Ghana Growth Targets at Risk as Banks Pull Brakes on Lending

ACCRA (Capital Markets in Africa) – A reluctance by banks in Ghana to lend is threatening to stall one of Africa’s fastest expanding economies.

With almost a quarter of all outstanding loans in the country at risk of not being repaid, credit granted to the private sector is increasing at nearly the slowest pace in four years. At stake is the 6.8 percent growth that the government is hoping to achieve to boost revenue and narrow its budget deficit.

Gross domestic product in West Africa’s second-largest economy experienced its quickest expansion in five years in 2017 as oil and gas production surged and following a peaceful transition in government which saw President Nana Akufo-Addo take power. While inflation has almost halved to 10 percent last month, allowing the central bank room to cut its benchmark rate to a four-year low, companies are yet to reap the benefit from these moves as they struggle to repay older loans and access new credit.

Banks “said they are playing it safe because of a loans-defaulting trend,” Edem Harrison, an economist at Accra-based Frontline Capital Advisors, said by phone. “It looks most certain that the GDP growth target will be missed this year.”

Non-performing loans increased almost 21 percent to a record 8.63 billion cedis ($1.8 billion) in April compared with a year earlier, the central bank said on Tuesday.

The Bank of Ghana has since last year tripled minimum capital requirements for lenders, liquidated two banks for failing to adhere to capital-adequacy requirements and placed UniBank Ltd. under administration. Because of these measures, lenders are extra careful not to give loans that will later sour, Calleb Osei, chief financial officer at Access Bank Ghana Ltd., said by phone.

“Loan requests are coming through but because of the non-performing loans situation, banks are taking time to ensure that capital due diligence and capital reviews are carried out before investment, which are creating delays,” he said.

The government’s indebtedness to companies in the construction and energy industries is one of the drivers of NPLs by these businesses, according to Benjamin Dzoboku, general manager for finance and strategy at Republic Bank Ghana Limited.

Oil Booms
The central bank said in May that growth in its composite index of economic activity has slowed to 2.3 percent in the three months through March, from 4.5 percent in the same period a year earlier.

Ghana’s growth booms and busts have been closely linked to crude prices since it became a producer in 2010, even though oil directly accounts for less than 10 percent of GDP. Services, which include trade, real estate and financial and insurance activities, make up more than two thirds of the economy.

“The private sector, which is the engine of economic growth, cannot thrive without a sustainable means of financing,” Courage Martey, an economist at Accra based Databank Group, said.

Source: Bloomberg Business News