Managing Director for Bank of Africa, Kobby Andah, has opined that the 5 per cent financial sector levy is likely to force banks to lend more to government rather than the private sector.
According to Mr Andah, due to the good returns on loans to governments, banks might be forced to make more loans to government and increase holdings of government securities in order to withstand the newly introduced levy on gross profits of banks.
Speaking at the 2021 Budget Statement virtual seminar held by the Ghana National Chamber of Commerce and Industry (GNCCI) on the theme; Prospects for Recovery, Resilience and Competitiveness for Private Sector Growth, Mr Andah posited that banks’ lending to the private sector prior to the Covid-19 pandemic had been on a decline and that the new levy is going to further enhance that.
Adding the alternative of banks lending to government at the expense of the private sector will be further enlarged.
“In the last 3 years lending to the private sector has been on the decline even before Covid, in 2014 banks were lending about 14% of total assets to the private sector. But as at December 2020, it had dropped to about 11%,” he stated.
“We have always had the alternative to lend to government and crowd out private sector lending but now the alternative is being made larger since banks will opt to lend to government at good rates seeing that government has to finance it’s fiscal deficit gap,” he added.
“We hear from the budget that the deficit will be financed with some Ghs 25 billion from domestic sources, and by a rough estimate this would push bank assets to government securities from 43% to 45% of banks’ balance sheet. So what this means is that we are crowding out the private sector and lending to government at the expense of the productive sector,” he emphasized.
