Total borrowings of banks has contracted further by 2.1 percent in August 2020 against a 5.0 percent contraction a year earlier as banks scaled back borrowings.
This is according to the Bank of Ghana and represents a 2.9 percent contraction in borrowing on a year-on-year basis. The decline in borrowings reflected mainly in short-term borrowings while long-term borrowings picked up during the year.
“The reduced level of borrowings was on the back of stronger deposits growth, higher loan repayments, and the liquidity release from the reduction in the reserve requirement of banks, which supported asset growth against the backdrop of weak credit demand from some sectors,” the Bank of Ghana revealed.
Detailing the composition of the total borrowings, the Bank of Ghana reveals that the share of banks’ external borrowings in total borrowings declined to 47.5 percent in August 2020 from 55.0 percent in August 2019, depicting a year-on-year decrease of approximately 7.5 percent.
The external borrowing from Banks’ were “mainly long-term in nature,” the Bank of Ghana emphasised and as such required sometime beyond a year for such obligations to fall due.
In affirmation to this, a breakdown of Banks’ external borrowing by maturity show that the share of long-term funds in total external borrowing increased to 59.5 percent from 30.5 percent, representing an upsurge of about 29 percent within a year, the Bank of Ghana alerted.
Contrary to this, the Bank of Ghana opined that the share of short-term external borrowing declined from 69.5 percent to 40.5 percent over the review period, indicating that liabilities that fall due within a year declined sharply by approximately 29 percent yearly.
The Bank of Ghana, however mentioned that although banks’ external borrowings have reduced marginally, that of domestic borrowing increased to 52.5 percent from 45.0 percent during the period under review, translating into a growth of approximately 7.5 percent in internal borrowings annually.
This means that Banks’ relied heavily on domestic sources of borrowing to support their budgets than resorting to foreign sources for assistance during the year, the Bank of Ghana said.
“Despite the contraction in borrowings, interest expense on borrowings was higher during the year to August 2020 compared with the previous year,” the Bank of Ghana intimated.
The liability structure of banks show that deposits remain the main source of funding of banks even though the share of deposits dipped marginally to 64.2 percent from 66.0 percent over the two corresponding periods.
“Similarly, the share of borrowed funds declined from 13.8 percent in August 2019 to 10.9 percent in August 2020 following a contraction in total borrowings during the period.
“The Shareholders’ Funds component also dipped marginally from 14.5 percent to 14.2 percent. The share of “Other liabilities” however increased to 10.6 percent from 5.7 percent due mainly to receipt of depositor funds by CBG from the Receiver in respect of funds locked up with the defunct Savings and Loans companies and Finance Houses,” the Bank of Ghana remarked.
