Banks in the country have cut back on investments in securities, in a bid to reduce their risk exposure to equities and stocks following the stock market’s disappointing performance.
The decline of banks’ investment in securities has however coincided with a rise in their investment into government’s Treasury bills — signalling the attractiveness of risk-free instruments to investors in an economy that has seen the profitability of businesses wane on the back of significant increases in utilities and taxes, amid erratic energy supply challenges.
According to figures available to the B&FT from the central bank, as at the end of the first quarter of this year banks made investments totalling about GH¢15.2billion, which is a 27.4 percent rise over the value of investments made at the end of the same period last year.
Out of this, banks’ investments in securities as at the end of the first three months of this year amounted to a little above GH¢2.7billion, which constituted 17.8 percent of their total investment; a decline of 22.9 percent from the same period last year.
More so, banks’ investments in shares and other equities as a share of total investment also decreased, to 2.8 percent in March this year from 3.8 percent in the same period last year.
Meanwhile, banks investments in Treasury bills, despite a fall in T-bills’ yields, at the end of the first quarter of this year was GH¢12billion, which forms a 79.4 percent share of the total investment; an increase on the share of 73.3 percent a year earlier.
The decision of banks to cut back on investment in equities and shares will thus be seen as a big blow to the country’s stock market, which has been struggling with liquidity issues in recent times.
The local bourse, once a darling of Africa’s stock markets, last year witnessed a bearish growth with the Ghana Stock Exchange Composite Index (GSE-CI) – which tracks the performance of the market – posting a 12 percent decline from a level of 2,261.02 points to close the year at 1,994 points.
The stock market capitalisation also went down by GH¢7.23billion, to GH¢57.12billion at the end last year from GH¢64.35billion in 2014.
The stock market performance at the end of the first quarter of this year further declined to 1,912 points, with the market’s total capitalisation declining further to GH¢54.8billion as the capital gains tax recently introduced by government further pushes investors away from the stock market.
The market’s reaction to the introduction of a capital gains tax has been one of disbelief, since the business operating environment in the country has already eroded the gains of investors.
Chairman of the Ghana Stock Exchange, Dr. Sam Mensah, in January this year explained to the B&FT that introduction of the capital gains tax will hurt growth ambitions of the stock market, as investors looking to make maximum returns on investment are more likely to flee to other markets which provide better incentives.
“The imposition of a capital gains tax makes Ghana the only market in the region that has a capital gains tax on listed securities, and will deal a competitive blow to the GSE. We are about to see foreign investors flee Ghana’s equity markets,” he told the B&FT.