Most bankers surveyed by the Chartered Institute of Bankers, Ghana say they can meet a 10 per cent bad-loan target by December, needing a pace three times last year’s.
The Institute’s Chief Executive, Robert Dzato, told a post-Monetary Policy Committee seminar in Accra on 29 September that 71 per cent of respondents to its September pre-MPC survey were confident or very confident of reaching the target by year-end. He said banks were stepping up loan recovery, tightening underwriting and vetting borrowers more closely. Respondents also pointed to the role of the courts in resolving loan disputes.
The arithmetic is demanding. The Bank of Ghana reported on 24 September that the industry’s non-performing loan (NPL) ratio fell to 15.7 per cent in August from 20.8 per cent a year earlier, a drop of 5.1 percentage points over 12 months. Reaching 10 per cent by December means cutting a further 5.7 points in about four months. By NewsGhana’s calculation, that is roughly 1.4 points a month, against an average of about 0.4 points a month over the past year.
Much of the recent improvement came from faster lending rather than fewer bad loans. The central bank said the fall in the ratio was supported by a strong rebound in credit growth. Private sector credit expanded 35.5 per cent in August, up from 13.3 per cent a year earlier. When total loans grow quickly, the share that has gone bad shrinks even if the bad loans themselves do not.
Dzato acknowledged the risk on the other side. He said banks were pushing credit growth, but that loans not repaid on time could create a fresh problem for the sector.
Governor Johnson Asiama, whose remarks were read by the Bank’s Director of Research, Dr Simon Harvey, urged banks to stop loans going bad in the first place. “We need to move from NPL management to NPL prevention,” he said. He called for realistic cash-flow analysis, better loan structuring, monitoring after disbursement and early warning systems. He also said borrowers must repay their loans, give accurate financial information and use the money for its stated purpose.
The Governor warned that high NPLs weaken the effect of monetary policy, because banks set aside more provisions and lend more cautiously. The average lending rate fell to 15.9 per cent in August from 24.2 per cent a year earlier, while the policy rate has been held at 14 per cent.
CIB Ghana President Dr Ellen Ohene-Afoakwa said preventing bad loans deserved even more attention than recovering them. She linked this to the need for competent, ethical and professionally qualified bankers.
The survey also found that 86 per cent of respondents expected the MPC to hold the policy rate, which it did, and 70 per cent expected inflation to rise over the next three months. Headline inflation stood at 5 per cent in August.
