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Banks NPL ratio declines by 2.3%

November 9, 2020
thevaultzby thevaultz
in Economics
0
COVID-19 introduces several risks in the banking sector

Dr. Ernest Addison, Governor of the Bank of Ghana

The banking sector recorded a decline in Non-Performing Loan (NPL) ratio from 17.8 percent in August 2019 to 15.5 percent in August 2020.

This depicts a year-on-year decline of approximately 2.3 percent.

This was captured in the recent Banking Sector Report released by the Bank of Ghana.

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The Bank of Ghana intimated that the decline in the NPL ratio was on “the back of an increase in the stock of loans by 15.6 percent”

Also, the downward trend in the NPL ratio translated into an improvement in asset quality in the banking industry year-on-year, the Bank of Ghana pronounced.

Similarly, the Banking Sector Report indicated that the adjusted NPL ratio declined from 8.9 percent in August 2019 to 6.6 percent in August 2020 over the review period, representing an equivalent decrease of 2.3 percent year-on-year. 

The adjusted NPL ratio figure, however, excludes the “fully provisioned loan loss category,” the Bank of Ghana added.

Whereas the NPL ratio declined by 2.3 percent, “the stock of NPLs recorded only a marginal uptick of 0.7 percent to GH¢7.0 billion over the period,” the Bank of Ghana opined. 

The Bank of Ghana further asserted that the “lower NPL ratio was driven mainly by the decline in the private sector NPL ratio from 19.2 percent to 16.6 percent,” indicating a decline of about 2.6 percent yearly.

In contrast, the public sector NPL ratio inched up by approximately 1.5 percent, rising from 4.4 percent recorded last year August to settle at 5.9 percent this year August 2020during the period under review, the Bank of Ghana cautioned. 

“The decline in the industry NPL ratio, reflected in all sectors except the construction and commerce and finance sectors” which have somewhat been severely impacted by coronavirus pandemic which hit the shores of Ghana in early March this year, the Bank of Ghana mentioned. 

Detailing the sectors that experienced declines in their NPL ratio for the period under review, the Bank of Ghana revealed that “the NPL ratio for agriculture, forestry, and fishing declined from 32.7 percent to 29.4 percent; electricity, water and gas dipped from 31.5 percent to 20.9 percent, while manufacturing also improved from 20.8 percent to 18.5 percent. The services sector also saw its NPL ratio declining from 7.8 percent to 5.3 percent”.

BoG rev
The Bank of Ghana

A recent financial sector review conducted by the Bank of Ghana says that “to further drive down NPLs in the banking sector, the Bank of Ghana is focused on strengthening the corporate governance and risk management systems of banks through the enforcement of the Corporate Governance Directive (issued by the Bank in 2018), enhancements of the Bank’s risk-based supervision framework and improvements in financial infrastructures such as credit reference bureaus and the collateral registry. These reforms have helped reduce the credit default rate and the credit-loss burden on the sector.

“Various legislations and directives have been passed/ issued to further strengthen the financial system. In the banking sector, a new regulatory capital directive based on Basel II/III has been issued. In addition, to address specific risks from high NPLs, poor corporate governance and poor risk management systems, a number of directives and laws have been passed/ issued in the last three years”. 

“This includes the Corporate Governance Directive, Fit and Proper Persons Guideline, Cyber and Information Security Directive and Payment Systems and Services Act, (Act 987)”.

Tags: Bank of GhanaBanking sectorNPL
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