Non-performing Loans Reach 5-year High Of 20%
It is important in the current economic atmosphere that banks reduce the ratio of their non-performing loans to accommodate the impact of the recent debt restructuring and to salvage losses.
Figures from the Bank of Ghana, however, reveal that the non-performing loans in Ghana’s banking sector have surged to 20% of all loans, hitting a peak not witnessed in half a decade, and there’s no indication of the ratio slowing down.
According to the data, the ratio increased by 0.9 percentage points from the previous ratio of 19.1% in July 2023 showing that 1 out of every 5 loans given is issued is not being paid back or is long overdue for interest or principal payments as of August 2023.
It is also an indication that huge concessions are not being refinanced by borrowers, a situation that is detrimental to the health and efficiency of the banking sector.
Since October 2022, this ratio has been on a steady climb, starting at 14% and ascending by a remarkable 6 percentage points to its current level.
The ratio of non-performing loans in a bank is determined by dividing the total value of non-performing loans by the overall value of the loan portfolio.
On average, between January and August 2023, the ratio has been around 17.9%, which is higher than the averages for the same period in 2020, 2021 and 2022.
As per the International Monetary Fund (IMF), global standards recommend categorizing loans as non-performing when borrowers are more than 90 days late in paying back both the principal amount and interest, or when there’s little expectation of receiving full payments in the future.
The country recently went through a debt restructuring where government indicated an inability to repay its loans and sought to shave off a part of its debts in order to secure a $3 billion loan from the IMF.
Banks took a large part of the haircut leading to significant losses in 2022.
Source: JoyNews
