Risks to asset quality of banks, the Central Bank notes remain elevated due to loan repayment challenges faced by businesses and households necessitating loan restructuring reliefs by the various banks in the country.
According to the Central Bank’s March 2021 Banking Sector Development Report, the elevated risks to asset quality is due to heightened credit risks brought about by the Covid-19 pandemic as well as higher loan loss provisions for customers whose businesses and cash-flows have been adversely impacted by the pandemic.
Despite having waned in the second half of 2020, the BoG notes that pandemic-induced loan repayment challenges and slowdown in credit growth continue to negatively impact the quality of assets within the banking sector.
But latest credit conditions survey conducted by the BoG, indicates that credit growth is expected to pick up on the back of anticipated increases in credit demand and continuous ease in credit stance in the next two months.
With respect to asset quality deterioration, marginal deterioration in asset quality the BoG notes was recorded during the first two months of 2021.
NPL ratio at end-February 2021 stood at 15.3 percent, marginally higher than the 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.
The increase in the NPL ratio over the one year period, the report notes, reflects an actual increase in the stock of NPLs (deterioration in loan quality) by 15.1 percent to GH¢7.3 billion at end-February 2021, as well as the lower credit growth recorded this year relative to last year.
According to the BoG in its report, the banking sector’s performance during the first two months of 2021 remained broadly liquid, profitable, well-capitalized, and resilient on the back of the strong policy support and regulatory reliefs implemented to moderate the effects of the COVID pandemic.
The balance sheet performance of the industry for the first two months of 2021, the regulator notes, shows sustained growth in key indicators except for the pandemic-induced weakness in credit growth.
“It is expected that growth in the sector will remain strong as the economic recovery process takes hold in 2021,” stated the BoG.
