The new financial stability report of the Bank of Ghana (BoG) has revealed that Ghanaian companies are still the biggest contributor of bad loans on the books of banks.
According to the new report which covers developments in the Ghanaian banking sector for the first seven months of 2016 compared to the same period last year, quality of loans on the banks’ books generally worsened this year as compared to the previous year.
But figures from the report shows the defaulters are mainly Ghanaian companies.
According to the report the level of bad loans associated with the private enterprises was driven mainly by indigenous enterprises, which received 61.2 percent of credit to private enterprises but accounted for 71.8 percent of Non Performing Loans (NPL) s as at July 2016.
Even though the share of foreign enterprises in total private sector credit declined from 10.8 percent in July 2015 to 8.9 percent in July 2016, its contribution to private sector NPLs increased from 11.6 percent to 7.9 percent during the review period.
The central bank says the worsened NPL ratio can be attributed to a number of factors, including the general slowdown in the economy, increasing cost of production due to high utility tariffs and loan portfolio reclassification by some banks.
Non–performing loans (NPLs) increased by as high as 69.4 percent from GH¢ 3.6 billion in July 2015 to GH¢ 6.1 billion in July 2016.
This translated into an NPL ratio of 19.1 percent, up from 13.1 percent a year earlier.
Adjusting for the fully provisioned loan loss category, however, the NPL ratio reduced to 11.0 percent in July 2016 although higher than the July 2015 position of 6.2 percent.
The sector’s capital-at-risk (NPL net of provision to capital) worsened from 26.5 percent at end-July 2015 to 36.4 percent at end-July 2016.
Loan loss provision to gross loans also increased 6.6 percent in July 2015 to 8.2 percent in July 2016.
Credit to the private sector contributed 85.8 percent of the total banking sector’s non-performing loans as at July 2016, down from 97.8 percent in July 2015, while receiving 85.8 percent of total credit in July 2016 compared with 88.6 percent of credit received in 2015.
The proportion of banks’ NPLs attributable to the public sector however increased significantly from 2.2 percent in July 2015 to 14.2 percent in July 2016.
Meanwhile households’ share of private sector credit increased from15.3 percent to 16.0 percent although its contribution to NPLs declined from 7.2 percent to 5.8 percent over the review period.
The largest sectors in terms of credit namely Commerce and Finance, Services and the Electricity, Gas & Water sectors also accounted for the largest amount of banking sector NPLs of 66.2 percent as at end-July 2016.
The Transport, Storage and Communication sector recorded the lowest NPL ratio during the review period.
By: Vivian Kai Lokko/citibusinessnews.com/Ghana