The latest Banking Sector Stability Report by the Bank of Ghana has shown that Non-Performing Loans (NPLs) of banks increased by 36.17 % between February 2016 and the same period this year.
The figure increased from 4.7 to 6.4 billion cedis within the twelve months’ period.
The report also revealed that commerce and finance accounted for the highest non-performing loans of banks.
According to the report, “the high NPLs continue to pose upside risks to the banking industry, despite the marginal decline in the energy-sector related debt exposures.”
This also led to a higher NPL ratio of 17.7 per cent in February 2017, compared with 15.6 per cent in the same period last year.
The deterioration in asset quality was largely attributed to the Asset Quality Review of bank loans in 2016 which led to the downgrade of some existing loans by banks.
The NPL ratio of 17.7 per cent for February 2017, is however an improvement over the January 2017 NPL ratio of 18 per cent.
Adjusting for the fully provisioned loan loss category, the NPL ratio was 8.6 per cent in February 2017, against 7.6 per cent in February 2016.
Contributors to the high non-performing loans included Commerce & Finance with 39.7%.
This is followed by services and the Electricity, Gas & Water sectors with 13.6 and 10.1% respectively.
The three sectors represented 63.4 per cent of the total NPLs of the banking sector.
Meanwhile the industry’s NPL ratio is expected to improve following the conclusion of restructuring arrangements for the industry’s exposure to the Bulk Oil Distribution Companies (BDCs).
Also, as government continues to pay down the energy-related State-Owned enterprises (SOEs) debts according to the agreed quarterly schedule, banks’ exposure to the energy sector will decline.
This, together with additional efforts by banks to tighten credit risk management practices and intensify loan recovery efforts, particularly for large non-oil related exposures, could lead to further reduction in the NPL ratio.
By: Pius Amihere Eduku/citibusinessnews.com/Ghana