Majority of bulk distributors of petroleum products will be forced to halt operations by the end of 2016 if government fails to pay debts owed them.
They are about 35 bulk distributors in the country with about 17 of them being owned in excess of 500 million cedis by government.
[contextly_sidebar id=”mEha2aLAgB4EUUxx3VJW5MVbLYltYUqw”]Government last month promised to clear the debts by the end of June, 2016, which were accumulated over a period of two years.
Majority of the companies contracted loans from commercial banks in the country to facilitate their operations but have failed to pay up the loans due to government’s indebtedness.
CEO of the Chamber of Bulk Distribution Companies (BDCs) Senyo Hosi speaking on the Citi Breakfast Show today [Wednesday] on the development said ‘BDC business is heavily struggling right now.
We have liquidity heavily stacked. A number of BDC’s are not operational. We are using the private sector to fund government fiscal policy indirectly. That is what we have been doing.
The debt at the bank is, well you know about it already. Most of the NPA’s are significant and non performing loans are significantly BDC’s debt.
Some of them have not yet been provisioned for. So you have a broader institution of the entire economy. If the banks are going to go down we will struggle’.
BDCs main contributor to banks bad loans
The development has been attributed as one of the cause of the significant rise of bad loans on the books of banks recently.
Ghana’s central bank, the Bank of Ghana, in its first financial stability report for 2016 revealed that bad loans on the books of commercial banks in the country increased by 14.9 percent to 4.52 billion cedis in 2015 against the 2.72 billion cedis recorded in 2014.
Players in the banking industry have described the development as troubling as interest income from loans continue to be the highest earner for banks in the country with cash from loans constituting about 51.5 percent as of December 2015.
The second highest income for banks is from investments, while the remaining is from fees and commissions.
About 29.3 percent of income from banks for 2015 was from investments including treasury bills, shares and other equities.
Bad loans to rise further due to BDCs debts
Citi Business News checks reveal almost all banks in the country have been affected by the bulk distributors failure to pay up loans contracted.
Earlier the CEO of Fidelity Bank Edward Effah told Citi Business News ‘ we have also seen a deterioration of loans from the BDC’s, this is because government owes the BDC foreign exchange losses and under recoveries.
So the BDC’s are unable to pay the loans. But I believe this is being resolved through the energy sector levy act which has been passed and we hope that by the end of the year, a lot of progress would have been made towards this resolution’.
The development has led to some of the banks threatening to slash and in some cases cut loans to BDCs.
HFC bank in at its AGM early this year told shareholders it may be forced to cut giving out loans to such companies due to their indebtedness to the bank.
HFC was one of many banks who saw their loan impairment expense rise due to the BDCs indebtedness.
The bank’s loan impairment expense went up by a whopping 474 percent to end 2015 at 81,848,000 cedis.
Senyo Hosi believes their indebtedness will cripple some of the banks and negatively affect the economy if not cleared anytime soon.
‘Our suppliers over the time have been able to gain some confidence in our way of operation. They have taken extra risk of trying to fund us directly, especially, now that we have a deregulated environment.
But for that, I think that we would have had major crises with supply in the economy. But the business exposes the entire economy to some major financial risk.
The finance minister and I have been working hard on trying to find a way to resolve this entire debt situation.
We are looking at various modules to generate all kinds of financial instruments on the back of the taxes that have been paid. That is why those taxes are also quite important to ensure that this problem is solved’. He stated.
By: Vivian Kai Lokko/citibusinessnews.com/Ghana