Banks in the country recovered from the negative return achieved in pre-tax in 2010 to record a 69.9 percentage points profit before tax for the first half of this year.

Similarly, the financial intermediaries recorded 66 percent after tax profit at the end of June 2011 as against 12.6 percent in June 2010.

The income statement of 27 banks in the country including Ghana Commercial Bank (GCB), Barclays Bank Ghana, Standard Chartered Bank, Ghana, Fidelity and EcoBank Ghana revealed that profitability indicators for the first six months of 2011 showed some improvements.

According to the latest financial stability report by the Bank of Ghana, 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 banking industry’s profitability.

Importantly, the banking industry’s interest expenses declined by 19.5 percent in June 2011 from 17.6 percent growth registered in June 2010 while interest income was 26.2 percent compared to a growth of 29.1 percent recorded in the first half of 2010. These developments, analysts noted, reflected in declining interest rates in the Ghanaian economy.

Analysis of the banking sectors balance sheet, profit and loss accounts and other reports indicated that the banking industry was highly capitalized, liquid and profitable.

On composition of bank’s income performance, interest on loans which represent the largest source of income for the banking industry, constituted 45.8 percent of total income in June 2011, a decline from 61.4 percent in June 2010.

The share of income from fees and commission improved from 12.8 percent in June 2010 to 17.9 percent in June 2011. Other income’s share also improved significantly.

The banking industry’s ROA increased from 11.6 percent by the end of June 2010 to 13.1 percent in June 2011. Similarly, return on equity (ROE) increased from 1.1 percent in June 2010 to 3.7 percent in June 2011.

On some sector performances, request for loan for inventories and working capital showed an increase according to the report while there was a decline for loan for debt restructuring and fixed investment. Indeed, net overall demand for credit declined but demand for short term and large enterprises increased.

On the other hand, the balance sheet size of the banking sector expanded at a faster pace of 30.4 percent as at June 2011 compared to 27.7 percent in June 2010.

Domestic assets however grew by 27.5 percent by the end of June 2011 compared to a growth of 29.9 percent for the same period in June 2010. Foreign assets grew by 60.2 percent compared to a growth of 8.6 percent for the corresponding period in 2010.

Total deposits accounted for 69.9 percent of total liabilities at the end of June 2011 as against 68.1 percent recorded in 2010.

The financial stability report stated that the banks’ returns on loan portfolio were expected to decline due to the continuous decline in money market interest rates.

It added that banks needed to reduce their operational expenses and adopt innovative ways to improve profit performance.