Banks have been tipped to increase lending to household and businesses this year, following pick-up in economic activities.

According to Databank Research, the financial intermediaries will ease their conservative position to loan book this year despite covid-19 still lingering on.

The covid-19 pandemic compelled banks to review their loan policies last year in order to contain the risk that the virus imposed on the economy.  

With the global economy recovering, following rollout of vaccines, the banks will be motivated to increase loans to the private sector which is the engine of growth.  

“We believe banks would begin to ease their conservative stance to loan book expansion as economic activity picks up”, it said.

Growth recorded as at October 2020 declined to 13.7%, significantly below the 17.2% growth registered in October 2019 as banks rebalanced their assets to favour low-risk government securities.

“Initiatives such as the Coronavirus Alleviation Programme – Business Support Scheme (CAPBuSS), instituted by the Government to extend loans to micro, small and medium enterprises (MSMEs), as well as large businesses should support the sector’s loan book growth”, Databank Research pointed out.

As a result, earnings growth for the banking sector should be strong in 2021, stressing “as we project banks would take advantage of the strong demand for loans to expand their loan books and boost interest income.”

This will also drive their stock prices.

Credit to private sector slowed to 5.8% in 2020

According to the Bank of Ghana, loans to the private sector weakened throughout last year.

Indeed, credit to the private sector slowed to 5.8% in December 2020, compared with 23.8% the same period last year.

Banks provided support and reliefs in the form of loan restructuring and loan repayment moratoria to cushion 16,694 customers severely impacted by the pandemic.

Total outstanding loans restructured by banks as at December 2020 amounted to GH¢4.47 billion, representing some 9.4% of industry loan portfolio.

Non-Performing Loans (NPL) ratio increased from 14.3% in December 2019 to 15.7 percent in June 2020 arising from the pandemic-induced repayment challenges, but declined to 14.8%