Private sector credit growth is expected to rebound from the first quarter of 2019, following a tightening stance by commercial banks on loans to enterprises during the last two months of 2018, according to Bank of Ghana’s financial sector report for January 2019.

The survey projects an easing of banks’ credit stance over the first quarter of 2019, in line with their enhanced capital levels following the completion of the recapitalization exercise to a minimum of GH¢400 million at the turn of the year.

Private sector credit growth continues to recover following the sharp dip to 2.4 percent over the 12 month period up to March 2018. Annual growth in private sector credit for 2018 was 10.6 percent, compared with 13.4 percent growth over the previous year.

The outstanding credit to the private sector at the end of December 2018 was GH¢37,593.2 million, compared with GH¢33,987.0 million a year earlier.

Credit Growth

Real credit growth, which excludes loans under receivership, was subdued in December 2018 compared with the previous year.

The industry’s stock of gross loans and advances, both domestic and foreign, contracted by 12.0 percent in real terms to GH¢36.54 billion in 2018 compared with the 4.2 percent contraction recorded in 2017.

Growth in private sector credit, excluding the loans under receivership, declined by 11.7 percent, year on year in 2018, after recording a modest growth of 2.3 percent in 2017.

However, banks’ credit stance on loans to households continued to ease, resulting in a pickup in real growth of household credit to 28.6 percent in 2018 from 11.7 percent in 2017.

Credit Risk

According to the survey, the banking industry’s exposure to credit risk eased in December 2018 relative to the previous year.

The implementation of the Central Bank’s loan loss write-off policy by the banks resulted in a reduction in the Non-Performing Loans (NPL) ratio to 18.2 percent from 21.6 percent during the review period.

Further to this, it is expected that adherence of banks to the Capital Risk Directive issued in 2018 will help banks manage credit risks more effectively to reduce the level of NPLs.