Bank numbers must come down to check soaring NPLs - Prof. Quartey

Head of the Economics Department at the University of Ghana, Prof. Peter Quartey, has said that the increasing number of banks in the country is partly responsible for the soaring Non-Performing Loans (NPLs) ratio in the sector, saying there should, ideally, be only about six big banks in the country.

He said because all the 36 banks in the country are chasing the same customers, most of them have relaxed their requirements for clients in order to attract them, thereby, affecting NPLs.

“We have too many banks in the system, considering the size of the economy. All these banks are competing for the same clientele. So sometimes, where they need to apply some due diligence, they tend to be a bit flexible. Because of competition, you need to attract customers, you need to attract deposits, so in their lending they tend to be a bit lax and that has affected the NPLs,” he said in an interview with the B&FT.

The latest Bank of Ghana Banking Industry report shows a deterioration in the loan portfolios of banks between June 2016 and June 2017, although the rate of growth (year-on-year) in the industry’s NPLs slowed down from 82.5 percent in June 2016 to 30.7 percent in June 2017.

By the end of June 2017, the stock of NPLs in the banking industry had risen to GH¢7.96 billion from GH¢6.09 billion in June 2016.

This translated into an NPL ratio of 21.2 percent in June 2017 compared with 18.8 percent in June 2016. When adjusted for the fully provisioned loan loss category, the NPL ratio shows an increase from 10.9 percent in June 2016 to 11.3 percent in June 2017.

According to Prof. Quartey, the country’s legal system has a big role to play in helping address the issue, considering a lot of people have taken undue advantage of the lack of enforcement of the laws and have decided not to repay their loans.

“I can also point to the gradual increase in the number of people who borrow and default with impunity. They know they can get away with it because our legal systems don’t work efficiently. So, they borrow and default with impunity,” he noted.

Of number of banks

Prof. Quartey further waded into the ongoing debate about how many banks should be allowed to operate in an economy the size of Ghana’s, with a GDP of about GH¢200bn, saying, just about six large banks are enough to serve the needs of the country.

“If you take some of the developed countries like Canada and the UK, they don’t have so many banks. Look at the size of our GDP and look at the number of banks; over 30 banks are just too much. And the irony is that they are concentrated and mostly found in the capital.

They are just within Accra, Cape Coast, Kumasi and some other places. We could have five or six banks which could have branches all over the country. That, for me, will be better than having so many banks spread within few regions of the country. So, I think, [ at most], we should have five or six banks with very large branch networks across the country,” he said.