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Banks focusing credit to indigenous enterprises - Bank of Ghana

Dr Ernest Addison Bank of Ghana Governor, Ernest Addison

Mon, 16 Mar 2020 Source: goldstreetbusiness.com

Banks credit to the private sector in 2019 has been skewed towards indigenous enterprises, a report from the Bank of Ghana has revealed.

According to the Banking Sector Report for January 2020, credit to indigenous enterprises was the largest component of private sector credit, accounting for 55.4 percent of total credit as at December 2019 while foreign companies were allocated 8.4 percent of total credit from the banking sector, summing up to the 63.8 percent share allocated to private enterprises.

Private sector credit grew by 17.9 percent to GHc 39.36 billion over the 12 month period to December 2019 after contracting by 3.4 percent over the corresponding period up to December 2018.

Generally, credit growth gained momentum at year-end, with gross loans and advances (excluding the loans under receivership) increasing by 23.6 percent in December 2019 against a contraction of 3.7 percent in December 2018.

Private sector credit still constitutes the largest proportion of credit in the banking sector. Its share however declined to 87.1 percent in December 2019 from 91.4 percent in December 2018 while the share of public sector credit accordingly increased to 12.9 percent from 8.6 percent during the review period.

This, the report explains as being due to the dip in the relative share of private sector credit in total credit reflected in declines in the share of credit to households and private enterprises.

Specifically, the share of credit to private enterprises declined to 63.8 percent from 66.3 percent while the share of household credit dipped to 20.8 percent from 22.9 percent over the same comparative period.

The December 2019 survey also pointed to net increases in the overall demand for credit by enterprises. The net increase in the enterprise demand for credit came from increases in the demand for both long-term enterprise loans and loans by large enterprises, while demand for short term loans and by SMEs declined.

Credit stance

The central bank credit survey indicates that banks reported a net easing in the overall credit stance on loans to enterprises during the December 2019 credit conditions survey relative to the October 2019 survey round.

Banks however anticipated some tightening in the overall stance on loans to long-term enterprise and large enterprises in the past first two months of 2020. The credit stance on loans to SMEs as well as short-term enterprise loans were expected to be more likely to ease during the same period.

“The projected net tightened stance during the first two months of 2020 largely suggests intensified credit risk assessment practices by banks in the form of improved due diligence and credit underwriting practices to preserve the quality of banks’ loans books,” the central bank stated.

Source: goldstreetbusiness.com
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