Ghana: Risks up for Banking Due to Deteriorating Asset Quality

Governor of Bank of Ghana, Dr. Ernest Kwamina Yedu Addison

Governor of Bank of Ghana, Dr. Ernest Kwamina Yedu Addison

Accra, June 19, 2017// The Bank of Ghana (BoG) in its May Banking Sector Report said  the business of scheduled commercial banks slowed as there was a further decline in both deposit and credit growth.

According to the BoG, the indicators of asset quality as at April 2017 reflected some deterioration over the April 2016 performance. The industry’s stock of Nonperforming Loans (NPLs) increased by 24.5 percent to GH¢7.15 billion in April 2017 from GH¢ 5.74 billion in April 2016, it added.

“The year-on-year growth in NPLs in April 2017 however represented a slowdown in the accumulation of NPLs from the 80.5 percent year-on-year growth recorded in April 2016. The deterioration in asset quality was largely attributed to the downgrading of some facilities following the Asset Quality Review of banks’ loans”.

Adjusting for the fully provisioned loan loss category, the NPL ratio fell to 10.5 percent in April 2017, against 10.4 percent in the same period last year, the bank noted.

The proportion of banks’ non-performing loans attributable to the public sector declined sharply from 13.1 percent in April 2016 to 2.5 percent in April 2017 following the recent restructuring of the Tema Oil Refinery (TOR) and Volta River Authority (VRA) debts.

However, it indicated that the share of public sector credit in total credit increased marginally to 13.7 percent from 13.4 percent, while the private sector credit share decreased to 86.3 percent from 86.6 percent during the same review period.

“The share of the private sector in banking sector’s non-performing loans, on the other hand, rose from 86.9 percent in April 2016 to 97.5 percent in April 2017. By disaggregation, indigenous enterprises accounted for a significant share of 78.9 percent of the total private sector credits’ non-performing loans in April 2017”.

The share of household credit in the total credit declined from 15.4 percent to 14.2 percent and also its contribution to non-performing loans declined from 7.6 percent to 5.6 percent over the review period, the BoG added.

The three sectors that accounted for the greater proportion of banks’ credit and contributed the highest to NPLs were Commerce and finance, Services and the Electricity, Gas & water sectors. The share of the NPLs attributable to the Commerce & Finance sector declined to 38.3 percent in April 2017 from 41.3 percent in April 2016.

While the Electricity, Gas & Water sectors accounted for 15.0 percent of total NPLs, though the sector received 13.0 percent of banks’ credit; while the Services sector contributed 12.8 percent of banks’ NPL stock after receiving 17.9 percent of total credit in April 2017.

Together, the NPLs of the three sectors represented 66.2 percent of the total NPLs of the banking sector during the review period.

African Eye Report

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