November 24, 2020

NPLs should drop to single digits in 2021 and beyond – Banking consultant

Banking consultant Nana Otuo Acheampong has expressed confidence in seeing the percentage of non-performing loans in Ghana’s banking sector, drop to single digits beyond 2020.

His comment follows the announcement by credit rating agency, Fitch Ratings that, despite non-performing loans falling to 14 percent in 2019, from 22 percent two years prior, they will remain high as private-sector credit growth slows in 2020.

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As at the end of August 2020 non-performing loans in Ghana as a percentage of total loans, had increased to 15.5 percent after it began the year at 13.6 percent.

Speaking to Citi Business on the asset quality of banks post-2020, Nana Otuo Acheampong however identified the falling interest rates in the country as well as the resilient economy in the face of the COVID-19 pandemic, as key factors that will lead to a substantial reduction in non-performing loans in the medium to long-term.

“My expectation is that, with the private sector credit growth going up, businesses will be able to generate more income. And if any of them were in the NPL category, they should be able to clear some of these backlogs. And then with the new directive from Bank of Ghana, the regulator, it also means that chances of NPLs running up will be reduced because, for instance, there was the issue of poor corporate governance that led to this NPLs somehow occurring.”

“Beyond 2020, my expectation is that, NPLs will fall into single digits, and below 14.5. Because concomitant with the NPLs is the issue of interest rate and as we speak lending rate has also fallen from the highs of the 30s and 40s now into the 20s. Hopefully, if the economy continues to perform better than expected as was confirmed by the President, then you can see that interest rates will also move in the opposite direction and move southwards whereby it won’t be too long before you see single-digit interest rates in Ghana alongside the NPLs all moving into single digits,” he added.

Bank of Ghana maintains policy rate for 3rd consecutive time at 14.5%

The Monetary Policy Committee of the Bank of Ghana maintained the policy rate at 14.5 percent after a similar decision in May and July of this year.

This makes it the third consecutive time the policy rate has been maintained in 2020.

The rate is of keen interest to businesses, as it signals the rate at which the Central Bank will lend to commercial banks, and will subsequently influence average lending rates on loans to individuals and businesses.

In March this year, the seven member Monetary Policy Committee which meets bi-monthly over a three to four-day period to assess current economic conditions and the country’s inflation outlook, reduced the policy rate by 150 basis points from 16 percent to 14.5 percent.

The figure has since been maintained in May, July and September 2020.

Speaking at the 96th MPC Press Conference, Dr. Ernest Addison, the Governor of the Central Bank of Ghana, said the decision to maintain the policy rate for the 3rd consecutive time at 14.5 percent, was necessitated by the fact that following a period of uncertainty, drivers of our economic growth, like our export receipts, financial sector performance, currency and international reserves, are returning to normal, and also because Monetary and Fiscal policies have been supportive enough to ensure the economy remains strong to withstand any shocks in the short to medium term.

Source: Business