Second Deputy Governor of the Central Bank, Elsie Awadzi Addo, has attributed the non-performing loan portfolios of banks to poorly run businesses – businesses with poor corporate governance structure – in the country.
Making the assertion as the Guest of Honour during the virtual media launch of the 4th Institute of Directors-Ghana (IoD-Gh) Corporate Excellence Awards, the Second Deputy Governor averred poorly run businesses have become the bane of the banking sector.
Further asserting bad loans incurred by banks are threatening the viability of the entire banking system.
“Poorly run businesses have become the bane of the banking sector’s non performing loans portfolio which threaten the viability of the entire banking sector,” she noted.
According to her, due to the growing NPLs, banks are forced to tighten their credit stance as a result of the perceived risks that there is in lending to the private sector.
“This then feeds back into stagnated economic growth when banks are made to then tighten their credit stance as a result of the perceived risks that there is in lending to the private sector,” she stated.
A similar view on businesses being the root cause of NPLs of banks was shared by the substantive Governor, Dr Ernest Addison at the press briefing of the 100th MPC meeting in May this year.
Non-Performing Loans (NPLs) at end-February 2021, amounted to Ghs 7.3 billion translating into some 15.3 percentage points of total loans in the banking sector.
The end-February 2021 NPL ratio of 15.3 percent, according to the Central Bank was marginally higher than the 2020 year-end NPL ratio of 14.8 percent and the previous years’ NPL ratio of 13.8 percent.
Similarly the adjusted NPL ratio, which excludes the fully provisioned loss category loans, increased from 5.2 percent and 6.5 percent in February and December 2020
respectively, to 6.6 percent at end-February 2021.
Credit risks posed by businesses in the country have seen banks reduce credit to the private sector and also divert funds into the purchases of short-term government securities which are perceived to be less risky.
The IoD-Gh Corporate Governance Excellence Awards scheme to be held in November this year, seeks to recognise and celebrate achievements of individuals and organisations who have demonstrated and represented sound corporate governance and made significant contributions to the socioeconomic development of the country.
