The Bank of Ghana has intimated that the Banking sector has witnessed some declines in non-performing loans (NPLs) to close the year 2020.
This has ignited some feeling of optimism because amid the pandemic and its associated economic mishaps banks were able to start taking potentially bad loans off their books and move them back into the good records.
According to the Monetary Policy Committee (MPC) of the Bank of Ghana, NPL ratio increased by 1.4 percent from 14.3 percent in December 2019 to 15.7 percent in June 2020.
At the beginning of H2 2020, Non-Performing Loans shot up to 16.1 but then reduced marginally and kept fluctuating around a little over 15 percent thereafter.
The Bank of Ghana asserted that the upsurge in Non-Performing Loans can be attributed to the pandemic-induced repayment challenges.
By December 2020, NPLs declined to 14.8 percent “due to loan write-offs and increased credits, particularly during the last quarter,” the Bank of Ghana disclosed.
Even though the 14.8 percent represents a recuperation, it’s quite high by approximately 50 basis points (0.5%) compared to the 14.3 percent recorded in the same comparative period in the previous year.
In the same vein, the Non-Performing Loan figures recorded at the beginning of the year 2020, from January to March, where NPL ratio kept hovering around 13.6 percent and reaching up to 14.5 percent are equally lower, the Bank of Ghana alerted.
Commenting on the marginal increases in NPLs, the Monetary Policy committee hinted that the “Implementation of the COVID-related regulatory reliefs and policy measures helped support lending activities” with New Advances in 2020 growing by 15.8 percent to GH¢34.4 billion in 2020.
Additionally, most banks placed moratorium on loan repayments allowing borrowers to temporarily put off their monthly payments without increasing their interest or defaulting on their loans as a strategy to provide support to individuals and businesses amid the COVID-19 crises that has inflicted economic hardships affecting the livelihoods of many.
“Banks provided support and reliefs in the form of loan restructuring and loan repayment moratoria to cushion 16,694 customers severely impacted by the pandemic.
“Total outstanding loans restructured by banks as at December 2020 amounted to GH¢4.47 billion, representing some 9.4 percent of industry loan portfolio.
“Loan loss provisions grew by 28.0 percent, higher than the 23.6 percent a year ago reflecting elevated credit risks in 2020”.
The Bank of Ghana has however revealed that credit extended to the private sector moderated throughout 2020 but there are “indications of steady growth in private sector credit”.
“On an annual basis, net credit to the private sector slowed to 5.8 percent in December 2020 compared with 23.8 percent in the corresponding period in 2019. On a gross basis, credit to the private sector grew by 10.6 percent compared with 18.0 percent over the same comparative period”.
Finally, the central bank holds that despite the pandemic and fears of high credit risks coupled with rising NPLs, the banking sector is well-positioned to continue with the core objective of financial intermediation and providing support to the growth recovery process.
However, the renewed threat from the second-wave of the pandemic has again heightened uncertainty and could hamper the recovery process in the near-term.
“Banks are expected to sustain the strong performance under mild to moderate stress conditions, barring more severe consequences on the real sector from the second wave of the pandemic.
“Policy and regulatory reliefs granted to the industry will be reviewed alongside close monitoring and prompt supervisory actions will be taken to address emerging potential vulnerabilities in the financial sector arising from the pandemic”.
