Ghana’s banking industry, a year after the reforms

Asset Quality

The industry’s asset quality broadly improved during the period under review due to the implementation of loan write-offs and intensified recoveries. The stock of the industry’s Non-Performing Loans (NPLs) edged up marginally to GH¢¢7.19 billion in October 2019 from GH¢7.14 billion a year ago. The marginal increase in the stock of NPLs in October 2019 vis-à-vis the higher growth in total loans contributed to the lower NPL ratio of 17.3 percent from 20.1 percent for the same comparative period last year.

The industry’s NPL ratio adjusted for the fully provisioned loss loan category improved to 8.1 percent in October 2019 from 11.4 percent in October 2018. This points to the fact that the industry’s stock of NPLs could be reduced further with implementation of the loan write-off policy, intensified loan recoveries, and stronger credit risk management practices.

The private sector’s share of the banking industry’s NPLs increased to 97.7 percent in October 2019 from 95.5 percent in October 2018, while the share of NPLs contributed by the public sector declined to 2.3 percent from 4.5 percent over the same period. This shows that the pick-up in the banking sector’s loans to the public sector has not been associated with deterioration in the quality of loans to that sector.

The breakdown of the industry’s NPLs by economic sectors revealed broad improvement in the NPL ratios across most of the sectors with the exception of mining and quarrying. The distribution further showed that the electricity, water and gas sector had the highest NPL ratio (impaired loans to the sector/total loans to the sector) of 32.1 percent as at October 2019, an improvement over the 44.4 percent a year ago, while the agriculture, fishing and forestry sector had an NPL ratio of 27.6 percent, also an improvement over the 32.4 percent recorded during the same comparative period.

The largest recipient of the industry’s credit, the services sector, recorded an NPL ratio of 12.9 percent in October 2019 compared with 14.1 percent in the prior year. Broadly, these trends show improvement in the industry’s asset quality.

A review of the contribution of the various sectors to the industry’s NPLs showed that the top three industry credit recipients constituted the top three contributors to the industry’s NPLs with commerce and finance sector leading with 24.2 percent, followed by the services sector with 16.9 percent and manufacturing sector with 15.1 percent. These top three industry recipients jointly accounted for 56.2 percent of the industry’s NPLs as at October 2019 while the lowest three recipients of credit (mining & quarrying, agriculture, forestry & fishing, transport, storage & communication) accounted for 16.2 percent during the same review period 31.9 64.4 66.3 64.4

Financial Soundness Indicators

The financial soundness of the banking industry was enhanced during the period, evidenced by the improved key financial soundness indicators.

Liquidity Indicators

The industry continued to maintain adequate liquidity though some moderations were recorded in the main operational liquidity indicators. The industry’s ratio of core liquid assets (mainly cash and due from banks) to total deposits declined slightly from 37.4 percent in October 2018 to 35.7 percent in October 2019 due to the increase in the industry’s total deposits which were channelled into new advances other than cash and due from banks or short term investments. Similarly, the ratio of broad liquid assets to total deposits also declined marginally from 100.4 percent to 95.3 percent during the same comparative period.

The expansion in banks’ total assets in favour of net advances in October 2019 was associated with a marginal decline in the ratio of core liquid assets to total assets to 23.3 percent from 23.7 percent, similar to the decline in the ratio of broad liquid assets to total assets to 62.1 percent from 63.6 percent during the review period. The marginal declines notwithstanding, the liquidity indicators remain adequate.

Capital Adequacy Ratio (CAR)

The banking industry remained resilient and robust evidenced by its improved solvency even under the more stringent Basel II/III framework. The industry’s Capital Adequacy Ratio (CAR) under the Capital Risk Directive

(CRD) of the Basel II/III framework has remained well above the 13 percent buffer level since its introduction in January 2019 and was at 18.9 percent in October 2019 pointing to the industry’s improved ability to withstand losses following the reforms and the recapitalization.


Banks reported net tightening in the overall credit stance on loans to enterprises credit conditions survey conducted by the Bank in the October 2019. This followed a net tightening in the credit stance on loans to large enterprises, short-term and long-term enterprise loans. There was however a net ease in banks’ credit stance on loans to Small and Medium Enterprises (SMEs). Banks projected further tightening in the overall credit stance on loans to enterprises between November 2019 and December 2019 on the back of net tightening in the credit stance on large enterprise loans as well as SME loans.

Banks maintained credit stance easing on loans to households during the October 2019 survey round, with a net ease in the credit stance on loans for house purchases and consumer credit following relative tighter stance during the previous two survey rounds. Banks’ stance on loans to households is expected to ease further over the next two months to December 2019, supported by a net ease in loans for house purchases or mortgages.

Results of the October 2019 survey round indicated a decline in overall demand for loans by both corporates and households between August and October 2019. The decline in demand in both sections of the credit market was driven by declines in the various components of enterprise and household loans. Banks however anticipated a pickup in demand for loans by corporates and households in anticipation of increased business activities during the year end.

Bank’s inflation expectations remained well anchored depicted by the October 2019 survey results. The survey indicated a 100 basis points decline in the six-month inflation expectations index to 9.2 percent during the October 2019 survey from 10.2 percent in August 2019. Banks’ expectations for lending rates, six-months from the reporting date also declined to 21.6 percent in October 2019.from 22.7 percent in August 2019. The decline in NPL ratio over the previous two monthspartly accounted for the downward revision in banks’ lending rate expectations.


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