Over the next few months, Ghana’s universal banks stance on overall enterprise credit is expected to tighten marginally, driven by a net tightening of the credit stance to SMEs and large enterprises.
This is according to Bank of Ghana’s latest credit conditions survey, in the Banking Sector Report released this week.
The Survey points to a net easing of the overall credit stance to enterprises during the first four months of this year, following a net easing of banks’ credit stance on all categories of enterprise loans. While the central bank attributes this recent trend to the improved capital bases and solvency of banks who were forced to recapitalize to a minimum of GHc400 million last year, the BoG also reveals that the banks are warning of an impending tightening over the immediate future.
Bad and doubtful debt write-offs at a time that riskless medium to long term government domestic debt securities are offering over 20 percent yields are enticing banks to put more of their new capital and increasing deposits into investments rather than loans.
Over the 12 months up to April 2019, the rate of expansion of credit and advances provided by Ghana’s universal banking industry has been falling, whereas the rate of expansion of the industry’s investments in securities has been increasing, the latest Banking Sector Report by the Bank of Ghana has revealed.
According to the report, the share of gross advances in total assets declined from 37.6 percent in April 2018 to 34.4 percent in April 2019, whereas investments remains the largest component of the industry’s assets with a share of 40.4 percent as at April 2019, up from the 35.9 percent a year previously.
The BoG’s credit portfolio analysis of the industry reveals that growth in gross loans and advances slowed from 6.8 percent, year on year, in April 2018 to 6.1 percent in April 2019. This excludes loans under receivership.
The report further revealed however that gross domestic advances recorded 2.8 percent annual growth from GHc 36.75 billion to GHc 37.78 billion over the 12 months up to April 2019, compared with 2.2 percent growth over the year up to April 2018.
Nevertheless, the foreign component of the net advances was partly influenced by the depreciation of the Ghana Cedi over the period; growth in the foreign currency component of net advances grew by 33.8 percent, from GHc 8.6 billion in April 2018 to GHc 11.5 billion in April 2019.
Net advances showed a rebound, growing by 6.3 percent to GH¢32.77 billion in April 2019, after contracting by 0.5 percent a year earlier.
During the period, deposits increased to GHc 73.1 billion by April 2019 from GHc 61.1 billion by April 2018, with both domestic and foreign currency deposits outperforming the previous year’s performance. The stronger growth in deposits reflects increasing confidence in the banking sector following the recent clean-up exercise and recapitalization reforms.
Domestic deposits, the largest component of total deposits, recorded a yearly growth of 19.7 percent to GHc 72.7 billion compared to 15.7 percent growth a year ago. Foreign currency deposits, also grew strongly by 28.2 percent up to April 2019 against 8.8 percent growth recorded up to April 2018, partly reflecting the depreciation of the Ghana Cedi within past year.
Share of Credit
In real terms however, private sector credit contracted by 5.4 percent during the 12 months up to April 2019 compared with a contraction of 3.7 percent a year ago.
Credit to households amounted to GHc 8.4 billion by April 2019 compared with GHc 7.2 billion by the same period last year, indicating a yearly growth of 16.4 percent. Real growth in credit to households, accordingly slowed to 6.3 percent in April 2019, compared with 28.6 percent in April 2018.
The share of private sector credit increased marginally to 89.9 percent in April 2019 from 89.3 percent in April 2018. Of the total, the share of private enterprises was 65.2 percent in April 2019 compared with 67.8 percent a year ago.
The proportion of households in the industry’s credit increased to 22.1 percent in April 2019 compared with 19.6 percent a year ago, while the share of credit to ‘other’ private entities increased to 2.5 percent from 1.9 percent during the same comparative period.
