By Kofi AHOVI
Most universal banks in the country continued to ease their credit stance on loans or credit lines to enterprises as at end October 2010. The Bank of Ghana Credit Conditions survey recorded 48.12% in November, compared to 50.04% as of August 2010.
Margin on average loans and the maximum size of the loans offered were the main contributing factors for the easing of credit stance for enterprises. Small and medium sized companies (SMEs) access to credit improved for the first time in 2010 due partly to reduction in margin on average loans.
This development helped to improve overall credit conditions in the last quarter of this year. The access of large enterprises and households to consumer credit also continued to improve. Expectations regarding general economic activity, competition among commercial banks and reductions in margins on average loans contributed to the net easing of credit. However the credit stance on mortgage finance continued to tighten during the period.
According to the survey, enterprises overall net loan demand increased in October compared with that of the August 2010 survey. The main driver of enterprises loan demand continued to be financing for inventories and working capital needs. Demand for credit to finance fixed assets and debt restructuring however remained unchanged. Both large enterprises and SMEs demand for credit increased during the period. Net demand for short term loans also continued to outweigh demand for long term loans which registered an increase for the first time in 2010.
Lenders’ credit stance on loans to households for house purchase remained unchanged. Cost of funds continued to be the factor that contributed to the net credit tightening for house purchase. Regarding the terms and conditions of credit, the net tightening for loans for house purchase continued to be implemented mainly through widening of margins on riskier loans and security requirement. Net demand for loans by households for house purchase was negative 2.50% as at end October 2010, the same level in the August 2010 survey.
Furthermore, the banks continued to ease conditions for credit for consumer credit. The survey recorded negative 23.15% as at the end of October 2010 compared with negative18.21% in August 2010.
The net easing of credit stance for consumer credit was implemented through reduction in margins on average loans and increase in maximum size of the loan.
The pace of credit delivery slowed down but better than second quarter of 2010 results. Gross advances at GH¢7.37billion showed an annual growth of 9.7% in September 2010 compared with 25.6% in the same period last year. Net loans and advances also showed significant reductions.
The contribution of credit to growth in total assets also declined relative to the same period in 2009. Whilst credit contributed 57.5% of the growth in total assets in September 2009, it accounted for 18.5% of the growth of total asset in September 2010.
The classification of banks’ credit portfolio by economic sectors showed that private enterprises accounted for 71.4% of gross loans and advances in September 2010, up from 68.7% recorded in September 2009.
However, the share of household loans declined to 14.1% in September 2010 from 15.9% in September 2009. Also, credit to Government, public enterprises and public institutions increased to 2.8% in September 2010 from 1.9% in September 2009.
Sectors receiving the highest share of credit, in terms of stock data were the Commerce & Finance and Services sectors which are consistent with the revision in the Gross Domestic Product (GDP) numbers where the services sector contributes the highest proportion to output. The share of credit to Commerce & Finance increased to 32.4% in September 2010, from 30.9% in September 2009, whilst that of services declined marginally to 21.1% in September 2010 from 21.3% in September 2009.
The shares of the agriculture, forestry and fishing, manufacturing, construction sectors in total credit of the banking sector recorded improvements during the review period.
Most universal banks in the country continued to ease their credit stance on loans or credit lines to enterprises as at end October 2010. The Bank of Ghana Credit Conditions survey recorded 48.12% in November, compared to 50.04% as of August 2010.
Margin on average loans and the maximum size of the loans offered were the main contributing factors for the easing of credit stance for enterprises. Small and medium sized companies (SMEs) access to credit improved for the first time in 2010 due partly to reduction in margin on average loans.
This development helped to improve overall credit conditions in the last quarter of this year. The access of large enterprises and households to consumer credit also continued to improve. Expectations regarding general economic activity, competition among commercial banks and reductions in margins on average loans contributed to the net easing of credit. However the credit stance on mortgage finance continued to tighten during the period.
According to the survey, enterprises overall net loan demand increased in October compared with that of the August 2010 survey. The main driver of enterprises loan demand continued to be financing for inventories and working capital needs. Demand for credit to finance fixed assets and debt restructuring however remained unchanged. Both large enterprises and SMEs demand for credit increased during the period. Net demand for short term loans also continued to outweigh demand for long term loans which registered an increase for the first time in 2010.
Lenders’ credit stance on loans to households for house purchase remained unchanged. Cost of funds continued to be the factor that contributed to the net credit tightening for house purchase. Regarding the terms and conditions of credit, the net tightening for loans for house purchase continued to be implemented mainly through widening of margins on riskier loans and security requirement. Net demand for loans by households for house purchase was negative 2.50% as at end October 2010, the same level in the August 2010 survey.
Furthermore, the banks continued to ease conditions for credit for consumer credit. The survey recorded negative 23.15% as at the end of October 2010 compared with negative18.21% in August 2010.
The net easing of credit stance for consumer credit was implemented through reduction in margins on average loans and increase in maximum size of the loan.
The pace of credit delivery slowed down but better than second quarter of 2010 results. Gross advances at GH¢7.37billion showed an annual growth of 9.7% in September 2010 compared with 25.6% in the same period last year. Net loans and advances also showed significant reductions.
The contribution of credit to growth in total assets also declined relative to the same period in 2009. Whilst credit contributed 57.5% of the growth in total assets in September 2009, it accounted for 18.5% of the growth of total asset in September 2010.
The classification of banks’ credit portfolio by economic sectors showed that private enterprises accounted for 71.4% of gross loans and advances in September 2010, up from 68.7% recorded in September 2009.
However, the share of household loans declined to 14.1% in September 2010 from 15.9% in September 2009. Also, credit to Government, public enterprises and public institutions increased to 2.8% in September 2010 from 1.9% in September 2009.
Sectors receiving the highest share of credit, in terms of stock data were the Commerce & Finance and Services sectors which are consistent with the revision in the Gross Domestic Product (GDP) numbers where the services sector contributes the highest proportion to output. The share of credit to Commerce & Finance increased to 32.4% in September 2010, from 30.9% in September 2009, whilst that of services declined marginally to 21.1% in September 2010 from 21.3% in September 2009.
The shares of the agriculture, forestry and fishing, manufacturing, construction sectors in total credit of the banking sector recorded improvements during the review period.
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