The Chief Executive of the Ghana Association of Banks (GAB) John Awuah has assured that commercial banks are taking steps to recover over ¢2.4 billion loans classified as bad debt.

 According to him, the debt has not been “totally written off”.

 “When you read in the news and you see that banks have written off debts, it doesn’t mean that these debts have been forgiven. The term is rather used for accounting purposes”, he said.

He disclosed that the GAB has already started discussions with the Office of the Chief Justice to seek the court’s assistance in facilitating legal issues surrounding the recovery of loans.

He added that the GAB is also working with the Lands Commission to streamline the documentations of land title that were used as collateral for loans.

This, and many other steps, he assured will help banks to recover the loans to strengthen the operations of financial institutions in the country.

Bank of Ghana Data on Non-Performing Loans

The latest Bank of Ghana’s Monetary Policy Report ending September 2023 showed that Industry Non-Performing Loans (NPL) increased by 53.6% to ¢14.5 billion in August 2023, from ¢9.5 billion in August 2022.

This, the Bank of Ghana believes is partly due to the revaluation of foreign currency NPLs, as well as deterioration of the domestic currency loans.

When decomposed into the two main economic sectors, the private sector accounted for the most non-performing loans as the larger recipient of total credit.

The proportion of NPLs attributable to the private sector was 95.0 percent in August 2023, marginally lower than the 95.9 percent recorded in August 2022, while that of the public sector rose to 5.0 percent, from 4.1 percent a year ago.

Impact of rising NPLs on cost of credit  

Mr.  Awuah said the situation may have an impact on the cost of credit for new loans.

“The development has the tendency to affect some good borrowers out there in terms of their ability to access credit and get these funds at some favorable rates”, he warned.

The commercial banks are not directly negotiating with the Finance Ministry. Looking at the numbers reported to have been written off, it does not mean that the individuals and institutions are not going to pay back. Rather it’s just for the purpose of accounting”, he added.

He, however stated that good projects will not suffer to secure the needed credit from the commercial banks. 

Proposed Eurobond debt restructuring

The Finance Minister, Ken Ofori-Atta, announced that government is expecting 40% “haircut” for Eurobond holders.

Mr. Ofori-Atta said this when he engage private creditors in London on the restructuring of the Eurobonds.

Reacting to the Minister's statement, Mr.  Awuah expressed worry the proposed offer may have some impact on Commercial Banks.

He added that even though there may be an impact it could be less, compared to the Domestic Debt Exchange Programme.

He is however optimistic government will undertake some review of the proposed “hair cut”.