The Managing Director of HFC Bank Ghana, Robert Le Hunte has played down growing concerns about the recent spike in Non-Performing Loans (NPL) on banks books, citing adjustment in the reporting standards for the rise in those loans.
According to the Trinidadian born banker, the ratio of bank loans that are not likely to be paid in full have seen an increase because of tightened regulatory requirements and the decision by the industry to align its operations to international best practices.
The remark follows recent findings by the central bank that banks in the country now have a lot of unproductive assets on their balance sheet with bad loans accounting for 19.3 percent of all loans granted as at the end of May this year, from 14.6 percent in January this year; a situation many have pinned to Ghana’s underperforming economy and increased cost of doing business.
In an interview at HFC’s head office at Ebankese in North Ridge, Accra, Mr. Le Hunte explained: “A lot of focus has been placed on the present NPLs.
You look at the present NPLs and people have been saying well the economy is not doing well and because of that NPLs have been increasing and that makes logical sense.
The truth is, I think NPL in the market has gone up not so much because of what is happening now.
But it is really just an adjustment to the maths. It is just really maths’’.
“It is really because how NPLs were managed and reported before and the new insistent by the central bank and IMF to ensure that banks comply with the international accounting standards and stop accruing interest and rigorously apply to the central bank’s guidelines compared with some of the grey areas that existed before, those adjustments is what resulted in the NPLs shooting up .”
The central bank in its latest financial stability reported indicated that despite the current NPL being the highest in six years, banks capital adequacy ratio –their ability to withstand shocks or unexpected losses– has also reduced from 17.9 percent in January this year to 16.6 percent currently.
The Bank if Ghana has noted that loan defaults are currently the key risk banks face, as the quantum of non-performing loans in the banking sector has increased significantly, affecting the profitability position of banks whose net interest income has registered a declining growth.
The situation has thus sparked concern among economists, with the International Monetary Fund (IMF)- which recently completed a stress stent on the banking industry- warning that banks in the country face huge credit risks and declining liquidity.
However, Mr. Le Hunte, using his bank as a case study to buttress his point said: “HFC’s NPL as reported in previous years by the bank, post June 2015 (when Republic Bank took over HFC), showed NPLs at 8% and 9%.
I could say there wasn’t because of anything that happened to the economy or a lot of new loans going bad.
But when you go through the portfolio and do the required adjustments in keeping with the international accounting standards, you will see a rise in the NPLs.
“So you have to discount that rise for not just changes in the economy but actually changes in how the banks are now reporting NPLs.
So that is maths. That has always been there.
Yes I agree that there has been some that because of the cost that has gone up: utility charges, cost of living, inflation, that has placed pressure to some extent on some salaried workers.
But I think that impact is not what is accounting for the massive jump that you are seeing in the NPLs.
I think a lot of those NPLs that are happening now are legacy issues that are now coming to light.”