Minimum capital to boost private sector credit

Dr. Ernest Y. Addison, Governor, Bank of Ghana (BoG)

As banks continue to strengthen their balance sheet to meet the new minimum capital requirement of GH¢ 400 million at the end of the year, private sector credit is expected to soar further upwards, the Governor of the Bank of Ghana (BoG), Ernest Addison has said.

He further expects this to drive the cost of credit to borrowers downwards, as the current data suggests that transmission from the monetary policy rate into the lending rate is already happening.

In a press briefing following the 85th regular meeting of the Monetary Policy Committee (MPC), the Governor said “the latest credit conditions survey shows an easing of credit stance with increases in banks’ credit and loans to both households and enterprises as banks continue to strengthen their balance sheet and the deadline for meeting the minimum capital approaches.”

Private sector credit grew by 11.4 percent, year on year in October 2018 compared with a year on year growth of 14.9 percent in October 2017. But in real terms, private sector credit expanded by 1.7 percent compared with the 7.4 and 7.3 percent year on year contractions recorded in the February and March respectively, this year which marked the steepest year on year contractions over a 12 month period in which most months recorded negative year on year credit growth to the private sector.

“We expect [Private Sector Credit] to pick up significantly in 2019, given that we going to be having banks with all this additional capital, which would have to be put to use. So, the banks would be forced do a lot of lending in 2019,” Addison stated.

With the current easing of credit stance, private sector credit continues to recover, but at a moderate pace.

Financial sector performance

The key Financial Sector Indicators (FSIs) have broadly shown improvements, reflecting gains from the on-going reforms in the sector. The gains are expected to further increase after the recapitalization process is completed in December 2018.

The industry’s total assets increased to GH¢106.3 billion in October 2018, representing a year-on-year growth of 19.6 percent. Of the total assets, loans and investments constituted 33.4 percent and 40.3 percent respectively.

The Governor indicated that the latest FSIs show that the banking system remains solvent, sound and profitable.

The industry’s solvency, as measured by the Capital Adequacy Ratio (CAR), improved to 20.0 percent in October 2018 from 18.0 percent in the same period of last year, well-above the prudential requirement of 10.0 percent.

By Joshua W. Amlanu