Dr Abdul Nashir Issahaku, BoG Governor
Despite a recent report by the Central Bank that overall performance of the banking sector as at July this year was strong, the quality of loans on the banks’ books generally worsened compared to 2015.
The report revealed that defaulters, mainly indigenous companies, received 61.2 percent of credit to private enterprises but accounted for 71.8 percent of Non-Performing Loans (NPLs) as at July 2016.
It stated that even though the share of foreign enterprises in total private sector credit declined from 10.8 percent in July 2015 to 8.9 percent in July 2016, its contribution to private sector NPLs increased from 11.6 percent to 7.9 percent during the period under review.
Investment decline
Banks’ investment in securities as a share of total investment declined to 16.9 percent in July 2016 from 28.7 percent in July 2015.
Investments in bills as a share of total investment however increased to 80.1 percent in July 2016 from 67.5 percent a year earlier.
Banks’ investments in shares and other equities as a share of total investment also decreased to 2.9 percent in July 2016 from 3.8 percent in the same period last year.
Credit risk
The banking industry’s real gross loans and advances recorded a low growth of 0.7 percent in July 2016, down from 4.8 percent in July 2015 due to the general slowdown in credit extension, which was largely as a result of deteriorating asset quality.
Credit stance
Credit stance in the banking sector remained tight with net loans and advances of GH¢28.1 billion as at end-July 2016 recording a lower annual growth of 12.1 percent compared to 24.1 percent growth in July 2015.
Growth in banks’ investment portfolio (bills and securities) however picked up by 47.3 percent to GH¢16.1 billion by the end of July 2016 compared to 13.6 percent growth a year ago.
Balance sheet
The banking sector recorded a growth in total assets of 24.6 percent year-on-year to GH¢67.0 billion as at end July 2016, up from GH¢53.8 billion in July 2015 (21.7% y/y growth).
The higher growth rate recorded in July 2016 was partly due to the sharp appreciation of the cedi during the same period of 2015, which caused banks to reprice their assets denominated in foreign currency which constitutes about a third of bank total assets at lower exchange rates.
Outlook
In spite of the foregoing, the Central Bank report said the outlook for the industry was positive with the restructured 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, it said 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.
By Samuel Boadi
samuel10gh@yahoo.com