Private sector lending will be increased when DGB begins operations – GAB

The Ghana Association of Bankers is confident banks in the country will lend more to the private sector once the Development Bank Ghana begins operations.

The failure of commercial banks to lend to the private sector has remained a problem in the industry for many years.

According to the Central Bank, while credit to the private sector has seen a marginal pickup, the trends remain below expectations largely on account of pandemic-related risk aversion.ADVERTISEMENT

CEO of the Ghana Bankers’ Association, John Awuah, blames the situation on the banks’ lack of access to long term funding to be able to lend to the private sector.

He however believes partnering the Development Bank Ghana when it starts operations will help put an end to the problem.

“Cost of long-term funding in the country is very high because people are looking at what the available benchmark is. and we’ll be working closely with our partners to ensure that we have access to the right mechanisms to be able to extend long-term credit. We’ve also seen that partnering strongly with the proposed Development Bank can also be a good avenue to having access to long term funding to enable us intervene properly in the market.”

Many have blamed the continued lending by some banks to government as well as the high treasury bill rates, for the low level of credit advanced by financial institutions to the private sector.

According to data from a report assessing Ghana’s competitiveness and available opportunities for the country under the African Continental Free Trade Area (AfCFTA) in April this year, domestic credit to the private sector as a share of GDP in Ghana is amongst the three lowest frontier economies in Africa, with only Nigeria and Tanzania ranking behind Ghana.

A recent report from the Bank of Ghana revealed that the worrying trend of growing non-performing loans in the assets of commercial banks has made banks maintain a cautious stance in lending to the private sector.

This has led to the annual nominal growth in private sector credit slowing to 9.5 percent in August 2021 compared with 14.3 percent in the corresponding period of 2020.

Source: Citibusiness