Despite assets growing strongly, the banking industry has witnessed a decline in the growth of deposits in February 2022, compared to same period last year, with non-residents leading the damage with a huge slump of 118.6 percent, a development an economist says reflects the general economic challenges in the country.
The Monetary Policy Report (March 2022), published by Bank of Ghana has revealed that banks saw a colossal decline in their non-residents deposits growth to 49.6 percent in February 2022, from 168.2 percent same period last year. Domestic deposits also decreased to 18 percent from 24.6 percent within the period. In all, banks’ deposits grew by 18.2 percent in February 2022 compared to 25.1 percent in the corresponding period of 2021.
This development, a senior lecturer at the Department of Economics, University of Ghana, Dr. Agyapomaa Gyeke-Darko, in an interview with the B&FT, explained it’s happening as a result of the general economic downturn, where rising inflation and exchange rate volatility are not making it attractive any longer to keep money at the bank – as the value will be eroded by inflationary effects.
“When the country started experiencing covid in 2020, things slowed down a bit and because of this, domestic mobilisation also slowed. Now when all the measures were put in place, the economy started getting revitalised, so we saw an increase in deposits in 2021.
“And just as we were also trying to recover from covid, we started facing some problems from the latter part of 2021 as far as the economy is concerned. We have seen very high inflation rate; we have seen our currency depreciating, so our economy is not doing very well and that affected banks’ ability to mobilize deposits.
“Because of the downturn in the economy, especially high inflation rate, people want to hold more currency for transaction purposes than deposits. High inflation rates erode the value of deposits and don’t make it attractive. Also, the downturn in the economy is making it difficult for corporate entities and even some public institutions and the central government to be able to make enough money and set aside part as deposits,” she said.
Commenting on the huge decline in growth of foreigners’ deposits, Dr. Gyeke-Darko said, it reflects uncertainty on the part of non-residents regarding the economy, thereby, making them cautious.
“If foreigners are uncertain about the economy, they are not going to bring in their funds. If they think that by the time they need their money, the value will be eroded, they are not going to bring in their funds. So if the economy is not doing well, it affects deposits by individuals, it affects deposits by public enterprises, and it also affects deposits by foreign residents,” she added.
Despite the slow growth in deposits, total assets of the banking industry grew by 23.5 percent (year-on-year) to GH¢187.8billion as at February 2022, well-above the 18.5 percent growth recorded in the same period of 2021. Growth in domestic assets was higher at 27.1 percent in February 2022 from 19.1 percent in February 2021, while foreign assets contracted by 21.9 percent from a growth of 11.1 percent during the same review period.
The report however, expressed optimism saying: “The outlook of the banking sector remains stable and positive, although the current macroeconomic challenges present major risks in the medium term. The banking sector will therefore be closely monitored to effectively detect and address early warning signals from a possible spill-over of macroeconomic challenges to the sector. This will help sustain the sector’s performance going forward”.
