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New Capital Requirement Likely To Curb Lending

Daily Guide
13 September 2017 | Business & Finance

The rise in the minimum paid-up capital for commercial banks from GH¢120 million to GH¢400 million is expected to further restrict lending to the private sector at least within the short to medium term.

Such expectation, according to analysts, was hinged on the operations of commercial banks which have limited the amount of credit offered to businesses.

Commenting on the issue, a Credit Consultant, Emmanuel Akrong, also indicated that banks risk reducing their income streams with this plan.

In his view, the restriction in credit to businesses is also likely to adversely affect the larger economy.

“At the moment, if you look at the banks, they are putting more into government's bonds and treasury bills than lending…so lending is not going to be low because of this new capital requirement but because of certain fundamentals, which we need to fasten our seat belt about,” Mr Akrong stated.

The latest banking sector stability report by the Bank of Ghana has showed that commercial banks have reduced their lending to businesses.

The move has been necessitated by the rise in the non-performing loans of the commercial banks, which stood at GH¢7.96 billion as at June 2017.

For instance, loans to households for mortgage purposes declined marginally between April and June 2017.

The figure dropped from 8 to 5 percent within the period.

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Emmanuel Akrong, however, said intensifying good corporate governance practices should among others reverse any adverse impact of any decision by banks to the economy.

“In the long run, I foresee a strong system in place, some of the recommendations I have made include a strong corporate governance, risk based pricing and credit and all those things are put in place, you will see a good impact on the environment in terms of high notes… there are other things that if done, no bank is going to fold its arms and say that if there are good opportunities for me to lend, I am not going to,” Mr. Akrong further asserted.

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Business & Finance

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