Banks squeeze lending to private sector; prefer borrowing to government — BoG report

Commercial banks in the country are beginning to favour lending to the public sector rather than the private sector, the Bank of Ghana’s Banking Sector Report has revealed.

According to the report, the share of private sector credit in total advances made by banks in the eight months of the year declined while loans to the public sector inched up.

This development comes on the back of the banking sector reforms which aimed at building a robust banking sector with the financial muscle to support the private sector to enhance the expansion of the economy. The contraction of credit to the private sector means that the sector is worse of today after the completion of the reforms.

As of August 2018, out of every GH¢100 given out as the credit by the commercial banks, GH¢92.4 went to the private sector; the figure compares to GH¢90.4 to the private sector within the same period this year.

Comparatively, the public sector which as of August 2018 were getting GH¢7.60 for every GH¢100 cedis credit given out by banks, are now getting GH¢9.60, representing more than 26 percent in the growth of banks’ lending to the public sector.

The increase was reflected in all components of public sector credit, namely credit to the government, public institutions, and public enterprises.

The share of credit to government went up to 3.7 percent in August 2019 from 2.7 percent in August 2018, the share of loans to public institutions went up to 1.5 percent from 0.9 percent, while the proportion of public enterprises’ credit in total credit increased to 4.4 percent from 4.0 percent, over the same review period

Generally, banks’ borrowings in the period under review decreased by 5 percent to GH¢15.93 billion from GH¢16.77 billion in August 2018.

Accordingly, the share of borrowings in banks’ pool of funds declined to 13.8 percent from 16.0 percent in the previous year.

The contraction in total borrowings, driven mainly by sharp declines in both short-term and long-term domestic borrowings, reflected reduced reliance on borrowings by banks due to higher capital levels and healthy growth in deposits post-recapitalisation.