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Bank loans to dip over new minimum capital

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The rise in the minimum paid up capital for commercial banks will further restrict lending to the private sector at least within the short to medium term.

The development should be expected due to the operations of commercial banks which have limited the amount of credit offered businesses.

The caution comes on the back of the increase in banks’ minimum capital from 120 million cedis to 400 million cedis.

Commenting on the issue, a Credit Consultant, Emmanuel Akrong also indicated that banks risks reducing their income streams with this plan.

In his view, the restriction in credit to businesses is also likely to adversely affect the larger economy.

“At the moment, if you look at how banks are their deposits, they are putting more into government’s bonds and treasury bills than lending…so lending is not going to be low because of this new capital requirement but because of certain fundamentals which we need to fasten our seat belt about,” Mr. Akrong stated.

The latest banking sector stability report by the Bank of Ghana has shown that commercial banks have reduced their lending to businesses.

The move has been necessitated by the rise in the non-performing loans of the commercial banks which stood at 7.96 billion cedis as at June 2017.

For instance, loans to households for mortgage purposes declined marginally between April and June 2017.

The figure dropped from 8 to 5 percent within the period.

Mr. Emmanuel Akrong however tells Citi Business News intensifying good corporate governance practices should among others reverse any adverse impact of any decision by banks to the economy.

“In the long run, I foresee a strong system in place, some of the recommendations I have made include a strong corporate governance, risk based pricing and credit and all those things are put in place, you will see a good impact on the environment in terms of high notes… there are other things that if done, no bank is going to fold it arms and say that if there are good opportunities for me to lend, I am not going to,” Mr. Akrong further asserted.

By: Pius Amihere Eduku/citibusinessnews.com/Ghana

Ghana Business News