Banks’ credit growth weak despite sector’s strong performance – BoG

Governor of the Bank of Ghana, Dr Ernest Addison,
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The Bank of Ghana has revealed that an assessment of the banking sector as at end-August 2021 indicated that the sector’s performance remained strong, underpinned by sustained growth in total assets, deposits, and investments.

The expansion in the industry’s assets was on the back of increased liquidity flows from deposits and borrowings during the review period.

Banks’ average lending rates have also declined marginally during the review period in tandem with the policy rate cut and the interbank interest rate.

However, credit growth was somewhat weak despite the marginal up-tick observed over the last two months, the BoG said in its ‘Banking Sector Developments’ report.


The sluggish growth in credit was due to both supply and demand side challenges from the lingering effects of the COVID-19 pandemic.


“New advances by banks during 2021 has been robust, supported by the regulatory reliefs and policy measures introduced at the onset of the pandemic in 2020. The latest Credit Conditions Survey point to a potential increase in demand for credit and a likely softening of banks’ credit stance over the next two months, a development which may further boost New Advances and translate into higher credit growth.


“Financial Soundness Indicators (FSIs) of the banking sector remained healthy with improved profitability, solvency, and liquidity indicators,” the report stated.

It added “The industry’s Non-Performing Loans (NPL) ratio, however, increased marginally due mainly to the pandemic-induced loan repayment challenges, sluggish credit growth and some bank-specific loan recovery challenges.

“The latest stress tests show that banks remained resilient under mild to moderate stress conditions supported by the strong capital and liquidity buffers as well as the regulatory reliefs introduced during the pandemic.

“Asset quality risks have elevated this year compared to last year due to repayment challenges associated with the COVID-19 pandemic as well as some bank specific loan recovery challenges. The NPL ratio increased from 15.5 percent in August 2020 to 17.3 percent in August 2021.

“This was attributed to the combined effect of an increase in the stock of NPLs by 21.0 percent to GH¢8.4 billion, as well as a modest growth in the stock of gross loans by 8.7 percent over the period.”

“The adjusted NPL ratio (excluding the fully provisioned loan loss category) however, remained unchanged at 6.6 percent over the review period, an indication that the increase in the NPL ratio was due to a build-up of loss category loans.


The rise in the NPL ratio was mainly driven by the increase in the private sector NPL ratio from 16.6 percent to 18.6 percent, while the public sector NPL ratio marginally declined from 5.9 percent to 5.1 percent.

The increase in the industry NPL ratio reflected mainly in the construction and the transport, storage and communication sectors, which recorded higher NPL ratios in August 2021 compared with last year.

“The NPL ratio of the construction and the transport, storage and communication sectors increased by 13.6 percentage points and 7.6 percentage points to 35.0 percent and 11.9 percent respectively during the review period.

“Additionally, the mining and quarrying and the commerce and finance sectors recorded increases in their respective NPL ratios by 4.6 percentage points and 2.3 percentage points to 14.0 percent and 26.4 percent over the same comparative period.

“All other economic sectors recorded declines in the NPL ratios during the review period with the greatest improvement in the quality of the loan portfolio attributed to the agriculture, forestry and fishing sector.”

By Laud Nartey|3news.com|Ghana