Banks have begun easing out their stance on credit to the private sector following declining interest rates.
The Bank of Ghana’s latest Banking sector report reveals that the credit allocation by banks increased from April 2016 to April 2017.
Net loans and advances to the private sector by the commercial banks (which is total loans to customers, reduced by possible default losses and unearned interest income), increased from GH¢27.07 billion to GH¢30.99 billion between April 2016 and April 2017.
According to the Bank of Ghana, its survey on lending practices indicated that the credit offered by the commercial banks went up by 45% between April 2016 and the same period this year.
Also, the annual growth in gross loans and advances increased from the negative 5.7 percent in April 2016 to 3.4 percent in April 2017.
The Bank of Ghana says this was largely influenced by the drop in inflation from 18.7% in April 2016 to 13.0% as at April this year.
Similarly, interest rates on loans and advances have declined between 0.3 and 1.8 percent.
For instance, the average base rate which is the lowest rate a bank can lend to its customers, has dropped by 0.7 percent as the average interest rates on vehicle, manufacturing and construction loans dropped between 0.5 and 2 percent between April and May 2017.
According to the survey, the private sector remains the largest recipient of banks’ credit, even though its share declined marginally from 87 to 86 percent within the one year period.
While the share of banks’ credit to households declined from 15.4 to 14.2 percent between the period, the share of banks’ credit to government and public institutions increased to 6.4 percent from 4.7 percent in April 2016.
But credit to public enterprises dropped to about 7 percent from 8.7 percent during the same review period.
The three largest sectors in terms of outstanding credit balances, namely Commerce & Finance, Services, and Electricity, Gas & Water, accounted for 56.6 percent of total banking sector credit in April 2017 compared with 61.1 percent in April 2016.
The share of credit to the mining and quarrying and manufacturing sectors however declined during the review period.
Source: Citi Business