Skip to main content

Demand for credit fell by 28.2% in 2008

By Kofi Ahovi
Overall net demand for loans by enterprises declined in the fourth quarter of 2008 by 28.21% compared with 35.56% in the third quarter, Business week has gathered.

According to Bank of Ghana’s financial stability report, the changes in financing needs for property plant and equipment, inventories and working capital and debt restructuring were the key factors contributing to the decline in net loan demand.

In terms of borrower size, net loan demand from small and medium-sized enterprises moderated while large enterprises loan demand went up. Net demand was positive across the maturity spectrum, with demand for short-term loans being higher than that for long-term loans.

Households net demand for consumer credit and other lending declined from 55.49% as of October 2008 to 44.21% in the December 2008.

Net demand for loans by households for house purchase remained negative in the last quarter of 2008 (from 24.89% in the previous quarter to 24.37%). This essentially reflected in high cost of funds and expectation about economic outlook

According to the report, lenders reported a further widening in spreads on corporate lending. They expected spreads to increase further. Credit stance was tightened by raising margins both on average loans (41.77%, from 30.11% in the third quarter) and on riskier loans (53.91%, from 50.25% in the third quarter).

However, non-price terms and conditions (e.g. a shortening of the maturity of loans or credit lines, and the requirement of more loan covenants and collateral) also contributed to the considerable tightening of credit stance in the fourth quarter of 2008.

Banks reported a further net tightening of credit stance for long term loans (29.94%, up from 28.44% as of October 2008 survey) compared with continued net easing reported for short term loans (20.94% compared with 16.87% as of October 2008)

Net tightening for loans for house purchase was implemented mainly via a widening of margins on both average loans and riskier loans. However, non-price terms and conditions, especially a further tightening of security/collateral requirements, also contributed to this net tightening. Banks reported a net easing of credit stance for households for consumer.

The main factor responsible for the further net easing of credit stance was competition from other banks.

However, expectations regarding general economic activity and risk related to the current performance of banks’ 50 largest borrowers contributed to net tightening of credit to households for consumer credit and other lending.

According to the report, the possible direct links to the global financial crisis by Ghanaian banks continue to remain their exposure to counterparties in the form of nostro balances and placements with some of these banks abroad.

Deposit Money Banks (DMBs) nostro balances at the end of December 2008 was 55.46% of networth of banks, an increase above the 48.12% in 2007. Similarly, placements constituted 26.0% of networth of banks compared with 23.9% in September 2008.

These exposures are within the internationally acceptable prudential limits. Stress analysis shows that only a significant default or recall of borrowings in excess of 50% by counterparties could pose material threat to the financial system stability. However, these placements, nostro balances, and borrowings are concentrated with a few international banks and thus require close monitoring of the performance of these international banks.

As of December 2008, the total banking industry paid-up capital was GH¢445.8 million, recording an annual growth of 60.0 % up from the 32.8% recorded for the 12-month period to December 2007.

Total equity (shareholders’ funds) of the banking system amounted to GH¢1,112.75million as of December 2008, an increase of 38.1% compared with 32.8% a year earlier.

The industry’s capital adequacy ratio (CAR) as measured by the ratio of regulatory capital to risk weighted assets edged down to 13.8% as of December 2008 from 14.8% in December 2007.

However, it remains above the required minimum of 10.0% but below the industry threshold of 15.6%.

The fall in the CAR was on account of the substantial increase in risky assets over the period as the ratio of risk-weighted assets to total assets increased from 73.2% in December 2007 to 78.1% in December 2008.

Tier 1 CAR also edged down from 13.6% to 12.8% over the same period and remains below the industry threshold of 13.6%. All the banks met the required minimum capital adequacy ratio of 10%.

Comments

Popular posts from this blog

Nestlé Ghana Limited Wins Overall Best Industrial Company Of The Year at 13th AGI Industry & Quality Awards

  Nestlé Ghana Limited has been honored with four prestigious awards at the 13th Association of Ghana Industry and Quality Awards ceremony. The event, held in an esteemed setting, gathered prominent figures from Ghana’s industrial sector. Amidst the anticipation, Nestlé Ghana emerged as one of the evening’s notable winners, securing accolades in several key categories. This recognition underscores Nestlé Ghana’s relentless pursuit of excellence and innovation, marking a significant milestone that highlights the company’s substantial contributions to the manufacturing industry in Ghana. Nestlé Ghana's exceptional performance was acknowledged with the following awards: Overall Best National Quality Award, Diamond Category (Food) Overall Best Practices in Sustainable Manufacturing Best Company (Food Sector) Overall Industrial Company of the Year, affirming its status as a leader not only within the food sector but also across Ghana's entire industrial landscape. This success is a ...

Anglogold Ashanti Obuasi Mine tops 2024 Sustainability & Social Investment Awards

 AngloGold Ashanti Obuasi Mine has confirmed its status as sustainability champions by sweeping nine awards, the most won by a company at the 2024 Sustainability & Social Investment Awards (SSI) held at Movenpick Ambassador Hotel in Accra. The feat comes on the heels of a dominant performance in last year's event where AngloGold Ashanti Obuasi Mine swept seven awards. The SSI Awards organised by Ianmatsun Global Services recognizes the most outstanding sustainability, Corporate Social Responsibility (CSR), Environmental, social, and governance (ESG) initiatives in the country and beyond as well as the best teams and individuals who brought them to life. This year's event, which was the 8th edition, was under the theme "Climate Action Now: Accelerating Decarbonization and Building Resilience". The awards won by AngloGold Ashanti on the night include SSI Company of the Year, Best Company in Women Empowerment (project), SSI Company of the Year ( Environment), Best Co...

Zoomlion Advocates Community & Gender inclusive waste management for Climate Action at COP 29

 Africa's waste management giant, Zoomlion Ghana Limited has advocated for an integrated approach to waste management that considers the interest of community members, women and vulnerable groups. James Deku, a Communications Officer of Zoomlion Ghana Limited made this call at the 29th session of the Conference Of Parties (COP 29) of the United Nations Framework Convention for Climate Change (UNFCCC) at Azerbaijan, Baku whiles speaking on the topic "Community-Driven and Gender Inclusive approaches to waste management for Climate Action ". He said the waste sector is a major contributor of methane emissions which is a potent greenhouse gas causing climate change hence the need to manage waste in a manner that considers the interest of all stakeholders. Zoomlion's waste management model is designed and operated in a manner that considers the interest of all stakeholders. Through a Public Private Partnership (PPP) model, local authorities engage community members in clea...