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Banks’ squeeze credit to private sector

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By Elorm Desewu

Universal banks’ credit growth to the private sector  has dropped significantly for the first quarter of this year due to the on-going balance sheet restructuring by banks and adjustment of the monetary data to exclude the resolved banks.
To this end, growth in credit to the private sector was 5.6 percent year-on-year in April 2018 compared with 16.1 percent a year earlier. In real terms, private sector credit contracted by 3.6 percent in April 2018 against 2.6 percent growth in the same period of 2017. 
These notwithstanding, the latest credit conditions survey showed an overall net easing in banks’ credit stance on loans to both households and enterprises. This was attributed to the improved macroeconomic environment – declining monetary policy rate and anchored expectations. In addition, new advances (loan demand) in the banking sector rose by 27.6 percent year-to-date in April 2018 compared with 1.3 percent growth in the same period last year.   
 The banking sector remains liquid and solvent with evidence of new capital injection as banks strategize to implement recapitalisation plans in line with the new minimum capital requirement. 
The total asset base of banks increased to GH¢97.8 billion in April 2018 indicating that annual growth has declined to 15.7 percent compared with the 30.9 percent growth recorded in April 2017. The asset growth was mainly funded by deposits which went up by 15.7 percent on a year-on-year basis.
The industry’s average Capital Adequacy Ratio (CAR) improved to 18.2 percent in April 2018 against 17.4 percent last year, reflecting efforts by banks to recapitalize. 
 The financial soundness indicators of the banking industry measured in terms of earnings, liquidity, and capital adequacy improved moderately but the quality of loan portfolio remains a concern. The Non-Performing Loans (NPLs) ratio increased to 23.4 percent in April 2018 from 21.6 percent in December 2017.

Adjusting for loan loss provision, the NPLs ratio increased to 12.3 percent from 10.1 percent in December 2017. The rise in NPLs reflects the migration of some legacy loans to non-performing category.   

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