Business News of 2014-04-29

Banks improve non-performing loans ratio

Since last year, the ratio of non-performing loans (NPL) within the banking industry has been gradually decreasing, according to the periodic reports of the Monetary Policy Committee (MPC) of the Bank of Ghana.
For instance, between September 2012 and 2013, the ratio decreased from 13.1 per cent to 12.3 per cent while the ratio excluding the loss category witnessed a 1.5 per cent drop to five per cent for the same period.
For the current year, the MPC report noted that the NPL ratio for February decreased to 12.7 per cent from 13.5 per cent compared to February 2013, while the ratio excluding the loss category, declined to 4.9 percent from six per cent in the same period last year.
Analysts use this ratio to gauge operational efficiencies of banks.
Experts say a bank with a high NPL ratio will have difficulties with cash flows. This is because many of the loans the bank holds have a high probability of not being paid back.
Indeed, if a bank does not receive any return on loan principals, it will lose money. The higher the NPL, the more likely such returns will be forfeited.
It was in this regard that some 60 bankers between last Tuesday and Friday congregated at the School of Banking & Management at the Osei Tutu II Centre for Executive Education & Research in Kumasi to participate in a programme titled, ‘Identifying and Managing Problem Loans’.
Participants were drawn from across the country – including New Edubiase, Bekwai, Sefwi Wiawso, Kintampo, Sunyani, Mampong, Dunkwa, Drobo, Yeji, Tamale and Accra, as well as Kumasi city.
They occupied varied functional areas, mainly in the universal banks, such as including Systems Administrators, Credit Managers, ATM Custodians, Branch Managers and Remedial Asset Managers.
The banking sector is seen as an essential part of an economy and represents one of the most important components of a nation's capital.
The common thread that runs through all the presentations by experts including Nana Otuo Acheampong, Head of the Centre and Mr Isaac Asante, a Credit Consultant, agreed that the loan portfolio represents an important component of a bank’s total assets.
These assets generate huge interest income which is a critical measure of the bank’s financial performance and stability.
Therefore, NPL ratio is a critical tool to measure a bank’s performance.
The four-day programme, delivered in two batches over two weeks, treated varied topics in problem loan management from credit assessment, loan portfolio classification and provisioning, post approval monitoring and early warning signs, problem recognition through to risk assessment and stress testing.
The practical seminar sought to link fundamental knowledge with practical application whereby participants viewed and deliberated an award-winning documentary film on the global financial crisis of 2007/2008.
The session concluded with group analyses and presentation of a real life case study of a universal bank in Ghana.
The ‘Loans for Ghana’s grey economy’ case study traced the loan policy of a bank which pioneered innovative ways of handling advances to the informal and small medium enterprises (SME) sectors of the Ghanaian economy.
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