Banks write-off GH¢1.1 billion as bad debt

Banks operating in Ghana wrote off a total amount GH¢1.1 billion in the first 10 months of this 2018 as bad debt.

The provision for bad debt was made up of loan losses, depreciation, among others.

According to the Bank of Ghana’s (BoG) Banking Sector report released in December, the banking industry’s adjusted non-performing loans (NPLs) ratio - NPLs adjusted for fully-provisioned loss-loans category - increased to 11.4 per cent from January to October 2018 from 10.5 per cent within same period in 2017.

This reflected the decline in the loss loan category as a result of the write-offs by banks that were given approval by the Bank of Ghana.

To reduce the size of the loss loan component of the industry’s NPLs, the Bank of Ghana in June 2018 issued a directive to all banks to submit a schedule of loss loans that were past due for more than two years to activate the write-off policy.

This directive was in line with Section 75(2) and 92(2) ii of the Banks and Specialized Deposits-taking Institutions Act, 2016 (Act 930).

Following that, the central bank gave approval to some banks to write-off their loss loans totalling a maximum of GH¢1.2 billion by August 2018. The banks that received approvals to write-off their loss loans were required to submit quarterly reports on recoveries made on the loans that have been written off to Bank of Ghana to ensure full loan recovery.

NPLs

The stock of NPLs in the banking industry declined to GH¢7.14 billion in October 2018 from GH¢8.3 billion in October 2017, representing 14 per cent contraction compared with the 27.2 per cent growth a year ago.

Consequently, the ratio of NPLs to gross advances declined to 20.1 per cent from 21.6 per cent during the same period under review.

The private sector accounted for 95.5 per cent of the banking industry’s NPLs in October 2018, up from the 94.7 per cent recorded in October 2017, while the public sector’s contribution declined to 4.5 per cent from 5.3 per cent over the same period.

Indigenous private enterprises accounted for 73.2 per cent of total NPLs in October 2018 compared with 78.2 per cent in the corresponding period in 2017, while the contribution of foreign enterprises declined marginally to 10.5 per cent from 10.8 per cent.

Households accounted for 11.3 per cent of total NPLs in October 2018, compared with a share of 5.3 per cent a year ago.

Commerce and finance contributed to the largest NPL, accounting for 23.9 per cent of the NPLs in October 2018 against 35.2 per cent in October 2017. The lowest recipient of banking industry credit, mining and quarrying also contributed the least to the industry’s NPLs of 1.4 per cent in October 2018 from 2.1 per cent in October 2017.

However, electricity, water and gas sector contributed a higher proportion of 18.3 per cent compared with 12.7 per cent for the manufacturing sector, though the former received a greater proportion of the banking industry credit.

Banks register 22.3% profit

Meanwhile, the banking industry recorded an improved income statement with a profit after-tax of GH¢1.95 billion in October 2018, representing a year-on-year growth of 22.3 per cent, compared with GH¢1.59 billion representing a modest 1 per cent growth in October 2017.

The sharp increase in banks’ net income came from the 10 per cent increase in net operating income to GH¢4.02 billion in October 2018 from GH¢3.66 billion (7.6 per cent y/y growth) a year ago.

Net operating income of banks increased following the slower growth of banks’ interest income compared with interest expenses.

Banks’ interest income declined due to the slowdown in loans and advances which constitute the bulk of interest-bearing assets of the banks, while the decline in money market rates and the Monetary Policy Rate (MPR) between October 2017 and October 2018 led to a decline in the interest expense of banks, especially the interest paid on deposits.

Consequently, growth in banks’ operating expenses slowed to 5.2 per cent in October 2018 from 18 per cent in October 2017, and was attributed to sharp declines in staff cost and other operating expenses during the review period.