HFC awaits court’s ruling in Finatrade debt saga

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HFC bank has told Citi Business News it will await a court ruling before it makes its next move following Finatrade’s indebtedness to it.

HFC is one of many banks Finatrade is currently indebted to.

Finatrade’s indebtedness to HFC and other banks in the country is reported to be in the tune of about 1 billion cedis, which is almost half of the GHc 2.6 billion stated capital of the entire banking industry.

A number of the banks in a bid to recover their monies from Finatrade last year dragged the company which is one of Ghana’s biggest commodity trading companies to court.

Speaking to Citi Business News on the matter the Managing Director of HFC bank Robert Le Hunte said the bank will take its next line of action on the matter after the court’s ruling.

“I will think we all know the matters in relation to the Finatrade loans that is before the court and we will see what the court rules and what will be the possibilities of that.

Based on international accounting standards, is that loan to be deemed to be a non-performing loan and it should not be accruing any interest on it. Again international accounting rules will also mean that you will need to make the necessary provisions as a prudent bank.

So i.e. Finatrade it’s up in the end the court will rule and make a final determination but the bank has taken all the necessary cautions in ensuring that our finances are a true reflection of international accounting standards in dealing with that particular rule.” He said.

Non Performing Loans (NPL)s on books of banks in the country saw a massive rise in 2015 as well as 2016, an increase that has been described by industry players as one of the highest in the history of the banking sector in Ghana.

According to Ghana’s central bank’s first financial stability report for 2016 bad loans on the books of commercial banks in Ghana increased by 14.9 percent to 4.52 billion cedis in 2015 against the 2.72 billion cedis recorded in 2014.

The figure shot up to almost 60 percent for the period between March 2015 and March 2016.

As at March 2016, the total ratio was 16.2 percent.

Driving force behind growth in bad loans

A number of reasons have been attributed to the increase of NPLs on the books of banks in Ghana.

These include the country’s economic challenges, the ongoing energy deficit crisis, debts owed by government to utility and oil companies in the country among others.

State owned Volta River Authority (VRA) alone for example owes about 13 local banks [Ecobank, Stanchart, Unibank, Zenith bank, GT bank, UBA, UMB, CAL bank, ACCESS bank, Stanbic bank, Fidelity bank, Firs Atlantic bank and Ghana International bank] in excess of 1.1 billion dollars as at March 2016.

The figure is minus current interest, roll over fees and other charges and expected to run in excess of 2 billion dollars when these are added.

Managing Director of Stanbic Bank Ghana, Alhassan Andani speaking on the NPL earlier to Citi Business News said “nobody wants NPLs as they are a hardening of your assets which is supposed to be soft and running and earning you interests. NPLs are therefore not desirable anywhere with the banks. A large portion of the NPLs can be traced down the energy sector, that is the BDCs and VRA plus the power sector issues that are being deregulated and put on sound footing,” he stated.

Government is also currently indebted to about 17 Bulk Distribution Companies (BDC)s in excess of 500 million cedis.

Majority of the BDCs contracted loans from commercial banks in the country to facilitate their operations but have failed to pay up the loans due to government’s indebtedness.

A former deputy Governor of Ghana’s central Bank Dr. Mahamudu Bawumia, earlier warned a number of banks risk collapse if the BDCs debt is not settled soon.

‘I am very worried and concerned because of the former position i held and this BDC issue is a major threat to the banking system and it should be addressed or a number of banks will collapse because of the debt’. He said.

Another development which has led to NPLs in the banking industry to shoot up is the inability of companies especially those in the manufacturing industry to pay back their loans due to the energy crisis that recently hit the country.

Quite a number of bankers have also attributed loan defaults on the book of banks to shoot up is the reclassification of the loan portfolio of banks in line with international practices.

 

Source: citifmonline