Private sector credit yet to rebound to pre-pandemic levels
Private sector credit growth according to the Bank of Ghana (BoG) is yet to fully recover to pre-pandemic levels.
Speaking at the 102nd Monetary Policy Committee (MPC) press briefing on Monday, September 27, Governor of the Central Bank, Dr Ernest Addison stated the slow recovery of private sector credit growth from the pandemic is due to lingering supply-side risk aversion from the shock of the pandemic as well as slower-than-expected growth in demand for loans by businesses.
Annual nominal growth in private sector credit, the Governor noted, slowed to 9.5 percent in August 2021 compared with 14.3 percent, in the corresponding period of 2020. Similarly, real private sector credit contracted marginally by 0.1 percent compared to a growth of 3.4 percent, recorded over the same comparative period.
Also contributing to the private sector’s credit slow recovery from the pandemic is the crowding out of the private sector by government as government tends to borrow more from commercial banks and the banks in turn prefer to lend to government given that loans made to the state are risk-free.
According to the Governor, investments in government’s securities by banks increased to Ghs 80.3 billion by the end of August this year.
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“The banking sector remained strong and well-capitalised, with stronger growth in total assets, investments and deposits. Total assets increased by 16.7 percent to GH¢166.4 billion as at end-August 2021, driven mainly by a 28.0 percent year-on-year growth in investments to GH¢80.3 billion. Growth in gross advances rose by 8.7 percent as at August 2021 from the end-June position of 5.7 percent Strong liquidity flows during the period resulted in a 21.8 percent annual growth in total deposits to GH¢111.6 billion,” said Dr Addison.
Speaking further at the press briefing, the Governor noted that the Bank has put in place several measures to help minimize risks associated with lending to private sector by banks and expects banks to use them to boost credit to the sector.
“The BoG has put in place the needed infrastructure to minimize risks associated with lending to the private sector and we expect that banks will take advantage of the infrastructure that is available. So like the collateral registry, the credit bureaus among others are there to help banks better assess the risks associated with the lending to private sector,” said the Governor.
“We will continue to urge banks to pay more attention to the private sector and lend to them because really if we want the private sector to be the engine of economic growth then this is where the resources should go,” he added.
