The Bank of Ghana (BoG) has revealed that Ghanaian Banks do not expect lending rates in the country to change significantly in the first six months of the year.
This means Banks project lending rates to hover around the current industry average of 20.04 percent as at December 2021, even though they expect inflation to continue rising in the first half of this year.
“Banking sector inflation expectations increased during the current survey round, indicating that banks expect inflation to increase six months ahead. The observed pick up in actual inflation contributed to the increase in inflation expectations by the banking sector. Banks, however, expect lending rates to remain broadly unchanged six months ahead”.
Bank of Ghana
According to the Bank of Ghana, Banks reported a net tightening in the overall credit stance on loans to enterprises in its latest Credit Conditions Survey conducted in December 2021 relative to the October 2021 survey round.
The Central Bank explained that the net tightening in the overall credit stance to enterprises was on the back of a tightened stance on short-term enterprise loans.
“Banks project a further tightening in the overall credit stance on enterprise loans in the first two months of 2022, in line with past trends. The expected net tightening in the stance on corporate loans is from a projected net tightening in the stance on loans to all sub-categories of enterprise loans”.
Bank of Ghana
The Credit Conditions Survey also showed that banks’ stance on loans to households tightened during the last two months of 2021 largely due to a net tightened stance on loans for consumer purchases and other lending. The tightened stance by banks on loans for consumer credit and other lending at the end of last year, partly reflected the earlier anticipated increase in demand for loans by households during the festive season, BoG explained.
Credit Demand By Enterprises To Pick Up
Banks projected the overall stance on loans to households to tighten further during the first two months of 2022 from a projected net marginal tightening on the stance on consumer credit and mortgages. The December 2021 survey pointed to a net decline in the overall demand for credit by enterprises. Credit demand by enterprises, although lower relative to the previous survey period, remained positive and is projected to be stronger in January and February 2022.
According to BoG, the net decline in the enterprise demand for credit reflected largely the sharp decline in demand for loans by large enterprises during the last two months of 2021. The overall demand for credit by households, however, increased due to higher demand for mortgage loans while demand for consumer credit and other lending was unchanged over the survey period.
Between January and February this year, banks expect a much stronger pickup in the demand for credit by enterprises from all the sub-components of enterprise credit, while demand for credit by households is also expected to rebound over the same period.
The Bank of Ghana emphasized that the banking sector was solvent, liquid, and profitable, with sufficiently strong capital buffers in 2021. Sustained growth was recorded in total assets, investments, credits, deposits and profits last year. The financial soundness indicators were also healthy although the NPL ratio inched up to 15.2 percent at End-December 2021, up from 14.8 percent in 2020.
Overall credit growth performance, although improving, is still below pre-pandemic levels. The BoG stated that policy measures and regulatory reliefs have, and will continue so that the sector can intermediate effectively and boost the recovery process.
On the outlook of the banking industry this year, BoG assured that it remains positive and projections of an expected increase in credit demand should help support private sector credit in 2022.
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