Bank loans and advances decline

Loans and advances by banks grew by a paltry 2.9 percent on year-on-year terms at the end of September 2015, compared with 26.3 percent growth recorded during the same period in 2014.

According to the latest Financial Stability Report from the Bank of Ghana (BoG), credit to the private sector grew by only 3.6 percent at the end of September 2015 compared with 26.6 percent during the same period last year.

Credit to households also went up by only 4 percent in September 2015 compared with 19.8 percent growth recorded at the end of September 2014.

The BoG has since December 2014 increased its policy rate (the rate at which it lends to commercial banks) by 500 basis points to 26 percent in 2015, making Ghana’s benchmark interest rate the second highest in Africa.

The Association of Ghana Industries (AGI) has consistently lamented in its quarterly Barometer that access to credit and high-interest rates were killing Ghanaian businesses.

The report said the composition of banks’ credit portfolio by economic institutions showed that the proportion of banks’ loans to government and public institutions decreased from 5.9 percent in September 2014 to 5.3 percent in September 2015.

With regard to sector allocation, the Commerce & Finance sector received the highest amount of credit, accounting for 23.5 percent at the end of the third quarter of 2015 compared with 25.2 percent in September 2014.

The three highest recipient sectors of credit, namely Commerce & Finance, Services, and Electricity, Gas & Water, accounted for 61.4 percent of credit allocation in September 2015 compared with 61.3 percent recorded in September 2014.

The share of credit allocation to other sectors including Manufacturing, Construction and Miscellaneous improved while Mining & Quarrying, Transportation, Storage & Communication, and Agriculture, Forest & Fishing declined during the review period.

Manufacturing accounted for about 11 percent of credit allocation while Construction and Miscellaneous accounted for about 10.2 and 9.0 percent respectively.

Concerning sectors with the highest non-performing loans, the Commerce and finance sector continued to account for the largest amount of the banking sector’s NPLs followed by services, and manufacturing.

The three sectors accounted for 66.1 percent of NPLs in September 2015 compared with 64.2 percent in September 2014. Electricity, Gas and Water sector accounted for the lowest amount of the industry’s NPLs. The industry’s NPL at the end of September 2015 was 13.5 percent as against 12.1 percent in September 2014.

Credit to the private sector contributed 97.4 percent of the total banking sector’s NPLs at September 2015 compared with 93.1 percent in September 2014.

The proportion of banks’ NPLs attributable to the public sector improved from 6.9 percent in September 2014 to 2.6 percent in September 2015.

Even though private enterprises received only 71 percent of the private sector credit, they accounted for 88.4 percent of NPLs in the sector as at September 2015 compared with 70.5 percent of credit received and 83.8 percent of NPLs respectively in the same period in 2014.

The highly disproportionate level of NPLs associated with the private enterprises was driven mainly by indigenous enterprises, which received 60.9 percent of credit to private enterprises but accounted for 79.1 percent of NPLs as at September 2015. However, while foreign enterprises’ share of private sector credit declined, their contribution to private sector NPLs increased marginally over the period under review.