CORONANOMICS : Banks will remain cautious despite NPLs’ decline – Dr. Atuahene

Even though figures published by the Bank of Ghana have showed a significant decline in Non-Performing Loans (NPLs) for the past one year, banking consultant Dr. Richmond Atuahene says banks will remain cautious in their lending, especially in this period of coronavirus pandemic.

The Summary of Economic Data (March 2020) shows that NPLs have declined to 13.6 percent in January 2020 from 18.4 percent the same period last year – signalling that banks are now able to recover most of their loans given out. Also, the same data indicate that total advances (credit) has grown by 25.6 percent in January this year compared with 10.4 percent last year.

However, in an interview with the B&FT, Dr. Atuahene said even though the data show banks have adequate cash to lend, they will remain cautious in advancing loans to businesses in the import and export trade; especially because of the coronavirus pandemic that has ground such businesses to a halt.

“Now importers cannot bring in goods because of border-closures and shut-down of businesses. So, if your business is import related it will be difficult for banks to give you loan, because they will need to tread cautiously.

“They will have to look at industries they can support which have the ability to pay back. They wouldn’t want to expand the credit book and see those debts in their books as non-performing loans in a year’s time. For the customers they have worked with for some time now and have confidence in their businesses, they will expand credit to them; but it won’t cut across all their customers,” he said.

Meanwhile, the central bank has introduced a raft of measures to ensure banks are adequately liquid to help what it calls ‘critical sectors’ of the economy. These measures include a reduction of the Primary Reserve Requirement from 10 percent to 8 percent to provide more liquidity to banks and SDIs; and reduction of the Capital Conservation Buffer (CCB) for banks from 3 percent to 1.5 percent.

Others include reduction of provisions for loans in the ‘Other Loans Especially Mentioned’ (OLEM) category from 10 percent to 5 percent for all banks and SDIs, as a policy response to loans that may experience difficulty in repayments due to the slowdown in economic activity; and Loan repayments that are past due for Microfinance Institutions for up to 30 days shall be considered as ‘Current’, as is the case for all other SDIs.

It has also halted banks from declaring and paying dividends or making other distributions to shareholders for the 2019 financial year – unless the Bank of Ghana is satisfied that the institution meets the regular prudential requirements and is not relying on the additional liquidity released by the policy measures enumerated above to pay shareholders.

Again, the directive says banks and SDIs are to desist from utilising the released liquidity, based on the above policy interventions, to purchase government of Ghana and Bank of Ghana Securities.


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