The vice presidential candidate of the New Patriotic Party (NPP), Dr Mahamadu Bawumia, has expressed alarm at the vulnerability of the country’s financial sector.
At a public lecture in Accra recently, Dr Bawumia cited Economic and Financial data from the Central Bank, which showed that non-performing loans have risen sharply from 11.2 percent in May 2015 to a critically high 19.3 percent in May 2016.
“The Asset Quality Review of Banks conducted in 2015 shows significant vulnerability of banks to current economic conditions, and that if the affected banks were to provision fully for all bad loans, a significant number of them would collapse.
“Eight banks were identified to exhibit significant weaknesses, with capital adequacy ratios below 10 percent (some below 5 percent) and nearing collapse.”
He stated that the level of impaired loans in one of the largest commercial banks had quadrupled, adding that the situation was becoming widespread in the banking sector.
Complete loss
“Available information shows that due to non-payment of these loans, the banks have declared GH¢2.4 billion of the outstanding stock of loans as a complete loss and are making provisions against profits. Certainly these are resources that could be channeled to create more industries in our communities.”
Though Dr Bawumia did not mention the affected banks, analysts fear huge loans contracted from some 13 banks by the Volta River Authority (VRA) was to be blame for the development.
The affected banks, owed in excess of $2.2 billion as at March this year, included Ecobank, Stanchart, Unibank, Zenith Bank, GT Bank, UBA, UMB, CAL Bank, Access Bank, Stanbic Bank, Fidelity Bank, Firs Atlantic Bank and Ghana International Bank.
The figure does not include current interest, roll over fees.
Credit to private sector
Real credit to the private sector, he averred, was on the decline.
“As at May 2015, the annual flow of credit to the private sector was GH¢4.5 billion (around $1.7 billion).
“For the same period in May 2016, the yearly flow of credit from the banks to the private sector had declined substantially to GH¢1.7 billion (around $445 million). This is the extent to which private sector activity has been deprived of loan liquidity, a condition that is affecting their economic fortunes, including creating jobs to alleviate poverty and growing to also boost growth in the economy as a whole.”
Public institutions
He further raised concerns about the ability of some public institutions to settle their indebtedness to players in the banking industry.
By some estimation, these public institutions are indebted to the banks to the tune of about 4-5 percent of GDP and this will require careful monitoring to avoid an explosive situation.
He also added that the poor state of the microfinance companies was equally of critical importance given the role they play in Ghana’s economy in supporting micro-businesses.
By Samuel Boadi
samuel10gh@yahoo.com