The Governor of the Bank of Ghana (BoG), Dr. Ernest Addison, has intimated that commercial bank will in the coming months relax their credit stance to households and firms, a development he believes would enhance the economic recovery agenda.
He said this after the Monetary Policy Committee meeting, held on September 27, 2021, adding that banks continued to increase their investments in high-yielding government securities to improve their earnings while moderating their credit risk due to uncertainties in the business environment, thereby crowding out credit to the private sector.
Dr. Addison explained that private sector credit growth has not yet fully recovered to pre-pandemic levels due to lingering supply-side risk aversion from the shock of the pandemic as well as slower-than-expected growth in demand for loans that are backed by bankable projects.
Commercial banks' lending to the private sector has come under public scrutiny as there is a huge interest rate gap between the BoG policy rate and commercial lending rates. In addition, the Bank of Ghana has for some time expressed worry over commercial banks investing more of their funds in government securities than lending to the private sector.
He noted that "while credit to the private sector saw a marginal pickup, the trends remain below expectations largely on account of pandemic-related risk aversion.
"In addition, results from the latest Credit Conditions Survey point to a potential increase in demand for credit over the next two months. Commercial banks have also indicated a likely softening of their credit stance to households and firms in the coming months, a development that may translate into higher credit growth to support the ongoing recovery process."
Dr. Addison concluded by reassuring that the most recent stress tests on the banking sector show that banks remained resilient under mild to moderate stress conditions, thanks to strong capital and liquidity buffers and regulatory relief implemented during the pandemic.
Source: Mohammed Issah Bomanso (Real Estate Times Africa)