The recent Banking Sector Report published by the Bank of Ghana has indicated that banks prefer lending to foreign firms rather than indigenous ones due to the high Non-Performing Loans (NPLs) among local firms.

Indigenous private enterprises accounted for 75.4 percent of total NPLs as at February 2019, while NPLs among foreign enterprises was just 10.2 percent. This means far more private local businesses defaulted in loans compared to their foreign counterparts.

Of the loans advanced to businesses between February 2018 and February 2019, the share of foreign private enterprises increased by 2 percentage points, while that of indigenous companies decreased by 3.3 percentage points.

Commenting on this, financial analyst Dr. Richmond Akwasi Atuahene said it sends a clear message that banks do not have confidence in local businesses’ ability to pay back loans, hence their desire to do business with foreign ones – adding that the local economy is going to suffer if it continues in this trajectory.

“It means that banks have confidence in the subsidiaries of foreign companies due to high rate of default from indigenous private companies. The economy is not going to grow once credit to the indigenous private companies is not going up. It is local businesses that grow the economy, and so real growth is going to suffer,” he told B&FT in an interview.

Another reason Dr. Atuahene ascribed to the decrease in lending to the indigenous private sector is the dominance of foreign banks in the economy. Local banks are now 9 in number compared to the 14 foreign banks after the banking sector reforms last year.

He argues that local banks are more open to supporting indigenous businesses – especially small and medium scale ones – than foreign banks, as many of them focus on extending credit support to larger enterprises which are mostly foreign subsidiaries, rather than supporting small local enterprises.

In terms of credit allocation to economic sectors in February 2019, the report says commerce and finance continued to hold the largest share – accounting for 23.2 percent compared with 24.4 percent in the same period last year, while the services sector followed with 22.3 percent compared with 21.7 percent a year ago.

The manufacturing sector was the third-largest recipient of the industry’s credit in February 2019 with a share of 11.9 percent, higher than the 8.2 percent of the same period last year. The lowest share of the industry’s credit went to the mining and quarrying sector with 3.5 percent share, although it inched up from the 3 percent in February 2018. The agriculture, forestry and fishing sectors also received 4.8 percent of the industry loans – up from 4.5 percent during the same period in the previous year.