BoG Worried About Banks’ Bad Debt

Dr. Abdul Nashiru Issahaku, Governor of the Bank of Ghana (BoG), has expressed worry about the increase in Non Performing Loans (NPLs) of universal banks in the country.

 

According to him, the banks’ NPLs have always been a source of worry to the Central Bank no matter the level.

 

He said the Central Bank was putting measures in place to address the NPLs.

 

The Governor made this known at the recent press briefing of the Monetary Policy Committee in Accra.

 

NPL ratio of the banking system, as at the end of May 2016, was 19.3 percent while capital adequacy ratio for the banking industry was 11.5 percent.

 

Owing to the BoG’s Financial Stability Report, universal banks in Ghana made a provision of GH¢231.52 million for bad debt for the first quarter of this year compared to GH¢140.21 million in the first three months of 2015, representing a 65.13 percent increase.

 

Credit ratings agency Moody’s has warned that the fortunes of Ghanaian banks could further decline as a result of the increase in NPLs.

 

Dr. Issahaku said a substantial portion of the NPLs is attributable to banks reclassifying their existing assets to higher degrees of impairment following the Asset Quality Review (AQR) exercise, particularly, the energy sector state-owned enterprises loans.

 

He said, “Government’s plans to retire the Volta River Authority (VRA) legacy debt using 50 percent of the proceeds from the Power Generation and Infrastructure Support sub-account under the Energy Sector Levies Act (ESLA, 2015), as well as the on-going arrangement between government and banks to restructure the VRA debt exposure are all part of the considered review. This is aimed at improving banks’ asset quality and their overall performance.”

By Cephas Larbi

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