Commercial banks have shored-up their investments in government securities as they continue to tighten credit to private enterprises at a time their provisions for loans that might go bad have inched up.
Data provided by the central bank shows that banks are increasing their investments in government's short-term financial instruments, while cutting investments in medium- to long-term instruments.
Last year, banks committed GH¢12 in government's Treasury bills and securities, which is above the GH¢10.8billion they invested the previous year.
At the same time, credit to private enterprises declined marginally to 74 percent of gross loans in December 2014, compared with the 74.3 percent recorded in December 2013.
The Bank of Ghana noted in its latest Financial Stability report that banks invested GH¢8.47billion in government Treasury bills in 2014 as against the GH¢6.65billion it did the previous year, while their investment in securities decreased from GH¢4billion to GH¢3.19billion in the period under review.
The report explained: "Banks' investment in securities as a share of total investment decreased to 26.4 percent in December 2014 from 37.2 percent in December 2013.
"Investment in Treasury bills as a share of total investment, however, increased to 70.2 percent in December 2014 from 61.2 percent in December 2013. Banks' investments in shares and other equities as a share of total investment also increased to 3.4 percent as at December 2014 from 1.7 percent as at December 2013."
Currently, the alluring interest on T-Bills -- 25% -- fuelled by rising inflation has caused banks to turn to a more risk-free instrument against the background of a challenging business environment fuelled by ongoing erratic energy supply.
The Association of Ghana Industries -- the umbrella arm of industries -- has found that its members are struggling to access credit, with the manufacturing, agriculture, forest and fishing sectors hardest hit.
Businesses' difficulty in accessing credit has been compounded by the present decline in value of the cedi and energy challenges, which have impacted negatively on the input costs and production output of firms -- putting substantial pressure on profit margins and making lending to private sector businesses riskier.
This is evident in the fact that more private sector enterprises are defaulting on their loans, despite the overall non-performing loans in the banking sector dropping from 12 percent to 11.3 percent between 2013 and 2014.
According to the central bank, credit to the private sector contributed 97.7 percent of the total banking sector's non-performing loans as at December 2014, compared with 90 percent in December 2013.
The Bank of Ghana added: "Even though indigenous enterprises received only 58.4 percent of the private sector credit, they accounted for 81.4 percent of NPLs in the sector as at December 2014 compared with 57.1 percent of credit received and 75.3 percent of NPLs in the same period in 2013. However, while foreign enterprises' share of private sector credit declined, their contribution to private sector NPLs increased over the period under review".
Source: Business & Financial Times
