The Monetary Policy Committee (MPC) on Monday gave a positive assessment of the economy saying business and consumer confidence indicators are at high levels.
'Bank of Ghana’s surveys of Business and Consumer Confidence in the first two months of 2007 continued to underscore higher business expectations as regards capital expenditure, sales and profits in 2007, and strong consumer confidence and prospects for improved macroeconomic conditions in 2007,' Dr Paul Acquah, Chairman of the MPC and Governor of the Bank of Ghana explained in a press statement on Monday.
He also noted that inflation expectations were relatively subdued, with stability in the foreign exchange markets.
Additionally, the Bank’s Composite Index of Economic Activity indicates a pickup of growth in the fourth quarter to 11.7 per cent in real terms, with year-on-year real growth of 17.5 per cent above the trend growth of 10.2 per cent.
'All the sub-components of the index recorded significant increases except for the notable declines of cement sales and industrial consumption of electricity, which have strong links with the on-going electricity load management,' Dr Acquah said.
According to Dr Acquah the banking industry was building up strong balance sheets and an increasing or diversified asset and private sector credit portfolio of improving quality that should support continued economic expansion.
Bank credit to private and public institutions increased by ¢7,156.4 billion (37.6 per cent) to ¢26,177.4 billion in the 12-months to January 2007.
The manufacturing sector absorbed 23.6 per cent, followed by services (21.0), commerce (18.4 per cent), construction (13.6 per cent) and mining and quarrying (5.7 per cent).
In real terms, credit to the private sector increased by 32.6 per cent, significantly higher than 14.9 per cent recorded for the same period in 2006, and the highest in 35 months.
Dr Acquah said the financial sector was also seeing increased growth as banks took advantage of opportunities to diversify their portfolios and grow their assets.
He said based on the latest data available, total assets of the banking industry grew by 41.1 per cent to ¢51,837.2 billion (45.1 per cent of GDP) at the end of 2006, compared with 17.5 per cent in 2005 (37.9 per cent of GDP).
'This development continued into January 2007 with annual growth of 38.1 per cent. This is driven mainly by increases in gross loans and advances.'
Dr Acquah said the growth in the financial sector was also taking place against the background of improved financial sector soundness indicators.
Additionally the banking system is well capitalised, profitable, efficient and fairly liquid.
Banks’ solvency remained strong as the industry recorded Capital Adequacy Ratio (CAR) of 17.0 per cent as of January 2007 compared with 16.1 per cent same period in January 2006 and against a required Capital Adequacy Requirement of 10 per cent.
He said the ratio of Non-Performing Loans (NPLs) in total loan portfolio continued to decline. It fell from 11 per cent in October 2006 to 7.9 per cent in December 2006 and further to 7.5 per cent at the end of January 2007.
Similarly, NPLs’ net of provision fell from 5.9 per cent in October 2006 to 2.0 per cent in December 2006 and to a low of 1.3 per cent in January 2007.
All measures of operational efficiency and profitability of the banking industry (deposits to total assets, cost to income, deposits per employee, assets per employee, net income, operating profits) with the exception of cost to income and cost to total assets, improved during the period.
On the external accounts, provisional balance of payments data shows a strengthened external position with the overall balance of payments position improving from a surplus of US$84.34 million in 2005 50 US$415.12 in 2006.
The foreign exchange market also remained buoyant in 2006 with purchases and sales of foreign exchange by the banks and forex bureaux increasing by 16.6 per cent over the 2005 level to US$16.8 billion.