The Bank of Ghana (BOG), in its Monetary and Financial Development report, has revealed that credit flow to the private sector remains concentrated within four key sub-sectors.
According to the report, the Services, Commerce and Finance, Construction, and Manufacturing sub-sectors receive a higher percentage of the banks’ lending to the private sector, as compared to Agriculture and Export Trade among other sub-sectors.
“Credit flow to the private sector remained concentrated in four sub-sectors, namely, Services; Commerce and Finance; Construction; and Manufacturing.”
Bank of Ghana
Furthermore, these developments in the banking sector comes in the wake of rising stakeholder concerns about banks’ lending pattern to the private sector.
The President of Association of Ghana Industries (AGI), Dr. Yaw Adu Gyamfi, speaking at the Ghana Industrial Summit and Exhibition 2021, highlighted credit accessibility as a major challenge faced by the industry sector.
However, Banks credit to the private sector and public institutions increased by GH¢2,568.97 million (5.7%) as of June 2021 compared with GH¢6,302.72 million (16.3%) recorded in June last year.
Also, credit to the private sector increased by GH¢2,706.66 million (6.8%) relative to GH¢4,987.39 million (14.2%) over the same comparative period.
Additionally, there has been stakeholder concern about banks’ growing preference for government debt securities as disclosed by the Monetary and Financial Development Report.
Also, the Monetary Policy Committee in its report disclosed that the banks have about 50 percent of government’s debt instruments to its credit.
“The growth in Net Domestic Assets (NDA) was largely driven by Net Claims on Government (NCG), reflecting increased investments in Government’s securities by banks, which was partly moderated by decreased sterilization through the Open Market Operations (OMO).
“This reflects a net drawdown on stock of BOG bills. NCG contributed 9.6 percent to the growth of NDA.
“Growth in claims on private sector (including public enterprises), however, decreased to 5.4 percent in June 2021, from 7.4 percent recorded in June 2020.”
Bank of Ghana
Meanwhile, the report revealed that latest trend in broad money supply (M2+) has to a larger extent been driven by Net Domestic Assets (NDA) of the banking sector.
“Latest trends in monetary aggregates showed a slightly higher pace of growth in broad money supply (M2+), largely driven by Net Domestic Assets (NDA) of the banking sector.
“Also, interest rates have generally trended downwards in line with the easing of monetary policy stance and improved liquidity conditions.”
Bank of Ghana
Furthermore, the report revealed that M2+ expanded by 21.3 percent in June 2021 compared with a growth of 20.3 percent, recorded in June 2020.
Additionally, in terms of contributions to growth in M2+, the NDA was recorded to have accounted for 17.8 percent while the Net Foreign Assets (NFA) accounted for 3.5 percent On annual basis.
However, the general growth in NDA decreased to 22.8 percent in June 2021, from 25.0 percent recorded in June 2020. In contrast, growth in NFA increased to 16.0 percent from 6.2 percent, over the same comparative period.
“Outstanding credit to the private sector at the end of June 2021 was GH¢42,743.45 million, compared with GH¢40,036.79 million same period last year.
“In real terms, private sector credit contracted marginally by 1.0 percent compared to a growth of 2.8 percent in June 2020, broadly reflecting the heightened credit risks associated with the Covid-19 pandemic.
“Real growth in private sector credit has been marginally above the long-run trend since May 2021.”
Bank of Ghana
In general, credit growth has remained sluggish, reflecting heightened credit risks associated with the Covid-19 pandemic. This has impacted bank’s lending to the private sector.
Furthermore, His Excellency, Nana Addo Dankwa Akufo-Addo speaking at the inauguration of the new BOG board, gave a call on the board to interrogate the issue of high interest on lending in the country, and made further recommendations on the introduction of a base cap or some arrangement that will make the banks comply.
Additionally, interest rates have generally trended downwards in line with the easing of monetary policy stance and improved liquidity conditions. And hence banks are encouraged to improve on their lending to the private sector.
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