Private sector credit remains sluggish amid COVID-19 fears

Private sector credit remains sluggish amid COVID-19 fears

The latest credit survey by the Bank of Ghana has shown private sector credit growth remained sluggish reflecting heightened credit risks associated with the COVID-19 pandemic.

The survey conducted as of June 2021 depicted a marginal contraction of private sector credit by 1 percent compared to a growth of 2.8 percent in June 2020.

Per the Bank’s monetary and financial developments report, deposit money banks’ (DMBs) credit to the private sector increased by GH¢2.71 billion (6.8 percent) relative to GH¢4.9 billion (14.2 percent) over the same comparative period. Credit flow to the private sector remained concentrated in four sub-sectors, namely, services; commerce and finance; construction; and manufacturing

Outstanding credit to the private sector at the end of June 2021 was GH¢42.7 billion, compared with GH¢40 billion same period last year.  Nonetheless, real growth in private sector credit has been marginally above the long-run trend since May 2021.

“Latest trends in monetary aggregates showed a slightly higher pace of growth in broad money supply (M2+), largely driven by Net Domestic Assets (NDA) of the banking sector,” the report highlighted.

During the period, banks increased their investments in government’s securities, although partly moderated by decreased sterilization through the Open Market Operations (OMO) of the BoG, which largely reflects a net drawdown on the stock of BoG bills.

Net Claims on Government (NCG) contributed 9.6 percent to the growth of Net Domestic Assets (NDA), which was about 17.8 percent of the broad money supply [a monetary aggregate that measures an economy’s money supply, accounting for cash and other assets easily converted into currency. Central banks tend to keep tabs on broad money growth to help forecast inflation].

According to the Bank of Ghana’s statistical bulletin (May) report, out of the total domestic debt of GH¢171.7 billion as of May 2021, the banking sector, made up of the central bank and commercial banks, held GH¢86.5 billion, depicting an increase of GH¢20 billion from May 2020.

Of the GH¢86.5 billion, the Bank of Ghana holds GH¢34.6billion while the commercial banks hold GH¢51.8 billion – indicating a flight to safety by commercial banks towards government bonds and bills, which according to analysts is a threat to the economic recovery plan.

Business & Consumer Confidence

Concerns expressed by businesses and consumers as shown in the confidence survey in June 2021 reflected mixed sentiments.

“The Business Confidence Index only dipped marginally from 96.9 in April to 96.3 in June 2021. Business sentiments remained broadly unchanged due to expectations of improvement in company growth prospects,” the survey showed.

Consumer confidence softened while business confidence remained somewhat unchanged from the previous survey period. The Consumer Confidence Index eased from 93.2 in April to 88.8 in June 2021 due to a variety of factors including the implementation of the recently announced revenue measures in the 2021 Budget.

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