Banks Warned Not To Cut Lending Due To High NPLs

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Commercial Banks in the country are being urged not to cut or reduce lending to the public and businesses due to the rising Non-Performing Loans (NPL) which has hit Ghana’s banking sector.

This is a suggestion from the Chief Executive Officer of Advans Ghana Savings and Loans Limited, Brieuc Cardon.

In an interview with Citi Business News, Brieuc Cardon said banks cannot mobilize funds and not use them to raise more funds.

“I believe what financial institutions should do is to study their clients and assist the repayment capacity, access the strengths of the business model before granting the loans. The decision of many financial institutions is to stop granting loans in these difficult times but I believe this is not the best as it is still possible to grant loans to support the economy and support businesses.”

He argues that, even though the country’s economy may be facing some challenges, it’s time for managers of banks and financial institutions to be innovate to reduce NPL’s while remaining competitive.

“This can be done by taking more time to understand the business of the client and measure the repayment capacity by analyzing the cashflow of the business” he stated.

Brieuc Cardon told Citi Business News that proper assessment is so important to ensure that the client is not given a loan which is over and above their repayment capacity.

Profits of banks in the country are expected to continue to decline following moves by majority them to cut back on loans to customers.

The regulator of Ghana’s banking industry, the Bank of Ghana, has warned banks in the country against cutting back credit to their customers over non performing loans.

Statistics from the central bank has shown that majority of banks in the first quarter of 2016 begun cutting back credit to customers following a significant increase in Non–performing loans (NPLs).

As at March 2016, the sector comprised 29 banks, of which fourteen were domestically controlled.

The banks managed 1,173 branches and 912 Automated Teller Machines (ATMs) distributed across the ten regions of the country.

Non–performing loans on the books of banks in the country however increased by 59.9 percent from GH¢ 3.1 billion in March 2015 to GH¢ 4.9 billion in March 2016.

Though the Bank of Ghana has admitted the growing spate of non-performing loans on the books of banks is the key risk facing the banking sector, the
overall performance of the banking sector in the first quarter of 2016 remained strong.

According to the central bank’s latest financial stability (May 2016) report, credit to the private sector contributed 94 percent of the total banking sector’s non-performing loans as at March 2016, slightly down from 96.8 percent in March 2015.

Even though private enterprises received only 69.9 percent of the private sector credit, they accounted for 86.9 percent of NPLs as at March 2016.

The proportion of banks’ NPLs attributable to the public sector increased from 3.2 percent in March 2015 to 6.0 percent in March 2016.

The highly disproportionate level of NPLs associated with the private enterprises was driven mainly by indigenous enterprises, which received 60.9 percent of credit to private enterprises but accounted for 77.8 percent of NPLs as at March 2016.

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