Banks will continue to tighten private sector credit

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Credit Conditions Survey Results Source: Bank of Ghana Staff Calculations  

In the coming months, banks will continue to tighten their stance on credit to the private sector, results from the latest Bank of Ghana credit conditions survey have shown.

This, according to the central bank, stems from the increase in lending rates and general uncertainty surrounding performance of the economy stemming from sharp depreciation of the Ghana cedi and rise in the inflation rate this year.

The stance by banks follows a similar one taken in the previous months, as results from the June 2022 Credit Conditions Survey pointed to a net tightening in the overall credit stance on loans to enterprises – driven by a net tightening in the stance on all components of enterprise loans in May and June 2022.

“Banks have projected further tightening in the overall credit stance on loans to enterprises for the next two months, which is expected to apply to all sub-categories of enterprise loans,” the BoG said.

Banks’ inflation rate expectations for six-months ahead from June 2022 increased further during the current survey period, attributable to the increase in inflationary pressures as well as general uncertainties regarding performance of the economy. Banks also expect lending rates to increase over the next six months, in line with increases in the Monetary Policy Rate and other money market rates.

Nonetheless, deposit money banks’ credit to the private sector increased by GH¢14.4 billion (33.73 percent) in June 2022, compared with GH¢2.71 billion (6.76 percent) recorded in the corresponding period of 2021.

Outstanding credit to the private sector at the end of June 2022 was GH¢57.16billion compared with GH¢42.74billion recorded in June 2021. In real terms, private sector credit grew marginally by three percent in June 2022 compared with a 0.97 percent contraction recorded in the corresponding period of 2021. Real growth in private sector credit inched above the long-run trend.

The significant increase in growth of private sector credit reflected banks’ portfolio rebalancing. Private sector credit accounted for 91.1 percent of total flow of credit extended to both private and public institutions in June 2022, relative to 105.4 percent recorded in the corresponding period of 2021. Credit flow to the private sector remained concentrated in four sectors: services; commerce and finance; construction; and manufacturing.

Banks reported an increase in overall demand for loans by enterprises over the survey period from a sharp increase in loan-demand by large enterprises, particularly for long-term loans. They also projected a further increase in demand for loans during the next two months, driven by increases in demand for all categories of enterprise loans.

Households

Likewise, the overall credit stance on household loans also recorded a net tightening in May and June 2022 – driven by a net tightened stance on consumer credit and other lendings.

Banks however reported a net easing in the stance on mortgage loans for the period.

Over the next two months, the central bank indicates that banks project a further net tightening in the stance on loans to households, which will be reflected in both loans for house purchases and consumer credit.

Credit demand by households however slowed, on the back of a decline in the demand for both consumer credit and mortgages.

But over the next two months, banks expect a rebound in demand for both consumer credit and loans for house purchases to drive an increase in overall demand for household loans.

 

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