Ghanaian banks’ assets grow to Gh¢14.6b, small businesses can’t get credit

Overall developments in Ghana’s banking system through May 2010 is showing a strong asset growth and improvement in financial soundness, but commercial banks are tightening credit to small scale businesses, the Bank of Ghana has said.

Addressing the media last Friday when the central bank announced a new policy rate, the governor of the Bank, Kwesi Amissah-Arthur said, “The total assets of the banking industry grew by 27.1 per cent to Gh¢14.6 billion at the end of May 2010 from Gh¢11.5 billion in May 2009.”

He said the Capital Adequacy Ratio (which measures the banking system’s capacity to withstand unexpected losses) increased from 14.5 per cent in May 2009 to 19.2 per cent in May 2010.

According to Amissah-Arthur, the Non Performing Loans (NPL) which is the ratio of loan losses to gross advances declined from 20 per cent in February 2010 to 18.7 per cent in May 2010 but still higher than the recorded NPL ratio of 11 percent in May 2009.

On credits, he said the credit conditions survey conducted by the Bank of Ghana in June 2010 shows a general net tightening of credit to small and medium sized enterprises and households for mortgages.

“Loans to small and medium sized enterprises and households were however tightened through increases in margin for riskier loans and security and collateral requirements,” he said.

Large enterprises however, he said, benefited from a marginal ease in banks’ credit stance. Decreases in margins on average loans and maximum size of loan/credit lines were the main contributing factors for the easing of the credit stance for large enterprises.

Commercial banks’ credit to the private sector and public institutions over the 12-month period to May 2010 increased by Gh¢214.4 million (3.2 per cent), the lowest since May 2003.

The governor indicated that the outstanding bank credit to the private sector in May 2010 was Gh¢5,873 million (22.7 per cent of GDP). Of this amount, the services sector’s share was 23.4 per cent, manufacturing 13.9 per cent, commerce and finance 13.9 per cent and construction 9.9 per cent.

He added, that, “in real terms commercial bank credit to the private sector fell by 3.4 per cent at end-May 2010 compared with a growth of 19.1 per cent at end-May 2009.”

The central bank lowered its policy rate 150 basis points from 15 per cent to 13.5 per cent, but expectations among the business community are low over commercial banks following the trend and cutting their rates immediately.

According to the governor, the Monetary Policy Committee (MPC) of the Bank of Ghana also notes the concerns of the general public of the slow pass through of the lower policy rate to the lending rates of banks.

He revealed said that technical studies at the Bank of Ghana suggest that a near full pass through to lending rates operate with a substantial lag. The Bank, therefore, he said “is committed in working closely with the commercial banks in shortening this transmission lag.”

By Emmanuel K. Dogbevi

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