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%.
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%.
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