Ghana: Banks reduce lending due to high NPLs

Feb 22, 2017

The move is to avoid continuous surge in bad loans.

Following the rise in non-performing loans (NPLs), Ghanaian banks have reduced lending to private sector in order to avoid the continuous surge in bad loans on their books. As revealed in a financial stability report released by Bank of Ghana (BoG) last November, bad loans hit the worst in 2016 compared to same period in 2015 with Ghanaian companies forming major contributors of bad loans. In an interview, the Managing Director of Capital Bank, Rev. FitzGerald Odonkor made it known that Capital Bank is minimizing lending to avoid increase in bad loans. He expressed optimism that the move will reduce the surge in bad loans significantly. "This (minimizing lending) has been an industry-wide phenomenon for banks mainly as a result of the state of the economy but we will continue to do our best to minimize the occurrence of defaults in our payments. We are careful about our lending and then also we try to stay close to the clients so that where there are problems, we help to work it out or solution to minimize it," he stated. NPLs in Ghana increased by 69.4 percent from GH¢ 3.6 billion in July 2015 to GH¢ 6.1 billion in July 2016, placing NPLs of 2016 at the ratio of 19.1 percent, from 13.1 percent a year earlier. BoG has blamed this development on slowdown in economy, high utility tariffs, loan reclassification by some banks and increasing production cost.