Banks Write Off GH¢422m Bad Debt

THE 34 banks currently operating in Ghana wrote off GH¢422.15 million as provision for the first four months of this year, about 19.4 percent growth over the previous year, Bank of Ghana’s income statement on banks has revealed.

In April 2017, the banks wrote off GH¢353.49 million as bad debt and GH¢343 million bad debt in April 2016.

The provision was made for loan losses, depreciation among others. Subsequently, the high non-performing loans have made it difficult for the banks to give more loans.

According to the report, the quality of banks’ loan portfolio remained a concern with about 20 percent of the banking industry’s loan portfolio impaired or written off as bad debt by the end of the period. The increase in NPLs reflected the Banking Sector Report/May 2018 migration of some legacy loans to the non-performing category.

Interestingly, the rate of growth in nonperforming loans, however, declined with the stock of non-performing loans increasing from GH¢7.15 billion as at end-April 2017 to GH¢8.63 billion in April 2018; representing a 20.8 percent year-on-year growth compared with a 24.5 percent growth the previous year.

The current NPLs stock translated into non-performing loan ratio of 23.5 percent in April 2018 from 19.8 percent in April 2017. Adjusting the industry’s fully provisioned loan loss category, the NPL ratio reduces to 12.2 percent in April 2018 compared with 10.5 percent in April 2017; an indication that more than half of banks’ NPLs fall within the loss loan category.

Stock of NPLs

The report emphasized that the private sector accounted for the bulk of NPLs in the industry, with its share declining from 97.5 percent in April 2017 to 90.7 percent in April 2018.

The proportion of impaired assets attributed to the public sector however increased from 2.5 percent to 9.3 percent over the same comparative period.

Households (a component of the private sector) with a share of 19.6 percent in total credit accounted for 5.6 percent of total NPLs in April 2018, same as in April 2017.

Sectoral Breakdown

The sectoral breakdown of NPLs by economic activity indicated that Commerce and Finance sector with the greatest share of outstanding credit balances of 25.1 percent also contributed the most to the industry’s NPLs, accounting for 29.2 percent of the total in April 2018.

The Services sector accounted for 13.4 percent of total NPLs outstanding as at end-April 2018 and the Mining and Quarrying sector, 3.5 percent.

Credit conditions survey

Meanwhile, the April 2018 survey round of the Credit Conditions survey indicated a net easing in the credit stance of banks for loans to both enterprises and households compared with results from the February 2018 survey. This was reflected in a net easing in credit stance on both short-term and long-term enterprise loans as well as for loans to Small and Medium Enterprises (SMEs) and large enterprises.

Banks’ also relaxed their credit stance on loans to households for house purchases and consumer credit. The reasons cited for the net easing in credit stance included the reduction in the Monetary Policy Rate, which is expected to positively affect lending rates, as well as improved expectations regarding the performance of the economy.

Also, banks lending rates expectations recorded a decline of a 100 basis points (1.0 percent) to 22.9 percent compared with the February 2018 survey round.

The introduction of the new Ghana Reference Rate (GRR) was the main reason banks attributed to the decline, explaining that the GRR is expected to drive lending rates down in the future. Banks’ however expressed some reservations about the size of the decline as asset quality which remains a concern may leave lending rates sticky downwards.

Source: The Finder