Banks wrote off ¢1.3 billion in the first six months of this year as provision for bad debt.

According to the latest Domestic Money Banks Income Statement from the Bank of Ghana, the bad debt came as a result of loan losses, depreciation, among others.

The total bad debt as of June this year was 28.4% higher than the same period last year.

This follows a strong rebound in credit growth, as a result of the easing of COVID-19 restrictions.

The growth in bad debt may continue if the cost of borrowing continues to surge as a result of challenges facing the economy.

Assets quality risks moderated in June

According to the Bank of Ghana, asset quality risks moderated in June 2022, attributed to a combined effect of a moderation in the growth in the stock of Non-Performing Loans (NPLs) as well as a rebound in credit growth from the previous year.

The stock of NPLs increased by 10.0% to ¢8.9 billion in June 2022, compared with a growth of 15.1% in June 2021.

A strong rebound in credit growth was also recorded, with gross loans increasing by 33.3% in June 2022, compared to the modest growth of 5.7% in the previous year.

These developments, the Central Bank, said led to a decline in the industry’s NPL ratio from 17.0% in June 2021 to 14.1% in June 2022.

The adjusted NPL ratio (excluding the fully provisioned loan loss category) also improved to 3.8% from 7.2% over the same comparative period.

Notwithstanding the decline in the NPL ratio, the increase in the stock of NPLs within the year indicated that asset quality risks persisted in the sector.

NPL ratio for construction sector remains highest

The report said the decline in the industry NPL ratio was most pronounced in the commerce and finance and mining and quarrying sectors, which recorded lower NPL ratios in June 2022, compared with last year.

The NPL ratio of the commerce and finance sector declined from 27.2% in June 2021 to 16.4% in June 2022, while that of the mining and quarrying sector declined from 13.4% to 5.7% during the same comparative period.

Three other sectors also recorded improvements in their NPL ratios during the review period: manufacturing (from 17.5% to 12.2%); electricity, water and gas (from 15.2% to 12.8%); and services (from 9.2% to 8.9%).

On the other hand, the agriculture, forestry and fishing and the transport, storage and communication sectors recorded increases in their NPL ratios during the period under review from 26.9% to 27.9% and from 9.9% to 10.4%, respectively.

The NPL ratio for the construction sector remained the highest and was unchanged at 34.4% between the two periods, indicating that asset quality risks remain elevated in that sector.

notwithstanding the decline in the Non-Performing Loans ratio, the increase in the stock of bad debt within the year indicated that asset quality risks persisted in the banking sector.

But the decline in the industry NPL ratio was most pronounced in the commerce and finance as well as mining and quarrying sectors, which recorded lower NPL ratios in June 2022, compared with last year. On the other hand, the agriculture, forestry and fishing and transport, storage, and communication sectors recorded increases in their NPL ratios.

Meanwhile, the NPL ratio for the construction sector remained the highest and was unchanged at 34.4 percent, indicating that asset quality risks remain elevated in that sector.