U.S. credit rating agency, Moody’s Investors Service, says it expects non-performing loans of Ghanaian banks to potentially double next year from 2019 levels.
This, according to Moody’s in its 2021 Outlook for banks in Africa, will be the result of the impact of the coronavirus-induced economic disruption.
“We expect NPLs to continue to increase due to the coronavirus-induced economic disruption, but remain below the 21.6 percent level as of December 2017. While central bank’s support measures help moderate the negative impact on the banks and the broader economy, they are unlikely to fully counter the impact of the pandemic,” said Christos Theofilou, a Vice President and banking analyst at Moody’s.
Moody’s 2021 outlook for Ghanaian banks is a reversal of the improving trends in Ghanaian banks’ financial metrics.
“Ghanaian banks are nonetheless entering the downturn in a stronger position than a few years ago. Banks’ capital, profitability and efficiency have strengthened, and funding and liquidity concerns had been easing following a clean-up and recapitalisation of the financial sector,” Moody’s report stated.
According to data made available by the Bank of Ghana, NPLs stood at 15.3 percent of total loans in October compared with 14.3 percent in December 2019. The ratio has fallen from a 16.1 per cent peak in July this year.
Moody’s also anticipates that rising government arrears will hurt the loan repayment capacity of government contractors and sub-contractors.
Sectors most at risk of loan default thereby contributing to the increase of NPLs, Moody’s assert involve; small and midsize firms (SMEs), companies exposed to subdued commodity prices and the broader hospitality sector, and foreign-currency loans to unhedged borrowers.