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Opinions of Sunday, 19 June 2016

Columnist: Graphic.com.gh

Govt must clear BDCs debt to save banks

The role of a resilient banking sector cannot be overemphasised in the quest to build a strong economy. As financial intermediaries, banks help to move funds from surplus areas to deficit areas.

They ensure that funds are directed to where they are really needed to take care of the financing needs of individuals, businesses and even the government.

In the post-crisis era of the global financial meltdown, banks in Ghana have performed better than expected. The next wave is how to sustain the performance and grow to become a leading banking industry in the region.

However, there are some challenges that confront the banks among which, is the increased risk to the industry’s non-performing loan (NPL) ratio.

Already, NPLs among banks have risen to a record high of 14.7 per cent in December last year, prompting the Bank of Ghana (BoG) to request an industry-wide audit of NPLs.

The findings of that audit, which was carried out by the top five auditing and accounting firms in the country, was “revealing and not too pleasant” to both the regulator and the banks in particular.

In the last quarter of 2015, growth in the sector contracted by 5.4 per with the NPL ratio deteriorating to 14.7 per cent.

A cursory look at the financial performance of the some the major banks saw huge provisions being made for bad loans. This is as a result of overexposure to the some bulk distributing companies of petroleum products to the banks.

The banks financed the supply of petroleum products to Volta River Authority and some government agencies which they were under-recoveries because of government subsidies.

The total amount of indebtedness ranges between US$ 500 million and US$600 million. Government has, however, contracted an external audit to arrive at the right figure after all the necessary reconciliation of the figures have been done.

We have received assurances from government that the audit will be completed by July, so that all the moneys owed can be paid promptly.

It is our fervent hope that for the sake of the soundness and stability of our financial system, government clears the indebtedness.

We are very concerned because the situation has far-reaching consequences to the financial industry and the economy at large because of its spill-over effects.

This is because we know that an upsurge in default emanating from the low quality of the loan books written in prior years resulted in the non-performing assets in recent years for which banks are still burdened with the associated costs but receive no interest income. This has been cited by many banks as the reason preventing them from cutting further their lending rates.