The Economist Intelligence Unit (EIU) is forecasting that the banking reforms done by the Bank of Ghana will boost growth in the country’s non-oil sector.
The UK-based business advisory firm in its latest country report said the remaining banks after the clean up will be in a better position to lend to the private sector to spur growth.
Although the country’s lending rates still remain high compared to regional peers, the EIU believes that the central bank’s efforts to sanitize the banking sector will eventually pay off and the private sector will be the biggest beneficiary.
“The government’s industrialisation push and moves to strengthen the banking sector will benefit non-oil economic growth, although the cost of capital will remain a constraint for some businesses, particularly small and medium-sized enterprises.
…we expect the banking sector to continue to strengthen, putting it in a better position to take advantage of relatively loose monetary policy, combined with measures to reduce non-performing loans (NPLs), such as write-downs (although NPLs remain elevated, at about 18% of gross loans at end-June),” the firm said in its October 2019 report.
The Bank of Ghana’s 2-year banking reforms saw nine banks lose their licenses over several regulatory breaches. In addition to that, the minimum capital requirement was also increased tripled to GH¢400 million which led to some banks consolidating their operations to jump the hurdle.
According to the EIU, the country’s real GDP will increase by 5.5 percent in 2020; a slowdown from the projected 6.7 percent for 2019.
This rate, the firm added, will come on the back of weaker global economic conditions weigh on investment flows into the country, although government and private consumption will rise slightly ahead of the elections in that year.
Consumer demand will remain constrained by rising prices and low value-added in the non-oil economy, which serves to limit wage growth for workers.
Nevertheless, the EIU predicts that growth will average 6.4 percent in 2021-24, reflecting the boost to oil and gas output volumes arising from the development of new resources.