The financial system was resilient to risks from the macroeconomic challenges in 2022 as well as navigated emerging risks from the Domestic Debt Exchange Programme, the 20222 Financial Stability Review by the Bank of Ghana has revealed.

According to the Central Bank, the Stress tests on the recently announced restructuring of cocoa bills and locally issued US Dollar denominated bonds showed that the financial sector would be able to absorb the restructuring losses as some of these impairment losses were already taken in 2022.

Based on the gradual recovery in financial performance in 2023, the report said, the financial sector is expected to rebound in 2023-2024 and strengthen within the medium term.

The report pointed out that the holding of domestic debt by the financial sector (banking, insurance and securities) was quite significant and so the effect of the Domestic Debt Exchange Programme (DDEP) on the sector was unsurprisingly huge.

“The implementation of the DDEP resulted in heavy impairment losses on government securities as per the audited financial statements of financial institutions”, it pointed out.

Banking sector recorded loss but assets growth robust

The report said the banking sector recorded a loss position on account of the heavy impairment losses on government bonds.

However, assets growth of the banking industry was however robust on the back of strong growth in deposits mobilised.

Again, the core Financial Soundness Indicators showed that the Capital Adequacy Ratio (CAR) reduced while the Non-Performing Loans (NPL) ratio increased. Liquidity indicators however remained strong, averting concerns of liquidity shortfalls.

Insurance sector suffers from DDEP but premiums grew by 25%

The insurance sector also experienced a similar trend as profitability was adversely affected by the impairment losses suffered in 2022.

But core insurance business however grew strongly, with gross premiums of the insurance industry increasing by 25% to reach ¢6.56 billion in 2022. This was on the back of the National Insurance Commission’s digitization agenda which continued to be a catalyst for the growth of premiums in the insurance industry. The sector also recorded an appreciable growth in total assets.

Securities industry witnessed marked-to-market losses

Similarly, the securities sector witnessed marked-to-market and impairment losses on its holdings in government bonds which affected solvency and market liquidity.

The industry retreated across the equities, debt, and Funds Management segments. These developments were broadly reflective of the macroeconomic conditions, with heightened inflationary pressures and domestic currency depreciation, which had an adverse impact on investor sentiments.

The Securities and Exchange Commission (SCE) initiated policies to promote a healthy and thriving capital market, introduced measures to mitigate reputational risk to boost investor confidence, as well as initiated the development of a Risk-Based Supervisory framework in 2022 to enhance supervisory oversight. The securities industry has since remained resilient during the first half of 2023, as macroeconomic conditions improved.

Pensions industry records descent growth

For the pensions industry, the Pensions Industry’s Assets under Management (AUM) recorded a decent growth in the midst of the challenging environment.

The 3-Tier Pension Scheme’s AUM at the end of December 2022 stood at ₵46.6 billion, as compared to ₵39.6 billion recorded in 2021. Thus in 2022, pension funds increased by 17.7%, compared to the 18% growth recorded in 2021.

The sustained growth in 2022 is attributable to a rise in contribution inflows resulting from ongoing prosecution of defaulting employers and increased enrolment.