By Kofi Ahovi Universal banks in the country have tightened credit to small and medium enterprises as well as for household mortgages; a Credit Conditions Survey conducted by the Bank of Ghana has shown.
The survey conducted in June this year indicates that loans to small and medium sized enterprises and households were tightened through increases in margins for riskier loans and security and collateral requirements.
Large enterprises however benefited from a marginal easing in banks’ credit stance. Decreases in margins on average loans and maximum size of credit lines were the main contributing factors for the easing of the credit stance for large enterprises.
Commercial banks credit to the private sector and public institutions over the 12-month period to May 2010 increased by GH¢214.4 million representing a 3.2% increase, the lowest one year growth in bank credit since May 2003.
Outstanding bank credit to the private sector in May 2010 was GH¢5,873 million or equivalent to 22.7% of GDP. Of this amount, the services sector’s share was 23.4%, manufacturing 13.9%, commerce and finance 13.9% and construction 9.9%.
Actually, in real terms commercial bank credit to the private sector fell by 3.4% over the 12 month period end-May 2010 compared with a growth of 19.1% to end-May 2009.
Overall developments in the banking system through May 2010 show strong asset growth and improvement in financial soundness indicators. The total assets of the banking industry grew by 27.1% to GH¢14.6 billion at the end of May 2010 from GH¢11.5 billion in May 2009.
Banks reluctance to lend reflects in the fact that their total assets are growing faster than their loan portfolios.
Banks now have good reason to increase lending due to falling benchmark interest rates. Treasury rate instruments have fallen from 22.6% and 25.3% to 12.9% and 13.4% for the 91-day and 182-day Treasury bill rates respectively during the first half of the year. Also, the rates on the 1-year note and the 2-year fixed rate note fell from 20% and 23.5% to 13.8% and 13.9% respectively over the same period.
The 3-year fixed rate which was 19% in January 2010, declined to 15.7% in June 2010. Over the same period, the interbank overnight rate fell from 16.3% to 13.2%.
Furthermore, their average Non Performing Loans (NPL) which is the ratio of loan losses to gross advances declined from 20% in February 2010 to 18.7% in May 2010 but this is still higher than the recorded NPL ratio of 11% in May 2009.
The Capital Adequacy Ratio, which measures the banking system’s capacity to withstand unexpected losses, increased from 14.5% in May 2009 to 19.2% in May 2010 boosted largely by the recapitalization of virtually all the banks in line with the BoG’s new minimum capital requirements.
The survey conducted in June this year indicates that loans to small and medium sized enterprises and households were tightened through increases in margins for riskier loans and security and collateral requirements.
Large enterprises however benefited from a marginal easing in banks’ credit stance. Decreases in margins on average loans and maximum size of credit lines were the main contributing factors for the easing of the credit stance for large enterprises.
Commercial banks credit to the private sector and public institutions over the 12-month period to May 2010 increased by GH¢214.4 million representing a 3.2% increase, the lowest one year growth in bank credit since May 2003.
Outstanding bank credit to the private sector in May 2010 was GH¢5,873 million or equivalent to 22.7% of GDP. Of this amount, the services sector’s share was 23.4%, manufacturing 13.9%, commerce and finance 13.9% and construction 9.9%.
Actually, in real terms commercial bank credit to the private sector fell by 3.4% over the 12 month period end-May 2010 compared with a growth of 19.1% to end-May 2009.
Overall developments in the banking system through May 2010 show strong asset growth and improvement in financial soundness indicators. The total assets of the banking industry grew by 27.1% to GH¢14.6 billion at the end of May 2010 from GH¢11.5 billion in May 2009.
Banks reluctance to lend reflects in the fact that their total assets are growing faster than their loan portfolios.
Banks now have good reason to increase lending due to falling benchmark interest rates. Treasury rate instruments have fallen from 22.6% and 25.3% to 12.9% and 13.4% for the 91-day and 182-day Treasury bill rates respectively during the first half of the year. Also, the rates on the 1-year note and the 2-year fixed rate note fell from 20% and 23.5% to 13.8% and 13.9% respectively over the same period.
The 3-year fixed rate which was 19% in January 2010, declined to 15.7% in June 2010. Over the same period, the interbank overnight rate fell from 16.3% to 13.2%.
Furthermore, their average Non Performing Loans (NPL) which is the ratio of loan losses to gross advances declined from 20% in February 2010 to 18.7% in May 2010 but this is still higher than the recorded NPL ratio of 11% in May 2009.
The Capital Adequacy Ratio, which measures the banking system’s capacity to withstand unexpected losses, increased from 14.5% in May 2009 to 19.2% in May 2010 boosted largely by the recapitalization of virtually all the banks in line with the BoG’s new minimum capital requirements.
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