A recent report from the Bank of Ghana shows that Ghanaian Banks have continued to cut back on borrowings. According to the BOG, the banks now relied on relatively cheaper sources of funding such as deposits and shareholders’ funds.

As a result, total borrowings at End-February 2021 contracted by 23.4 percent to GH¢14.3 billion. This, according to the BOG, is in sharp contrast to a growth of 30.7 percent recorded a year earlier.

Meanwhile, BOG attributed the decline in overall borrowings to bank’s shift to “short-term borrowings while long-term borrowings increased during the year”.

Overall, the balance sheet performance of the industry for the first two months of 2021 shows sustained growth in key indicators. However, the BOG highlighted weakness in credit growth as a result of the pandemic. Specifically, the credit stance on loans to large enterprises tightened marginally and the BOG expects it to tighten further in the next two months. The BOG, however, expects the stance on SME loans to ease between February and April 2021.

Anticipated increases in credit demand

Nevertheless, BOG stated that its latest credit conditions survey shows that overall credit growth will pick up during the year. This is because of “anticipated increases in credit demand and continuous ease in credit stance in the next two months”.

Moreover, the BOG remains optimistic about a resilient banking sector. Specifically, it expects the “growth in the sector will remain strong as the economic recovery process takes hold in 2021”.

Also, the BOG assured that the sector remained strong to continue with its core business of financial intermediation to support the ongoing recovery process. This means that whilst the banking sector has a vital role to play in the recovery process, it also stands to gain from it.

Furthermore, the BOG expects Banks to continue to sustain a strong performance under mild to moderate stress conditions. Nevertheless, BOG has assured industry players of “continuous monitoring and heightened supervision”. Adding that this is “required to address potential vulnerabilities in the sector, as the pandemic lingers”.

Share of Banks’ Investments

Concerning investment, the BOG noted that banks’ investment holdings increased in February 2021. However, there was a change in the structure of the investment portfolio when compared to developments as of February 2020.

In the second half of 2020, there was a movement towards longer-dated instruments. This led to a rise in the share of securities in total investments. The BOG indicated that this has, however, reversed somewhat during the first two months of 2021. According to the central bank, banks are currently increasing holdings of short-term bills so far in 2021.

As a result, the Bank noted that the investment mix remained unchanged in February 2021 compared to February 2020. Specifically, the proportion of short-term bills in total investments was 28.7 percent as of February 2021. Securities had a larger share of 70.9 percent of the short-term bills as of the end of February 2021. On the other hand, the share of equity investments remained negligible, at 0.3 percent at End-February 2021.