The latest Bank of Ghana (BoG) Financial Stability, report covering operations of bank’s for the first seven months of this year shows Non-Performing Loans (NPLs) has hit GHC6.1 billion.
Loans banks fear might go bad has been on the increase since last year with some even worried that it could have resulted in the collapse of some banks.
The report revealed that, the NPLs actually went up by almost 70 percent from GHC3.6 billion cedis in 2015.
The BoG attributes the worsening NPL ratio, to number of factors, this includes the general slowdown in the economy, increasing cost of production due to high utility tariffs and loan reclassification by some banks.
A breakdown of these NPLs rather showed that the private sector accounted for a larger chunk of the debts, instead of government, as it has often been blamed rising bad debts of most of the commercial banks.
Credit to private sector contributed 85.8 percent of the total banking sector’s NPLs as at July 2016, whiles the public sector accounted for 14.2 percent.
The level of NPLs associated with the private enterprises was driven mainly by indigenous enterprises.
Despite this rising NPLs, BoG is confident of a sound banking sector. For instance “Annual growth in total assets of the industry picked up in July 2016 compared to the previous year and was largely accounted for by the significant increase in banks’ investments in bills and securities as well as the sharp increase in foreign assets” according to the BoG report.
The resultant increase in total assets from the rise in investments and foreign assets was moderated by the decline in the growth of banks’ advances to its customers due to the rise in their non-performing loans.
The outlook for the industry is positive, according to the Bank of Ghana, with the restructured Volta River Authority (VRA) debt and commencement of payments.
Similar restructuring arrangements have been initiated for debts owed by Bulk Oil Distribution Companies (BDCs) to the banks.
Additionally, government’s efforts to wean state-owned enterprises (SOEs) off its balance sheet as well as the on-going fiscal consolidation is likely to minimise Government’s indebtedness to banks.
The Bank of Ghana added that “All these arrangements are expected to reduce the size of banks’ impaired loans, improve the industry’s solvency as well as liquidity, and in turn boost performance of the banking industry”.
These efforts, together with improved loan recovery efforts and improvement in the macro economy, will boost credit delivery to facilitate economic growth, the bank concluded in the report.