Cash-Rich Banking Sector Seen Boosting Loan Growth After Purge


A regulatory spring-clean that’s cut the number of Ghanaian banks by almost a third is strengthening the industry, brightening prospects for lending growth and easing the pain of unpaid debts.

The expanding economy is also helping lenders put behind them years of challenges weighing on the West African nation — including daily power outages, poor banking regulation and an inflation rate that has averaged 14 percent since 2013. Flush with cash after a recapitalization exercise by the central bank, lenders are poised to see a drop in non-performing loans and higher returns, according to Moody’s Investors Service and Databank Group.

“The economy over the last two years has been on a path of steady improvement,” said Kwesi Boti, an economist at Accra-based Databank. “With the robust growth outlook, banks should find a lot of bankable propositions and not get trapped in loan defaults the way we’ve seen.”

The central bank in 2017 tripled capital requirements to bolster weak buffers and protect lenders against shocks as non-performing loans surged to record levels. The regulator also revoked licenses and helped to combine some companies, bringing down the number of lenders to 23 from 34.

Bigger Loans

The process is bearing fruit. Annual loan growth jumped to 13 percent at the end of December from 0.4 percent in March, when banks were focused on propping up their balance sheets. That could rise to 15 percent over the next 18 months, said Peter Mushangwe, a banking analyst at Moody’s.

“The larger size and higher capital levels will allow surviving banks to underwrite larger corporate loans, supporting their revenue,” he said. Non-performing loans — which reached a record high of 23.4 percent at the end of April — will remain high, Mushangwe said, but will improve as banks add new credit to their books as the economy recovers.

Moody’s estimates that banks’ return on assets will improve to 4 percent over the next 18 months, from an average 3.4 percent in 2018.

The Ghana Stock Exchange Financial Stocks Index, which tracks the performance of banks and insurance companies, advanced a second day, by 0.1 percent to 2,048.4 at 10:40 a.m. in the capital, Accra, trimming its loss this year to 1.4 percent.

Key Metrics Dec. 2017 June 2018 Dec. 2018
Loan Growth 6.8% 3.1% 13%
Capital Adequacy Ratio 18.6% 19.3% 22%
NPLs 21.6% 22.6% 18.2%
Cost to Income Ratio 86% 84% 84%
* Source: Bank of Ghana


The banking industry’s woes have their roots in arrears owed by the government for loans to power utilities going back more than 20 years. The debt, spread across 19 lenders, had to be booked as NPLs after the central bank in 2016 introduced new accounting regularities.

The government is repaying the loans by issuing bonds. Over the past 16 months it has issued 5.7 billion cedis ($1.1 billion) worth of the debt, with 4.3 billion cedis still outstanding.

It also announced plans last week to start a debt sale next month of 2 billion cedis to prop up five well-managed lenders that failed to meet the Dec. 31 deadline for new capital thresholds.

Fresh Capital

Ecobank Transnational Inc. banking analyst George Bodo estimates that 2.5 billion cedis in fresh capital has been injected into the system, of which 1.6 billion cedis came from rights offerings and 900 million cedis by way of capitalizing revenue.

“We expect NPLs to decline over time as government finalizes on its obligations and balance sheets become strong enough to absorb marginal increments,” he said. Unpaid loans will remain stable at about 18 percent in 2019, while loan books will expand about 3 percent, Bodo said.

“Surviving banks will reap positively,” he said, “by way of stronger balance sheets and the attendant capability to book big ticket transactions.”