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Did you know that Ghanaian banks gave out GH¢30b in loans in 2015?

It didn’t take rocket science, or the use of any extraordinary powers for anyone with an eye on Ghana’s banking industry to predict the crisis which results started showing in the last one year with the collapse of seven commercial banks. Very likely more would follow.

The Bank of Ghana decided to bite, too late in the day and it didn’t even bite deep. The operating licenses of the banks have been revoked and in one case a new bank formed to take over their assets and liabilities, but the ripples would be felt for a very long time in loss of jobs and other businesses, particularly small indigenous businesses and suppliers to these banks.

While at it, it doesn’t appear any of the directors or promoters of the collapsed banks would be prosecuted anytime soon.

As at 2015, the banks in the country had given out about GH¢30 billion in loans! In two years, 2014 and 2015, the banks increased their loan portfolios significantly, and system loans grew to almost two times to GH¢30 billion in 2015 from GH¢17 billion at the end of 2013.

The commerce and finance, services, and electricity, water and gas sectors held about 61 per cent of total nonperforming loans (NPLs) as of October 2017.

While the banks were expanding their loan books, the economy suffered a dip, effectively deteriorating the environment in which the banks operated in 2016 as real GDP growth slowed to 3.7 per cent from an average of 7.7 per cent during 2010 to 2015.

In 2011, following oil production the economy grew to a high 14.0 per cent, but in 2016, the GDP growth rate of 3.7 per cent was the lowest in over two decades.

The growth rate attained in 2016 was a continuation of the downward trend the economy was experiencing since 2011. That decline represented a further decline from the 2015 rate of 3.9 per cent.

Then when in July 2017, the Bank of Ghana lowered the 91 day Treasury Bill (T-Bills) rates to 12.5 per cent while that of 182 days was put at 12.9 per cent, it stocked expectations that it was going to impact the interest rates on loans by lowering them, but that didn’t happen.

Consequently, the rating agency Moody’s, projected that the slowdown in loan growth will reduce interest income from loans and loan-related fee income, commission income and bank operating revenue.

“Already, interest income from loans and advances declined to 44.9 per cent of total revenue as of October 2017 from 50.4 per cent in October 2016, although it remains the largest contributor to revenue. This reduction in loan growth is occurring amid declining interest rate,” it said in a January 2018 report.

If the Bank of Ghana report on the collapsed banks is anything to go by, then it is now known who exactly accounted for the large loan portfolios of the banks and why there is as much as 61 per cent of NPLs.

The crises are not over yet. Their impact on the wider economy is yet to be fully felt. Brace yourselves.

By Emmanuel K. Dogbevi
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