Economist and the New Patriotic Party’s Vice Presidential Candidate Dr. Mahamadu Bawumia has warned that Ghana’s banking industry would suffer a major blow if government continues its borrowing spree.
[contextly_sidebar id=”WLPAB9DxmFu8V3YWhIvVF08rOnUwyihh”]According to Dr. Mahamadu Bawumia despite being described as a generally stable sector the banking industry is still vulnerable and government’s huge borrowing as well as the country’s current weak economy threatens the sector’s stability.
Government borrowed 24.2 billion cedis in 2014 alone pushing Ghana’s debt to 76.1 billion cedis by the close of last year up from the 51.9 billion cedis it recorded in 2013.
This figure is expected to increase significantly as governments intends to borrow more this year.
Speaking at a lecture dubbed “The IMF Bailout: Will the Anchor Hold?” at the Central University College, Dr Bawumia warned that ‘the entire financial system is at risk from rising non-performing loans (NPLs)’.
According to him ‘Standard Chartered Bank for example, a well-managed bank, has seen its NPLs increase from 15.5% in 2013 to 27.3% in 2014.
According to Stanchart’s financial statement for 2014, “The increase is attributable to exposure of some of our customers to payment delays from government”.
Dr Bawumia warns that ‘the NPLs in the non-Bank sector in particular is becoming explosive and the Bank of Ghana has signaled that it may soon review capital requirements for the entire system’.
The Bank of Ghana in its financial stability report for February, 2015 warned that banks need to put in place additional effort to strengthen their risk management practices and also recover overdue loans.
It however also stated that ‘the banking sector remained strong on account of asset quality, liquidity, solvency and earnings. Despite the macroeconomic challenges of 2014, the sector’s non-performing loans recovered and declined during the second half of the year. Similarly, liquidity positions of the sector also improved despite marginal worsening in operational efficiency on account of high cost of operations’.
By: Vivian Kai Lokko/citifmonline.com/Ghana