As the government steps up to clear the US$2.4 billion energy sector debt, commercial banks would have to get their credit decisions right, moving forward, to spare the taxpayer another humongous debt in the future, Emmanuel Akrong, a credit consultant has said.
“Poor credit decisions” by commercial banks, he argues, contributed a lot to the buildup of the debt, since the banks ignored the poor financial state of State-Owned Enterprises and the lack of any “explicit guarantees” from government and went ahead to advance the credit to the VRA, ECG, GRIDCo, TOR and NEDCO.
“While I understand some of the reasons that led to this situation, I have pointed out on several occasions, that I am not advocating that banks should not lend to energy-sector SOEs.
However, banks should lend to such entities in a responsible way by following good credit practices and not put the bank itself at risk, such as exceeding single obligator limit and end up putting innocent civilians in the situation of paying for avoidable levies,” he said.
“My view is that it is largely due to corporate greed that some banks were lead to giving credits to the SOEs. Such greedy banks, every now and then, scream for the Government to bail out the energy sector. Their main issue is that it is presenting liquidity problems to them. So, why will you lend to an SOE and have liquidity problems and then expect the Government to bail you out?” he quizzed.
Government, last Friday, concluded the auctioning of the energy bond after, after a one-week extension due to undersubscription of the first tranche of GHS6 billion.
Whilst the 7-year bond made the GHS2.4 billion mark after auctioning closed on October 27, 2017, the 10-year bond failed to raise GHS3.6 billion.
The indebtedness of the SOEs and BDCs to the banks is largely blamed for the prevailing high non-performing loans ratio in the banking sector, which currently is about 21 percent. This means that for every one cedi given out as a loan, banks are unable to recover 21 pesewas.
“In my view, many people point to symptoms of the problem and not the problem itself,” Mr Akrong said. “It is true that the key risk to the banking industry is the high stock of impaired assets to total loans as measured by NPL ratio, of which energy related SOEs and BDC contribute to that number.”
While there are several triggers of credit risks, Mr. Akrong said in the case of the SOEs and BDCs, the primary cause of default is the irresponsible credit decisions taken by some banks, although he acknowledged other possible triggers relating to economic conditions such as oil prices, government action to subside oil prices; and the inability of Tema Oil Refinery to raise sufficient working capital/letters of credit facilities to import oil which, in certain periods, almost halted the operations of TOR and other activities.
“In my view, it is a moral hazard for innocent Ghanaian tax payers to continue to bail out Banks for their bad credit practices and greedy corporate actions,” he said.