By Jibril Abdul Mumuni
Accra, Oct. 17, GNA – Credit risks continue to constrain bank lending to small and medium-sized enterprises (SMEs), despite easing inflation and improving economic conditions, the Bank of Ghana (BoG) has said.
Banks remain cautious about extending loans because of concerns over borrowers’ repayment capacity, asset quality and the risks associated with certain economic sectors.
The Monetary Policy Committee (MPC) disclosed this in the Bank’s latest bi-monthly publication, which contains responses by Dr Johnson Pandit Asiama, Governor of the BoG, to media questions following a recent MPC meeting.
The Committee said many SMEs struggled to access affordable credit because of weak financial records, limited collateral and the higher perceived risk of default.
It also identified weaknesses in borrower information systems and difficulties in enforcing collateral as factors contributing to banks’ cautious lending practices.
Although lending rates had declined, banks remained reluctant to expand credit to businesses in sectors with elevated repayment risks, including agriculture, transport and construction.
The MPC noted that businesses in those sectors were exposed to risks such as adverse weather conditions, fluctuating commodity prices, delayed payments and broader economic volatility.
It said private-sector credit growth was expected to improve over the next two quarters, supported by stronger macroeconomic conditions, declining inflation, easing financing conditions and sound capital and liquidity positions in the banking sector.
However, the Committee said credit risks would continue to influence lending decisions.
“Although asset quality has improved significantly, with the non-performing loan ratio declining, banks continue to exercise caution in credit underwriting, especially in sectors with elevated repayment risks such as agriculture, transport and construction,” it said.
The Committee said the expected recovery in private-sector credit would therefore be gradual rather than rapid.
It explained that structural challenges in the credit market continued to limit the extent to which monetary policy easing translated into lower lending rates.
Lending rates continued to reflect credit risk premiums, operational costs, regulatory requirements and liquidity considerations, particularly for SMEs and businesses in the informal sector, it said.
The Committee said stronger credit information systems, improved collateral enforcement mechanisms and continued financial sector reforms would be necessary to support lending to the private sector.
It said that it would continue to monitor credit conditions and financial sector risks to ensure that lending growth remained consistent with financial stability objectives.
SMEs account for a significant share of economic activity and employment in Ghana and have identified high lending rates and limited access to finance as major constraints to business growth and expansion.
GNA
Edited by Kenneth Sackey