Business

High cost of production to blame for non-performing loans

An economist, Adu Owusu Sarkodie, has attributed the high level of nonperforming loans to the high cost of production and doing business in the country.

Per the latest Bank of Ghana (BoG) Financial Stability report, Non-Performing Loans (NPLs) hit GHC6.1 billion within the last eight months.

A breakdown of these NPLs showed that the private sector accounted for a larger chunk of the debts as against the government, which has often been blamed for rising bad debts of most of the commercial banks.

The situation has left some banks grappling with loan recovery, and there are fears some of the affected banks may collapse. Some analysts say the situation is having a trickling down effect on microfinance institutions.

Speaking with 3FM Business, Mr Sarkodie who is a lecturer at the Department of Economics at the University of Ghana said until the cost of doing business, especially for utility and interest rates go down, the number of NPLs will keep rising.

“The state of nonperforming loans has always been a cause of worry, but now, the major challenge is the cost of doing business. Businesses have to pay a lot before setting up, cost of energy, water and even rent.

“So at the end of the day, they are not able to make any profits, to even pay back the loans with the interest,” he observed.

Mr Sarkodie has meanwhile cautioned banks to do extra due diligence to ensure that loan recovery becomes easier and efficient.

“Inasmuch as the banks will make available credit to people, they must also make use of due diligence. The banks must use better identification systems in order to be able to recoup their funds” he advised.

By Grace Asare|3FM|3news.com|Ghana

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