Banks in Ghana wrote off ¢1.37 billion as bad debt in August this year, the Income Statement of the 23 banks published by the Bank of Ghana has revealed.  

The provision for bad debt which is as a result of loan losses, depreciation, amongst others was however slightly higher than what was recorded during the same period last year. ¢1.30 billion was classified as bad debt during the same period last year.

But the growth of the bad loans slowed down, increasing by 5.3%, compared with 29.5% a year ago.

Assets quality risks increase

The September 2021 Banking Sector Development Report indicated that asset quality risks have shot up this year, compared to last year due to repayment challenges associated with the Covid-19 pandemic as well as some bank specific loan recovery challenges.

The Non-Performing Loan (NPL) ratio increased from 15.5% in August 2020 to 17.3% in August 2021. This was attributed to the combined effect of an increase in the stock of NPLs by 21% to ¢8.4 billion, as well as a modest growth in the stock of gross loans by 8.7% over the period.

The adjusted NPL ratio (excluding the fully provisioned loan loss category) the Central Bank however said remained unchanged at 6.6% over the review period, an indication that the increase in the NPL ratio was due to a build-up of loss category loans.

The rise in the NPL ratio was mainly driven by the increase in the private sector NPL ratio from 16.6% to 18.6%, while the public sector NPL ratio marginally declined from 5.9% to 5.1%.

Construction, transport sectors biggest contributor to NPLs

In terms of sector specific, the NPL ratio of the construction and the transport, storage and communication sectors increased by 13.6% percentage points and 7.6 percentage points to 35.0% and 11.9% respectively during the review period.

Additionally, the mining and quarrying and the commerce and finance sectors recorded increases in their respective NPL ratios by 4.6 percentage points and 2.3 percentage points to 14.0% and 26.4% over the same comparative period.

All other economic sectors recorded declines in the NPL ratios during the review period with the greatest improvement in the quality of the loan portfolio attributed to the agriculture, forestry and fishing sector

Outlook of banking industry positive

Meanwhile, the Bank of Ghana says the outlook for the banking industry remains positive and projections of an expected increase in demand for credit and ease in credit stance are expected to boost private sector loans to support the Covid-19 recovery process.

According to the Central Bank, the banking sector performance improved with strong capital buffers to withstand shocks in August 2021. This was underpinned by sustained growth in total assets, deposits, and profits amid the Covid-19 pandemic.