As non-performing loans NPLs’ of banks continue to rise, hitting 19.3 percent in recent times which is the highest recorded in the last six years, Head of KPMG’s Audit services, Anthony Sarpong, has urged banks to develop strategies that will reduce the impact and maximize their revenues.
Non-performing loans in the banking sector rose from 11 percent in 2014 to 14.7 percent in 2015, and declined marginally to 14.6 percent in January 2016 but currently stands at 19.3 percent, thereby decreasing the annual growth of banks from 36.2 percent in April 2015 to 12.3 percent in March 2016.
‘banks”
“Over the past years, banks have witnessed increases in what we call credit risk. In other words, the loan books of banks have gone up and that means these are losses eating away their capital, and it implies they cannot do as much business as they would do.
non-performing loans
With such a situation banks need to make sure that they have the adequate capital. How do they do it?
The first one is that internally, banks must be dealing with risks in such a way that losses that they can contain are the ones that are likely to hit them.
By doing this they are able to preserve their capital,” Mr. Sarpong said in an interview.
He further stated that due to the expansion and growth of the economy, banks must begin considering mergers in order to have the financial muscle to compete and also surmount the challenges and pressures that may pop up in the economy.
“Given that the economy is expanding, given that there is more risk to take, one of the options the banks will look at is how they can get partners who have similar aspirations as theirs so that they can merge. And with their combined strength in terms of the capital, they will be able to survive,” he said.
Mr. Sarpong added that, banks must also take the option of listing on the stock exchange as another means of raising capital.
It is worthy to note that the non-performing loans is not only impacting on banks but also taking a toll on businesses as loans advanced to them have significantly dropped.
The financial stability report released in June by the Bank of Ghana has revealed that the private sector accounted for about 94 percent of the total banking sector’s non-performing loans.
The central bank subsequently indicated in the report that “banks therefore have to step-up loan recovery efforts and tighten credit risk management practices in order to minimise losses from non-performing loans.”