
63.41
66.84
62.32
75.24
Long term borrow ing
36.59
33.16
37.68
24.76
18
External borrowings as a proportion of total borrowings continued to decline as banks
sourced for more domestic borrowings. 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
Jun-08
Jun-09
Jun-10
Jun-11
Foreign Borrow ing
49.24
47.09
55.42
39.35
Domestic Borrow ing
50.76
52.91
44.58
60.65
5.9.2 Developments in Banks’ Lending to Deposit-Takers and Other Financial
Companies
Banks’ loans to deposit-takers and other financial companies as a proportion to total
banking loans picked up from 4.95 percent in May 2011 to 5.01 percent in June 2011 (see
Chart 16).
Chart 16: Banks’ Loans to Deposit-Takers and Other Financial Companies
% of Total Loans
5.20
5.00
4.88
4.80
4.61
4.60
4.40
4.95
4.86
5.01
4.57
4.35
4.21
4.20
4.00
3.80
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Loans to Deposit-Takers and Other Financial Institutions
19
6.1 Outlook
The continuous decline in money market interest rates shows that banks’ returns on loan
portfolio are expected to decline. Banks need to reduce their operational expenses and
adopt innovative ways to improve profit performance.
6.2 Conclusions
The analysis of the banking sector’s balance sheet, profit and loss accounts and other
prudential reports reveal 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 remain strong.
•
Liquidity risks also remain well-contained in the short- to medium term.
•
Non-performing loans however continue to be a major source of concern to banks’
solvency.
20
APPENDIX
Appendix A1: Selected Indicators of the Banking Industry
M a r k e t S h a re (T o p 5 b a n k s )
G in i C o n c e n t r a t io n In d ex
H er fin d a h l In d e x
V a r ia t io n C o e ffic ie n t (V C )
A s s et t o G D P
P r iv a t e S ec t o r C re d i/ G D P
T o t a l C r ed it t o G D P
D e p o s it s t o G D P
% o f R e v is e d G D P
A s s et t o G D P
P r iv a t e S ec t o r C re d i/ G D P
T o t a l C r ed it t o G D P
D e p o s it s t o G D P
I n d ic a t o r s o f C o n c e n t r a t io n a n d C o m p e t it io n
J u n -0 6 J u n -0 7 J u n -0 8 J u n -0 9 J u n -1 0 J u n -1 1
NA
NA
5 4 .1
5 0 .4
4 6 .4
4 5 .6
NA
NA
4 9 .3
4 5 .3
4 1 .4
4 1 .1
NA
NA
7 8 4 .9
7 3 2 .1
6 3 1 .0
6 0 3 .2
NA
NA
1 .0 0
0 .9 3
0 .8 2
0 .8 1
I n d ic a t o rs o f F in a n c ia l D e p th a n d I n t e r m e d ia tio n
3 6 .9
4 4 .1
5 2 .4
5 4 .1
5 7 .6
6 2 .6
1 4 .6
1 8 .2
2 4 .3
2 6 .1
2 3 .9
2 3 .1
1 7 .3
2 1 .5
2 9 .2
3 1 .4
2 7 .5
2 4 .9
2 4 .5
2 8 .1
3 3 .7
3 5 .8
3 9 .3
4 3 .8
2 2 .6
9 .0
1 0 .6
1 5 .0
2 6 .6
1 1 .0
1 3 .0
1 7 .0
2 8 .3
1 3 .1
1 5 .7
1 8 .2
3 1 .8
1 5 .3
1 8 .4
2 1 .0
3 3 .4
1 3 .9
1 5 .9
2 2 .7
3 6 .5
1 3 .5
1 4 .5
2 5 .5
Appendix A2: Key Developments in Banks’ Balance Sheet
21
Appendix A3: Balance Sheet (flow data)
Balance Sheet (flow data)
Assets
Credit
of which foreign currency
Investments
Foreign Assets
Total Assets
Share of Assets (flow)
Credit
of which foreign currency
Investments to total Assets
Foreign Assets
Jun-10
Jun-11
343,619.6
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
22