Bank of Ghana (BoG) just released its November 2017 economic and financial data.
I found 4 key highlights from the BoG report.
- NPL increasing: Non-Performing Loans (NPL) are still increasing for Banks – September 2017 it was 22.2% and in October 2017, it was 21.6% compared to 19% in October 2016.
Why is it increasing?
We will become number 1 soon in the world, see World Bank report https://data.worldbank.org/indicator/FB.AST.NPER.ZS .
We were number 7 in the world at end of 2016.
Some in the industry have attributed the high NPL to energy sector SOEs.
So let’s eliminate the energy sector SOE debts and the NPL ratio for the industry is still high and that will rank Ghana as number 10 in world.
What is the bankers and BoG explanation for this increasing NPL?
What are they doing about this?
- Debt to GDP increasing: Total debt at September 2017 was 138.9 billion cedis compared to 112.3 billion cedis on September 2016 and debt to GDP moved from 67.4% to 68.6%.
Why the increase? Promising free stuff, how are they going to pay for it??
In the 2017 mid-year budget review statement, the Government of Ghana stated its intention to introduce a numerical fiscal rule to guide the implementation of fiscal policy.
In this regard, an amendment to the Public Financial Management Act, 2016 (Act 921) (the PFMA) to limit the fiscal deficit within a range of 3% to 5% of GDP for any financial year, has been approved by Cabinet and will be brought before Parliament.
So where are they on this?
Section 74 of the Public Financial Management Act, 2016 (Act 921) stipulates that the Ministry of Finance must approve any new Energy Sector SOE borrowing.
Are SOEs borrowing more or less now??
- Capital adequacy ratio (CAR) decreasing: It was 17% in 2016 and now it is 15%. Most Banks are currently undercapitalized. Before the recent announcement of the Bank of Ghana (BoG) on September 11, 2017 on the new minimum capital of GHS 400 million, the BoG’s last communication on capital was on December 30th, 2013.
In that communication, as stated in NOTICE NO. BG/GOV/SEC/2013/08, “Universal Banks or Class 1 Banks were required to maintain an unimpaired capital (net own funds) of not less than GH¢120 million at all times”.
In addition, BoG in that communication stated that “All existing Class 1 banks are advised to take steps to enhance their capital in line with their business strategy and risk profile to avoid requesting for single obligor exposure waivers”.
As at December 31, 2016, the available capital (stated capital plus retained earnings net associated withholding tax) of 15 Banks of the sampled 28 Banks was below the minimum threshold of GH¢120 million.
As a layman on how Banking licenses are administered, regulatory application of BoG laws and Audit Opinions, I have these four questions:
(i) Act 930 issued in 2016 and its predecessor Act 673 as amended by Act 378 requires Bank of Ghana to apply penalties for breaches for capital requirements and BoG guidelines requires Banks to disclose sanctions for breaches for any of the prudential requirements. Why did the 15 Banks not report sanctions for their breaches of minimum capital requirements? Or they were not sanctioned? Even if not sanctioned, page 134 of BoG guide states this “Please state the default even if no sanctions were applied by the Bank of Ghana”.
(ii) None of the 15 Banks disclosed breaches of minimum capital. Attention was paid to capital adequacy ratio breaches. Is a breach of minimum capital of GHS 120 million not required to be disclosed?
(iii) Auditors’ opinions of the 15 Banks stated this: “We hereby confirm that the Bank in all material respects complied with the requirements of the Banking Act, 2004 (Act 673) as amended”. Is a breach of minimum capital of GHS 120 million not a material breach of the requirements of the Banking Act, 2004 (Act 673) as amended?
Good thing BoG increased the minimum paid-up capital to GHS 400 million, but if BoG is not even enforcing the GHS 120 million, what makes one thing they are going to enforce GHS 400 million.
BoG on November 14, 2017 released capital requirement directive (CRD) with implementation date of July 2018. This directive is to bring our CAR computation in line with Basel II and III, which is good, but Banks have not sorted their IFRS gaps 9, data quality is still an issue, why shouldn’t BoG ensure Banks fix their IFRS 9 gaps before proceeding with the CRD.
It is time to stop checking the boxes and ensure we have remedied the issues of current requirements such as IFRS 9 etc.
- Deposits and lending increasing at declining rate
– Average lending rate decreasing from 32.1% to 29.1%. This rate is decreasing which is good but lending is decreasing? Why?
– The industry deposit is increasing at declining rate from 26.3% to 18.2%.
– Public sector credit to GDP is decreasing from 17.3% to 15.7%.
One thing I find amusing on this BoG report is this, check each page there is a note: Data is subject to revision. BoG used this data for their MPC meeting and is currently deliberating on a decision that will affect so many things in the country and they are saying the data is subject to revision, I have too many questions on this, I will save it for another day.
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Author: Emmanuel Akrong
Credit Consultant
