Banking consultant explains why banks’ credit to private sector in Ghana remains weak

A Banking Consultant Dr Richmond Atuahene has explained that the cause of the low credit to the private sector by banks.

The Governor of the Bank of Ghana, (BoG), Dr Ernest Addison, had announced that credit to the Private sector by banks continued to remain weak.

He explained that as of February 2024, private sector credit growth was 5.1 percent compared with a 29.5 percent growth recorded in February 2023. In contrast, he said, as of February 2024, banks’ investments in GOG and BOG instruments stood at GHS53.6 billion, an increase of 67.6 percent year-on-year, compared with an increase of 36.9 percent for the corresponding period of 2023.

In real terms, he added, credit to the private sector contracted by 14.7 percent, relative to a 15.3 percent contraction recorded over the same comparative period in February 2023.

But Dr Atuahene attributed the low credit to the private sector to the Bank of Ghana’s Higher Cash Reserves requirement for commercial banks.

He says that although the move is to curtail the Bank of Ghana’s losses, it rather takes away money from the commercial banks thereby rendering them incapable of lending to the private sector.

He suggested to the BoG to focus on getting the government to settle its indebtedness to the central bank rather than taking money from the commercial banks in the name of the higher cash reserves.

“You are retrieving money from the banks and by so doing you are reducing their capacity to loan to the private sector,” Dr Atuahene said on the Key Points on TV3 Saturday June 8 while contributing to the GHS10.5 billion losses of the Bank of Ghana in 2023.

Dr Richmond Atuahene further said he expects the Bank of Ghana to make a profit in 2024 due to the higher cash reserves.

He says even if the BoG does not make a profit next year, the losses will be minimal.

Dr Atuahene said ” he has increased high cash reserves, this will mitigate the loss.

“This year they may come closer to breaking even because they now have almost cheap money from the banks or the losses will be minimal.”

“I am hoping that come 2024 if they break even they will make a marginal loss.”

The Central Bank at its Monetary Policy Committee meeting in March 2024 announced an adjustment for the existing Cash Reserve Ratio of 15% with a now graduated ratio based on the existing loan to the loan-to-deposit ratio.

They were banks with a Loan to Deposit ratio above 55% will have to meet a CRR of 15%, banks with a Loan to Deposit ratio between 40% to 55% will have to meet a CRR of 20% and banks with Loan to Deposit ratios below 40% will be required to hold a CRR of 25%.

Addressing the 117th Monetary Policy Committee Press Conference in Accra on Monday, March 25, Governor of the BoG, Dr Ernest Addison said “Money market rates continued on a downward trend at the short end of the yield curve. The 91-day and 182-day Treasury bill rates declined to 27.87 percent and 30.34 percent in February 2024, from 35.67 percent and 35.73 percent respectively, in the same period of 2023. Similarly, the rate on the 364-day instrument decreased to 30.90 percent in February 2024 from 34.92 percent in February 2023.

“The banking sector’s performance has rebounded after the implementation of the Domestic Debt Exchange Programme (DDEP). In the first two months of 2024, total assets of the Banks increased by 21.0 percent, while total deposits and advances rose by 25.5 percent and 1.8 percent, respectively.

“Trends in key financial soundness indicators were mixed. The Capital Adequacy

Ratio, adjusted for reliefs, was 13.6 percent in February 2024, above the regulatory
minimum threshold of 13.0 percent, compared with 12.6 percent in February 2023.
Liquidity and profitability ratios also improved compared to a year earlier.”