Banks reduce bad debt by 79.2% but asset quality risks still linger
In a pivotal turn of events, Ghanaian banks have witnessed a remarkable 79.2% reduction in bad debt, marking a noteworthy improvement over the preceding year’s staggering figures. According to data released by the Bank of Ghana, a total of GH¢4.33 billion was written off as bad debt in 2023, down from an alarming GH¢20.8 billion in 2022.
This substantial reduction, attributed to lower impairments on financial assets, reflects a concerted effort by banks to bolster their financial resilience amidst persisting macroeconomic headwinds. Notably, provisions and impairments contracted sharply by 79.2% in December 2023, underscoring a strategic shift in risk management practices within the banking sector.
However, despite these promising strides, the specter of asset quality risks continues to loom large over Ghana’s banking landscape. Elevated non-performing loan (NPL) ratios, soaring to 20.7% in December 2023 from 16.6% a year prior, paint a sobering picture of lingering economic challenges. The NPL stock itself surged by 37.4% to GH¢15.8 billion, underscoring the resilience required to navigate turbulent financial waters.
Moreover, amidst moderated credit growth in 2023, banks grappled with a climate of risk aversion and diminished credit demand. With growth in gross loans and advances tapering to 10.9% by December 2023, from a robust 29.1% the previous year, and net loans and advances experiencing a similar downturn to 9.4%, from 26.8%, banks are recalibrating their lending strategies in response to evolving market dynamics.
As Ghanaian banks endeavor to strike a delicate balance between mitigating risk and fostering sustainable growth, the road ahead remains fraught with challenges. Yet, with prudent risk management and a steadfast commitment to financial stability, the banking sector stands poised to weather the storm and emerge stronger in the face of adversity.
