Ghana’s Banking Sector Faces Rising NPLs hitting 24.1% in June 2024 Amid Economic Challenges
Ghana’s banking sector is grappling with a significant rise in Non-Performing Loans (NPLs) as the country continues to navigate economic headwinds, according to the latest data from the Bank of Ghana.
The NPL ratio surged to 24.1% in June 2024, a stark increase from 18.7% recorded in the same period last year. This deterioration in asset quality poses a growing concern for the sector’s stability and its ability to support economic recovery.
Despite the challenges, the banking sector has shown resilience in other areas. The capital adequacy ratio stood at 14.3% in June 2024, marginally higher than the 14.2% reported in June 2023, indicating that banks are maintaining adequate capital buffers above the regulatory minimum.
The sector’s profitability metrics remain relatively stable, with return on equity after tax at 35.3% in June 2024, down slightly from 37.6% a year earlier. The return on assets before tax held steady at 5.4%.
Total assets of the banking sector grew by 33.3% year-on-year to reach 323.1 billion Ghanaian cedis in June 2024.
Advances showed a more modest growth of 15.5% year-on-year, reaching 84.5 billion cedis. This slower growth in lending compared to deposits suggests a cautious approach by banks in the face of rising NPLs.
Liquidity indicators have improved, with the core liquid assets to total assets ratio increasing to 35.8% in June 2024 from 27.7% a year ago. This higher liquidity cushion may reflect banks’ strategy to manage risks in the current economic environment.
Industry experts NorvanReports contacted, warn that the rising NPLs could constrain credit growth and impede economic recovery if left unchecked. “The increasing NPL ratio is a significant concern. It may lead to tighter lending standards, potentially limiting access to credit for businesses and consumers.”
The Bank of Ghana faces the challenge of balancing financial stability with the need to support economic growth. As the central bank continues its efforts to combat inflation and stabilize the currency, the banking sector’s ability to weather these challenges and support the real economy will be crucial in the months ahead.
