Banking consultant Nana Otuo Achampong says businesses must be measured in their expectations, despite the significant reduction in Non-Performing Loans.

Speaking to JoyBusiness, Nana Otuo Achampong said the coronavirus pandemic may slow that process.

He said “it is good that NPLs are coming down because of the intensification of the collection method and so it’s reducing but right now in the condition that we are in if things don’t change in the next quarter we won’t have anything to write home about…it means that people are not borrowing now because if they are borrowing then you could see that NPLs could be going up again. So we have to hope and pray that we get some certainty back into the system to generate economic activity.”

Total Non-Performing Loans (NPLs) contracted further by 4.5 per cent to GH¢6.33 billion in February 2020, following a decline of 14.4 per cent a year earlier, Bank of Ghana’ banking sector report has stated.

According to the report, the positive effect of the decline in the stock of NPLs on the NPL ratio underpinned by the rebound in gross credit. This resulted in a decline in the NPL ratio to 13.8 per cent February 2020 from 18.2 per cent in February 2019.

Consequently, the industry’s NPL ratio adjusted for fully provisioned loan loss category also declined from 9.4 per cent to 5.2 per cent. The distribution of NPLs among borrower groups reflected both the share of credits and the risk dynamics of these groups.

Accordingly, the higher share of private sector loans translated to a larger share of NPLs due to the generally higher risk profile of the private sector. This also reflected in the sub-components of the private sector.

NPLs of indigenous enterprises accounted for almost three-quarters of total NPLs although banks halved credit to this segment due to their relatively higher credit risk.

Foreign enterprises, households or individuals, and government accounted for relatively lower respective shares of 9.2 per cent, 7.9 per cent, and 2.7 per cent due to their lower credit allocation and better credit risk profiles.
The decline in the industry NPL ratio broadly reflected the trends in NPL ratios across the various sectors.

Borrowings

The report said, banks increased borrowings to support credit growth. In line with the rebound in credit, and with credit growth outstripping growth in deposits, banks had to rely on additional borrowings to support credit expansion. Accordingly, total borrowings increased by 30.7 per cent compared with the decline of 6.3 per cent in the prior year.

The growth in borrowings, however, came mainly from the short-term end, with short-term domestic and short-term foreign borrowings accounting for about 98 per cent of the increase.