Credit to private sector contracts by 31.6%, but banking sector liquid – BoG

Credit to the private sector contracted in October 2023 and September 2023.

According to the Monetary Policy Report of the Bank of Ghana, banks continue to deploy their resources towards short-term investments as opposed to extension of credit.

This is in response to the increased risks associated with lending following the deteriorating macroeconomic conditions and the impact of the Domestic Debt Exchange Programme (DDEP).

The report continued that private sector credit contracted by 7.5% in October 2023, compared with a 57.3% growth recorded in October 2022.

In real terms, credit to the private sector contracted significantly by 31.6% relative to a growth of 3.0% recorded over the same comparative period.

Meanwhile, the Bank of Ghana said the banking sector remained stable, sound, liquid, and profitable, even as banks continued to adjust to the impact of the DDEP.

The sector’s capital adequacy levels, according to the Central Bank, remained above the minimum regulatory level with regulatory reliefs, with most banks carrying excess liquidity.

The industry’s NPL ratio increased to 18.3% in October 2023, from 14.0% in October 2022 and 15.7% in January 2023 – reflecting elevated credit risk associated with the lagged effects of the macroeconomic crisis of 2022.

Profitability continues to improve as banks continue to invest in high-yielding short-dated BoG and Government of Ghana instruments.

The banking sector showed some resilience as the various stress tests on banks’ capital, following adverse macroeconomic shocks, pointed to stability.

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