Ghana’s banks still not clear as non-performing loans decline
Moody’s welcomed a decline in non-performing loans (NPLs) at Ghana’s banks this month as a credit positive for the banking system.
Non-performing loans (NPLs) declined to 13.9% in December, down from 17.3% in October.
The central bank says the improvement was due to increased credit collections, write-offs, and higher credit growth. But the legacy of bad loans, which peaked at 23.5% in April 2018, is still a drag on the banking system and the economy.
“Banks are still trying to cope with the new capital requirements and trying to find new ways to improve their balance sheets,” said Kojo Dougan, digital corporate and transactional business lead at BlueSPACE Africa Technologies in Accra.
It stays significant NPLs from previous years the A “Huge hole”, he says.
- “The restructuring is not yet fully developed.”
- “A lot of banks spent time in debt collection mode,” so fewer loans were made, which means fewer bad loans, Dougan says.
- Some government contractors still owe banks from 2016 or earlier, he says. “
- Anyone who has already used property, plant and equipment as collateral for previous loans is faced with a challenge. There are only a few securities to be provided. “
Ghana’s banks recapitalized after introducing higher capital Requirements in 2017 while seven bankrupt banks closed.
The decline in bad loans is positive for the banking system and means lenders can focus on lending to the economy, Moody’s says. The rating service assumes that loan growth will remain high near current levels over the next 12 to 18 months.
Attempts to bring executives from banks that have been closed to court speak to the ongoing NPL issue, Dougan says.
- Mike Nyinaku, CEO of the failed Beige Bank, is facing criminal prosecution in a trial adjourned to March 5.
- The former managing director of the late UT Bank, Prince Kofi Amoabeng, is also charged.
- Treasury Secretary Ken Ofori-Atta has hinted at this Customers of dead banks get their deposits back by the end of 2020.
Lending will eventually recover, but it’s not yet clear when, Dougan says. The new capital requirements are groundbreaking in that they will oblige banks to find investors to meet the requirements, Dougan says. “So banks will be more pragmatic and prudent when it comes to lending,” as investor money will have to generate a return.
According to Tellimer, a slowdown in economic growth and inflation in January increased electricity tariffs and transport costs, “Could create short-term pressures on aggregate demand and limit prospects for credit growth.”
- Weaker growth could also limit the improvement in asset quality at banks, according to the study.
- Dougan believes the economy is likely to slow before the December elections.
- If the current government is re-elected, economic activity will almost recover from January 2021. However, a change of government would mean the acceleration would be delayed into the second or third quarter of 2021, he says.
Bottom line: The pre-election period of uncertainty will slow credit growth, leaving plenty of time for bad news about hidden bad loans.
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