Thank you, Mr Speaker.
I also rise to thank the President for the Message on the State of the Nation. In so doing, I would like to make reference to pages 7 and 8 of his Message, which emphasise the effort that Government has put in trying to resuscitate the dying banking sector.
Mr Speaker, at the time of the interventions, it is on record that several of those banks that were affected were seriously under- capitalised; risk management was
poor, corporate governance was very weak, many of those banks were insolvent, banks faced liquidity challenges, there were various suspicious transactions identified, there was excessive risk taking, and it is also on record that there were some creative accounting practices which were a threat to the banking sector then and led to its total collapse.
Mr Speaker, with the involvement of the present Government, there have been some positive impact on the industry, and I would like to make reference to the Bank of Ghana Banking Sector Report, November, 2019, which I hold in my hand, and make references to some of the developments that have occurred or happened since the clean-up exercise.
Mr Speaker, reading from the Bank of Ghana Banking Sector Report, November, 2019, we realised that total assets of the banking sector grew at about 13.8 per cent to more than GH¢120 billion. It is important to note that about 92.2 per cent of this growth in total assets were with domestic sources. The foreign component was only 7.8 per cent, which should be of interest to us, as the banking sector itself has 92.2 per cent of total assets on their books.
Mr Speaker, there were also increases in bank investments and bills, securities and bonds. The growth for the period up to October 2019 was 10.8 per cent, increasing it to GH¢47.47 billion.
In the past, the growth in investments in Government securities and bills was about 62 per cent. What that meant was that the banking sector was very risky to invest in private sector, so banks decided to invest more in Government bills than in the private sector in the Small-Medium Enterprises (SMEs). Today, we understand that investment in securities is normalising at about 45 per cent.
Mr Speaker, industry credit to the portfolio also grew by 17.72 per cent and there was an increase in advances to about GH¢42 billion as at October 2019 and the reference I have given is the Bank of Ghana Banking Sector Report of November, 2019.
Mr Speaker, deposits as of October 2019, had increased by 17.1 per cent to almost GH¢80 billion from the GH¢ 67 billion that was recorded in the year earlier. This points to a renewed confidence in the banking sector as a result of the reforms.
Mr Speaker, in the past, banks had relied heavily on borrowings to support their operations, but with these revision and reforms, it is good to note that total borrowings by these banks declined significantly and that the total borrowing has now reduced from about GH¢18 billion to GH¢17 billion as of October 2019.
Mr Speaker, the slow-down is as a result of the increased capitalisation of these banks as well as the sustained growth in deposits. The industry is well capitalised; paid-off capital has grown by 38.4 per cent to GH¢9 billion from the GH¢6.6 billion that was reported in October 2018.
Mr Speaker, shareholder funds, as important as it is, has also grown. It was increased by about 25 per cent to GH¢17.34 billion from the previous GH¢13 billion. This is because of the profitability that is registered by these banks and the reserves that they keep as a result of the profitability.
Mr Speaker, on liquidity side, the Report indicates that the funding mix of banks still remains strongly on deposits. Deposits continue to support the financing of banks; but what has changed is that, whereas in the past banks had relied on borrowing as a secondary source of financing their businesses, today, share-holder
funds have overtaken borrowing. It is very important for us to know the funding mix and the change that has occurred in the funding mix.
Mr Speaker, asset quality has improved. Looking at the non- performing low ratio, it has been reduced from about 20.1 per cent in October 2018 to 17.3 per cent. This is due to the intensified loan recovery by the banks and also good and stronger credit arrangements and management practices.
Mr Speaker, the soundness of the industry has some basic indicators, and I would like to make reference to just a few of them to show how well the banks are now doing. I would look at liquidity for example.
Mr Speaker, the ratio of core liquid assets to total assets is recorded at 62 per cent. This is huge enough to show how liquid these banks are now.
Mr Speaker, capital adequacy, I have said, is 18 per cent above the basal II and basal III requirement of 13 per cent. This is strong and it shows how resilient the banks are. It also shows how these banks would be able to withstand losses following the banking reforms.
Mr Speaker, the cost to income ratio of banks has now improved from the hitherto 84 per cent to 80 per cent. This is good enough to suggest that there is now more efficiency in running the business of the banks.
Mr Speaker, so we should say that there has been some positive impact with the reforms that the Government was able to put in place.
Mr Speaker, the Ghana Amalgamated Trust (GAT) has also been able to successfully recapitalise four (4) of these indigenous banks. That is a good thing from the total package of reforms undertaken by the Central Bank.
Mr Speaker, I would like to make reference again to the document and then make some conclusions. One, we now have a stronger banking sector which has emerged from the improved solvency, liquidity and profitability. Two, asset quality has improved and the banks' resilience to shocks has also strengthened. Three, key financial soundness indicators remain positive. The banking sector continues to exhibit strong prospects in the medium term.
Mr Speaker, we have learnt some lessons from having a very weak banking sector so we do not hope to go back to this same situation where