The 3rd quarter Ghana banking reports depicts banks giving more loans to the public sector ahead of the private sector. The gross credit stock for the banking sector grew from GH¢33.82 billion in August 2018 to GH¢38.90 billion in August 2019.
However, the share of private sector credit in total credit declined marginally in favour of loans to the public sector from 92.4 % in August 2018 to 90.4 % in August 2019. The change is quite significant and should cause some concern. It is an indication that the private sector may still suffer the age-old phenomenon of lack of or difficult access to financing.
Public Sector Loans Favoured
The share of credit to the public sector however increased during the review period to 9.6% in August 2019 from 7.6% in August 2018. The increase was reflected in all components of public sector credit namely credit to the government, public institutions and public enterprises.
Accordingly, the share of credit to government went up to 3.7 % in August 2019 from 2.7 % in August 2018, the share of loans to public institutions went up to 1.5 %from 0.9 percent, while the proportion of public enterprises’ credit in total credit increased to 4.4 %from 4.0 percent, over the same review period.
Non-Performing Loans (NPLs) – 3rd Quarter Ghana Banking Sector Reports
The non-performing loan data depicts the risk of loss associated with loan facilities and loan clients. The report shows that NPLs in total has reduced from 21.3% in August 2018 to 17.8% in August 2019. Though the NPLs have generally reduced due to more recoveries and an intensified risk management the private sector increased their share of the NPL. Their share of NPLs increased from 94.9% to 97.6% of the total NPLs.
Possible reasons for this could be due to;
- the tightness of the economy that has caught businesses with lower profit margins
- locked up funds of private sector players with failed financial institutions
- the steep depreciation of the Ghana Cedi to the USD in a better part of the period which leads to currency-induced loan defaults
- finally the weak credit referencing bureau system which the report did not mention
Public sector share of the NPL has however declined significantly from 5.1% to 2.4%. This is a good reason for banks to favour the public sector. This trend may continue until the private sector proves less risky for the banks to lend to them.
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Access to Finance for Private Sector
Considering the fact that access to finance is a major ingredient for the private sector, there is the need for development initiatives to help private sector reduce their risks to credit. Influencing some factors of production is beyond the reach of the sector players. It is therefore imperative for government initiatives to help reduce some risks that have become associated with the private sector. There are calls from the private sector groups to achieve this but not much has been achieved over the years.
Banks want to do business but they are limited in an environment that carries such high risks. The result is to see banks push loans to the public sector seen as less risky and also do more investments into government of Ghana instruments. That is a situation where the financial system offers little to the private sector who form the major backbone of Ghana’s economy