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Banks tighten credit stance


By Elorm Desewu

The private sector credit growth slowed in the first two months of the year due to constrained demand for credit. The annual nominal growth in private sector credit slowed to 7.4 percent in February 2021 compared with 21.8 percent, in the corresponding period of 2020.

Similarly, real private sector credit contracted by 2.7 percent compared to a growth of 12.9 percent over the same comparative period.

The performance of the banking sector remained strong through end-February 2021, with robust growth in total assets, deposits and investments. Total assets increased by 18.5 percent on a year-on-year basis to GH¢152.0 billion, reflecting strong growth in investments in government securities by 45.9 percent to GH¢67.9 billion.

Total deposits recorded a year-on-year growth of 25.1 percent to GH¢104.0 billion reflecting strong liquidity flows emanating from the COVID-19 fiscal stimulus, payments to contractors, SDI depositors, and clients of SEC-licensed fund managers.

Financial soundness indicators remained positive underpinned by robust solvency, liquidity, and profitability indicators. The industry’s Capital Adequacy Ratio was 20.2 percent at end-February 2021, well above the regulatory minimum threshold.

Core liquid assets to short-term liabilities was 26.5 percent in February 2021 compared with 31.3 percent a year ago. Net interest income for the first two months grew by 10.9 percent to GH¢2.0 billion compared to 25.9 percent a year ago.

Net fees and commissions grew by 13.7 percent to GH¢435.4 million, compared with 18.4 percent growth recorded during same period last year, reflecting the observed dip in growth in loans and trade finance-related businesses. Operating income rose by 8.7 percent, lower than the corresponding growth of 23.6 percent, but was supported by cost control measures which resulted in operating expenses declining by 0.3 percent, in contrast to the 18.6 percent increase for same period in 2020. Loan loss provisions, however, grew sharply by 62.2 percent, significantly higher than the 6.5 percent a year ago, reflecting continued elevated credit risks.

Profit before tax, increased to GH¢1.1 billion over the first two months of 2021 compared to GH¢1.0 billion the same period last year.

Notwithstanding the sluggish credit demand and supply conditions due to the pandemic, the COVID-related regulatory reliefs and policy measures continue to support lending activities, with new advances for the first two months in 2021 totalling GH¢4.7 billion. In the latest Credit Conditions Survey, banks expect an increase in demand for credit and are signalling an ease in credit stance over the next two months.

Non-Performing Loans (NPL) ratio increased from 13.8 percent in February 2020 to 15.3 percent in February 2021 arising partly from the general pandemic-induced repayment challenges as well as some bank-specific loan recovery challenges.

Interest rates on the money market broadly showed downward trends for shortdated instruments and mixed trends for medium to long-dated instruments. The 91-day and 182-day Treasury bill rates declined to 13.6 percent and 14.0 percent respectively in February 2021, from 14.7 percent and 15.2 percent respectively, in February 2020. Similarly, the rate on the 364-day instrument decreased to 16.9 percent from 17.8 percent over the same comparative period. Rates on the secondary bond market have also generally declined, except for rates on the 5- year bond which increased by 35 bps to 19.9 percent. Yields on 2-year, 3-year, 6- year and 7-year bonds declined, while rates on the 10-year, 15-year and 20-year bonds remained unchanged.

The weighted average interbank rate declined to 13.6 percent from 15.9 percent, in line with the cut in the monetary policy rate in March 2020, and improved liquidity conditions due to the COVID regulatory relief measures. Consequently, average lending rates of banks declined to 21.0 percent in February 2021 from 23.4 percent in the same period of 2020, consistent with developments in the interbank market.

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