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Gov’t, poor credit practices cause of high NPLs – Economists

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Some Economists have attributed the continuous rise in Non-Performing Loans (NPLs) in the banking sector to poor credit risk practices on the part of banks.

In their opinion, credit to businesses in the country will continue to be high if the banks fail to do due diligence when giving out credit.

The comments follow the latest Bank of Ghana report which shows that non-performing loans in the banking sector has increased by almost 7 percent over a 12 month period ending June, 2018.

The data from the central bank shows that NPLs in June last year was 21.2 percent, rising to its highest point of 23.4 percent in April 2018.

The figure witnessed a downward trend in the two months that followed, reducing to 22.6 percent in June 2018.

Economists blame gov’t, lack of due diligence for rising NPLs

Explaining the reasons accounting for the rising level of NPLs, Economist Adu Sarkodie suggested that the government could be blamed the most.

Government is a culprit; over the years we have seen that the non-performing loans have been growing, which means that governments have been taking money from the banks and have not been able to pay back.”

Another Economist, Dr. Lord Mensah attributed the development to lack of due diligence on the part of the commercial banks.

“If we should go into details to get to know who and where exactly the banks have been lending to, you will get to know that the banks possibly don’t use the due diligence as well as the credit risk processes in allocating loans. It can also turn out that they have been providing loans but the loans are going to familiar faces and therefore the likelihood of default is very high.”

Impact of rising NPLs on businesses

Adu Sarkodie is however predicting that the challenges facing businesses in the light of the rising levels of the non-performing loans would persist until such a time that the central bank’s measures yield full results.

“If the NPLs for banks continue to go high, you would expect them to charge a higher price which is their interest rate. This will affect businesses that go in for such loans because when you pay a higher interest rate, it will increase your cost of production which will affect the economy in general.”

Speaking on how to improve the worsening state of NPL’s in the country Dr. Lord Mensah called for innovativeness on the part of the banks.

“The banks need to think about the concentration of their loans. They need to diversify. Going forward, I would advise that they [banks] go strictly by the credit risk systems in place and go against giving loans based on those they know.”

BoG intervenes to address rising NPLs

But the governor of the Bank of Ghana, Dr. Ernest Addison assures that measures are being put in place to reduce the level of NPLs in the sector.

“We want to work hard to ensure that the loan portfolio does not show very high NPLs. Looking at the interest rate will be key in preventing the rising NPLs from getting more complicated.”

Banks’ total assets grow to 100.3 billion cedis in June 2017

Meanwhile total assets of all the banks in Ghana increased from 86.7 billion Ghana Cedis in June, 2017 to 100.3 billion Ghana Cedis in June, 2018.

This represents a growth of 15.7 percent in 12 months.

Total deposits which represent monies that people have saved with the banks also saw a growth of 13.4 percent, increasing from 54.5 billion Ghana Cedis in June, 2017 to 61.8 billion Ghana Cedis in June, 2018.

Meanwhile, total advances made by banks by June 2018, reached 38.7 billion cedis compared to 37.5 billion cedis in June 2017. This represents an annual growth rate of 3.1 percent from June 2017 to June 2018.

However return on assets before tax and return on equity after tax all witnessed marginal drops. Return on assets before tax marginally dropped from 3.7 percent in June, 2017 to 3.5 percent in June, 2018.

Return on equity after tax however decreased from 17.7 percent in June 2017 to 16.8 percent in June, 2018.

By: Bobbie Osei/citibusinessnews.com/Ghana


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