The ARB Apex Bank is strategizing to diversify its income streams after recording an additional impairment loss due to the Domestic Debt Exchange Programme (DDEP) for the 2023 financial year.

The supervisory bank for rural and community banks has added approximately GH₵20.4 million to its previous GH₵113.9 million impairment losses, pushing its total loss as of 2023 to GH₵134.3 million.

Despite seeing a significant growth of 122% in profit gains, the management of the bank has resolved not to pay dividends to shareholders for the year as they work to sustain operations.

Ghana’s banking sector suffered major setbacks over the last two years after the government signed up for the Domestic Debt Exchange Programme, coupled with macroeconomic challenges.

However, recent financial figures from the banks have shown a growing trend in profitability.

The rural banking sub-sector, although not out of the woods, is recording a significant increase in profit gains after losses in previous years.

Following its mixed financial performance, Chairman of the Board of Directors for the ARB Apex Bank, Dr. Anthony Aubynn, says they have resolved not to pay dividends to shareholders in the 2023 financial year.

This is in spite of the Bank of Ghana’s directive for the suspension of declaration and payment of dividends owing to the DDEP.

“The Bank did not propose the payment of dividend for the year under review (2022: nil). We just went to profitability which was quite significant. But we questioned whether or not giving out the dividends could help with the general growth of the bank. So, we decided not to pay to sustain the bank,” he said.

Financial Performance

The sub-sector recorded growth of 122.4 percent in Profit Before Tax from GHS164.0 million in December 2022 to GHS364.8 million in December 2023.

Growth in total assets was pegged at 30.1 percent year-on-year from GHS8.4 billion at the end of December 2022 to GHS11.0 billion as of December 2023.

Deposits also rose by 31.1 percent from the previous GHS7.4 billion in 2022 to GHS9.7 billion, with corresponding growth in loans and advances by 26.9 percent from GHS2.6 billion to GHS3.3 billion.

Capital Adequacy Ratio saw a marginal increase from 10.7 percent to 12.54 percent while NPL declined from 11.2 percent in 2022 to 9.9 percent, indicating an improvement over the previous period.

Domestic Debt Exchange

Despite the sub-sector recording improved performance, the compounding effects from participating in the DDEP and the locked-up funds of some RCBs with the Securities and Exchange Commission (SEC) regulated institutions persisted.

The DDEP chipped away GHS113.0 million out of the GHS434.0 million, which were held in Government of Ghana Bonds at the end of the 2022 financial year.

Managing Director of the ARB Apex Bank, Alex Kwasi Awuah disclosed that impacts from the program denied the bank of deploying their funds to interest bearing assets.

“Subscribing to the DDEP resulted in impairment loss of GHS113,964,446 as of the end of 2022, Subsequent measurement in 2023, when the debts were exchanged, resulted in additional impairment of GHS20,404,920, bringing the total impairment to GHS134,369,366 as at end of 2023. These are funds that would have otherwise been deployed into interest bearing assets to shore up our income for the year, had the DDEP not affected our operations,” he said.

Consequently, the bank has recorded a significant derecognition gain.

Although participating in the DDEP upon the announcement in 2022 resulted in significant estimated impairment loss leading to negative net worth, capital adequacy and earning per share, this did not affect the ordinary operations of the Bank.

Remittances

Meanwhile, the influx of Financial Technology (Fintech) firms and the termination of inward remittances into bank accounts and mobile wallets continue to be a bane to the rural banking sector.

According to the Managing Director, the situation has not improved as remittance numbers continue to decline.

“This is a major source of worry to us because it is the primary source of our foreign exchange earnings. We are, however, hopeful that the radio advertising campaign and further engagement with the Money Transfer Operators (MTOs) would have a positive impact on our money transfer business and lead to increasing volumes of transactions especially for transfers that terminate into customer accounts and mobile money wallets,” he said.

Regulatory Reliefs

To stay buoyant in the sector amidst the economic difficulties, the Apex bank is instituting various reliefs to recoup their losses:

1. Reduction of Capital Conservation Buffer from 3% to zero, effectively reducing the minimum Capital Adequacy Ratio (CAR) from 13% to 10%.

2. Derecognition losses (ECL) emanating from the Debt Exchange shall be spread equally over a period of four (4) years for the purposes of CAR computation.

3. Banks have a maximum of four (4) years to restore the minimum paid-up capital as a result of any capital shortfall arising solely from the derecognition losses.

4. Derecognition losses arising from the Debt Exchange shall be spread equally over a period of (4) years for the purposes of Net Own Funds computation.