Financing and liquidity constraints pose major banking sector risk in Ghana – EIU report
The Economist Intelligence Unit (EIU) has said in its five-year forecast for Ghana released on April 13, 2022, that the banking sector risk rating remains at B, and the underlying score is unchanged, at 60.
The largest drivers of banking sector risk in Ghana are financing and liquidity constraints, it said.
The report added that enormous legacy debts owed to the banks (largely by state-owned energy companies) continue to crowd out other borrowers. Credit to the private sector as a share of GDP has decreased over the past three years.
The economic fallout from the pandemic, combined with high risk-aversion among banks, kept private-sector credit growth negative year on
year up to September. Non-performing loans (NPLs) as a share of gross loans remained high, at 14.8% in December 2020 (although down from a peak of 15.7% in June).
“The BoG has taken steps to support economic activity, including restructuring loans and introducing repayment moratoria, but low levels of bank lending (notably to trade-related sectors) and sustained repayment difficulties stand to keep the NPL ratio elevated. Commercial banks are well capitalised, however; a directive from the BoG in 2018 tripled the minimum capital requirement, and a ratio of capital to risk-weighted assets of 20.9%, as at August 2020, comfortably exceeded the minimum ratio of 11.5% set by the BoG.
“This high buffer at the onset of the pandemic has allowed the BoG to gradually lower capital minimums (from 13% previously) to inject liquidity into the economy, beyond a 150-basis-point drop in the policy rate to 14.5% in March (which the BoG has maintained, despite high inflation throughout 2020).
“This has, however, translated into only limited pass-through to the private sector, with average lending rates remaining high, at 21.4% in August.
“To inject extra liquidity, the BoG has launched an asset purchase programme worth about US$1.7bn. Banks’ willingness to lend at lower rates has been hampered by inflation, which emerged as an issue in 2020. Banks have a positive and growing net foreign-asset position, limiting their exposure to adverse currency movements,” the report said.
Source:3news
