Growth in private sector credit is expected to drive down the Non-Performing Loans (NPLs), a Banking Consultant, Nana Otuo-Acheampong has said.
According to him, an improved economic fundamental will also reflect in lower lending rates, going forward.
NPLs’ ratio has gone down significantly since 2016, from about 28 percent on the average to about 14 percent. But many analysts believe it is still high and is a major contributor to the high lending rates.
Nana Otuo Acheampong explained that “between 2017 and 2018, the NPL average hovered around 22%. Now for 2019, it fell by 8% to 14%. Now, it is still high relative to other jurisdictions but then what would drive it down would be growth in private sector credit.”
He holds that “because of the incidence of the pandemic, that growth although moving positively, is not at the expected rate.”
He emphasized that there are some legacy NPLs which could play a significant role once the private sector picks up.
“When we say legacy, we mean the old NPLs that we’ve not been able to recover from because of the pandemic. So now that the pandemic is easing off, we’ll see that private sector credit growth will move up and once it moves up, it’s got an inverse relationship with NPL,” he said.
Cost of credit presently hovers around 21.5 percent on the average.
July 2020 Banking Sector Development Report
Gross loans and advances grew by 16.3% to GH¢45.0 billion in June 2020 from a virtually unchanged growth position a year earlier.
Net loans and advances (gross advances adjusted for provisions and interest in suspense), also grew by 14.7% to GH¢38.9 billion against a 4% growth in June 2019.
Credit growth however slowed in the first quarter of 2020 due to the tight credit stance by banks and low credit demand at the onset of COVID-19 but has witnessed some rebound in the second quarter of this year.
On the other hand, asset quality improved year-on-year with the NPL ratio declining from 18.1% in June 2019 to 15.7% in June 2020.
This was on account of the marginal increase in the stock of NPLs by 0.7 percent against the 16% growth in credits over the period.