The rising bad debts, widely known as Non-Performing Loans (NPL) in Ghana’s banking industry have been identified to be mainly driven by the agriculture, forestry, and fishing sectors of the economy.
These NPLs are loans businesses and individuals have taken from the banks but are unable to pay back according to schedule.
The latest Monetary Policy Report published by the Bank of Ghana for July 2024 which covers the first half of the year reveals that the banking industry recorded a significant increase in bad loans rising to 24.2% compared to 18.7% recorded in the same period last year thus, June 2023.
In a more worrying trend, these rising bad loans were increasing faster than the growth of new loans. While banks gave out more loans to people and businesses, the number of businesses and people defaulting in repayment was even rising faster.
“The industry’s NPL ratio rose to 24.2 percent in June 2024, from 18.7 percent in June 2023. The rise in the NPL ratio during the period under review was explained by the higher growth in the NPL stock relative to the growth in total loans. The industry’s NPL stock grew by 49.4 percent to GH¢20.4 billion in June 2024, up from GH¢13.7 billion,” portions of the report revealed.
A careful scrutiny of the report by The High Street Journal reveals that the agriculture, forestry, and fishing sectors combined contributed to more than half of the total bad debt of the industry. The sectors hold 56.4% of the total bad debts representing a significant increase from 30% during the same period last year.
This signifies that the majority of people and businesses who are defaulting in the repayment of their debt causing a financial strain on the banking system are in the agriculture, forestry, and fishing sectors.
“The agriculture, forestry, and fishing sector recorded the highest NPL ratio of 56.4 percent (an increase from 30.0 percent a year ago),” the report noted.
This was followed by the transportation, storage, and communication sectors with an NPL ratio of 49.1 percent rising from 22.1 percent a year earlier. Next is the NPL ratio of the construction sector which also saw an increase to 36.8 percent from 32.8 percent, followed by the electricity, water, and gas sector at 20.6 percent from 7.8 percent.
The commerce and finance sectors remained unchanged at 20.2 percent. The mining and quarrying sector accounted for the lowest NPL ratio of 13.7 percent in June 2024 from 12.7 percent a year earlier.
Author-generated
Experts attribute this surge in the increase of bad loans from the agriculture, forestry, and fishing sectors to a combination of factors. Among them includes climate change which has altered the rainfall pattern given the high dependence on rainfall for farming in the country hence negatively impacting crops and reducing yields.
Other factors include floods, especially in the northern part of the country where farms are submerged making it difficult for farmers to meet their loan obligations. In addition, poor infrastructure and difficulty in accessing markets further deepen the problem leading to huge post-harvest losses.
The rising NPLs in the banking industry pose a significant risk to the financial sector health of the economy which can transcend to the general economy. The government must therefore prioritize measures to mitigate the risks in the operations of these very crucial real sectors of the economy to enhance their productivity and loan repayment.
