Banks increase private sector lending after recapitalisation

Banks’ support to the private sector has seen significant growth in 2019 – after the Bank of Ghana increased the industry’s minimum capital requirement last year, the Summary of Economic and Financial Data from the Bank of Ghana has shown.

The data show that private sector credit of banks in February this year almost doubled on an annualised basis, growing by 21.1 percent from 10.4 percent the same period last year – a feat that was never achieved in 2018.

In monetary terms, private sector credit (nominal) hit GH¢38.2 billion, representing 11.1 percent of the country’s GDP.

However, when adjusted to inflation using 2012 as the base-year, the figure is GH¢165million, representing a 10.9 percent annual growth.

To put the growth in a more appreciable light, in February 2018 the banking industry’s lending to the private sector dipped by 7.4 percent.

Commenting on the growth, financial analyst Dr. Richmond Akwasi Atuahene said the increase in minimum capital requirement from GH¢120million to GH¢400million by the BoG is responsible for it, as it has increased banks’ ability and capacity to advance credit to the private sector.

“As the banks have cleaned their books, they are now looking at areas they can grow their credit. So, I think the banks are repositioning themselves for credit growth in the private sector. The banks now have the capacity to expand the private sector; and so, all things being equal, we will see more growth in the private sector.

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“The erosion of banks’ capital during the crisis meant that their ability to expand the economy’s credit and finance transformation was constrained. Now that new capital has been injected, banks have the ability to expand credit and finance transformative economic projects.

“A strong and well-capitalised banking sector is therefore imperative to support the private sector, which is the economy’s engine of growth,” he told B&FT in an interview.

His view is underscored by the Bank of Ghana (BoG) Governor, Dr. Ernest Addison, who also attributed the growth to recapitalisation of the banks.

“Private sector credit growth has gained some momentum stemming from an improved liquidity position of banks on the back of their recapitalisation exercise,” he told media at the latest MPC meeting.

The Governor further stated that the recapitalisation exercise has not only increased credit to the private sector, but has also made the sector profitable, liquid and solvent – exhibiting strong growth prospects in the outlook.

Total assets of the sector grew annually by 14.5 percent, hitting GH¢108.9billion in February this year. Compared to same period last year, total assets of the banks were GH¢95.1 billion – representing an annual growth of 13 percent.

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