Credit to the private sector through loans and advances by banks declined by 11 percentage points year-on-year from April 2020 to April 2021.
Per data contained in the Bank of Ghana’s April 2021 Quarterly Statistical Bulletin, measured credit to the private sector in April last year was 17.94 percent.
This however, declined to 6.91 percent in April this year.
The decline in credit to the private sector can be attributed to the adverse impact of the Covid pandemic on businesses, resulting in loan repayment challenges for businesses.
It can also be attributed to the decision of banks in the country to restrict credit to the private sector due to the elevated risks posed by businesses amid the pandemic.
According to the Central Bank’s March 2021 Banking Sector Development Report, the slowdown in credit growth was further supported by reduced credit demand by businesses and households possibly for fear of defaulting.
With a slowdown in credit demand by the private sector and reduction in lending to risky business in the country, banks resorted to shoring up their holdings of government securities which presents less risks to credit, thereby increasing significantly their assets.
The BoG notes that, total assets value of banks over the course of 2020 and in the first two months of 2021 surged to Ghs 152 billion.
The recorded total assets value the BoG notes in its Banking Sector Development Report, represents a 18.5 percent year-on-year growth which is marginally higher than the annual growth of 17.8 percent as at end-February 2020.
According to the Central Bank, the witnessed higher growth in total assets for end-February 2021, reflects similar stronger growth in domestic and foreign assets of 19.1 percent and 11.1 percent when compared to the respective rates of 18.7 percent and 8.2 percent at end-February 2020.
“Investments shot up by 45.9 percent to GH¢67.9 billion, compared to the growth of 7.2 percent in the prior year. Accordingly, the share of investments in total assets scaled up further from 36.3 percent to 44.7 percent over the review period,” stated BoG.
In a related development, Asset Management Company (AMC), Tesah Capital, in its assessment of the banking sector has stated that private sector credit remains the largest share of banks’ loan portfolio.
According to Tesah Capital, credit to the private sector as against credit to government, despite the pandemic increased in 2020.
Credit to the private sector, the AMC notes formed 91.1 percent of banks’ loan portfolio with the 8.9 percent forming the remaining credit to government.
“Private sector credit still constitutes the larger proportion of credit in the banking sector. Its share increased to 91.1% in 2020 from 87.1% in 2019, while the share of public sector decreased to 8.9% from 12.6% over the same period,” asserted Tesah Capital.
