Banks invest more in gov’t securities despite growing calls for increased credit to the private sector
Banks in the country according to the Bank of Ghana (BoG) are increasing investments in government securities by channeling more funds into buying government short term dated debt instruments.
The increment in banks’ holdings of government securities is despite calls for increased credit to the private sector to help speed up the sector’s recovery from the Covid-19 pandemic.
Governor of the BoG, Dr Ernest Addison speaking at the 102nd Monetary Policy Committee (MPC) press briefing on Monday, September 27, 2021, noted banks in the country had increased their investments in government securities to some Ghs 80.3 billion representing a year-on-year increase of 28 percentage points.
“The banking sector remained strong and well-capitalised, with stronger growth in total assets, investments and deposits. Total assets increased by 16.7 percent to GH¢166.4 billion as at end-August 2021, driven mainly by a 28.0 percent year-on-year growth in investments to GH¢80.3 billion,” stated the Governor.
Despite the growth in investment in government securities by banks, credit to the private sector by banks continue to slow down.
According to BoG, “annual nominal growth in private sector credit, the Governor noted, slowed to 9.5 percent in August 2021 compared with 14.3 percent, in the corresponding period of 2020. Similarly, real private sector credit contracted marginally by 0.1 percent compared to a growth of 3.4 percent, recorded over the same comparative period.”
Private sector credit growth, the BoG further noted is yet to fully recover to pre-pandemic levels as a result of the lingering supply-side risk aversion from the shock of the pandemic.
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But also contributing to the private sector’s credit slow recovery from the pandemic is the crowding out of the private sector by government as government tends to borrow more from commercial banks and the banks in turn prefer to lend to government given that loans made to the state are risk-free.
Speaking further at the press briefing, the Governor noted that the Bank has put in place several measures to help minimize risks associated with lending to private sector by banks and expects banks to use them to boost credit to the sector.
“The BoG has put in place the needed infrastructure to minimize risks associated with lending to the private sector and we expect that banks will take advantage of the infrastructure that is available. So like the collateral registry, the credit bureaus among others are there to help banks better assess the risks associated with the lending to private sector,” said the Governor.
We will continue to urge banks to pay more attention to the private sector and lend to them because really if we want the private sector to be the engine of economic growth then this is where the resources should go,” he added.
