Prime News Ghana

Economic slowdown, high operational costs leads to GH¢631.8m bad debts for banks

Alhassan Andani
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Banks operating in Ghana made a provision of GH¢631.8 million as bad debts in their books at the end of July 2016, the latest Financial Stability Report indicates.

The is attributable to the general slowdown in the economy, increasing cost of production due to high utility tariffs and loan portfolio reclassification by some banks among other factors.

The GH¢631.8million represents a 26.2 per cent increase over the GH¢499.2 million written off as bad debt within the same period last year.

It will be recalled that the banks by the end of the first quarter of 2016 wrote off GH¢231million. This means that as much as GH¢400million was written off as bad debt between April and July 2016. 

The high non-performing loans continue to bedevil the banking industry as third quarter unaudited financial reports of some banks revealed bad debts of up to 50 per cent.

Stanchart, HFC, Societe Generale and Ecobank recorded NPLs of 48.86, 30.50, 17.33 and 18.30 percent respectively.

On asset quality, the quality of loans on the banks’ books generally worsened in 2016.

Non–performing loans (NPLs) increased by 69.4 percent from GH¢ 3.6 billion in July 2015 to GH¢ 6.1 billion in July 2016. This translated into an NPL ratio of 19.1 percent, up from 13.1 percent in July 2015.

Adjusting for the fully provisioned loan loss category, however, the NPL ratio reduced to 11.0 percent in July 2016 although higher than the July 2015 position of 6.2 percent.

The report stated that the public sector accounted for 14.2 percent of the NPLs. This is compared with 2.2 percent d loans in July 2015.

 Private enterprises alone accounted for 79.7 percent of the NPLs, with indigenous businesses accounting for 71.8 percent while foreign-owned businesses accounting for 7.9 percent.

The indigenous businesses, however, received 61.2 percent of credit to private enterprises.

Even though the share of foreign enterprises in total private sector credit declined from 10.8 percent in July 2015 to 8.9 percent in July 2016, its contribution to private sector NPLs increased from 11.6 percent to 7.9 percent during the review period. Households’ share of private sector credit increased from

With regard to sectors, the largest sectors in terms of credit namely Commerce and Finance, Services and Electricity, Gas & Water also accounted for the largest amount of banking sector NPLs of 66.2 percent as at the end of July 2016. The Transport, Storage and Communication sector recorded the lowest NPL ratio during the review period.

Meanwhile, the banking industry’s real gross loans and advances recorded a low growth of 0.7 percent in July 2016, down from 4.8 percent in July 2015 due to the general slowdown in credit extension, which was largely as a result of deteriorating asset quality.

Real private sector credit growth recorded a negative growth of 0.2 percent in July 2016 from 4.5 percent in July 2015. In real terms, credit to the households however improved from 0.8 percent in July 2015 to 5.1 percent growth recorded in the same period in 2016.

Source: The Finder Newspaper