Moody's: Lower NPLs credit positive for Ghana’s banks

Moody's, a leading credit rating agency, has recently released a report stating that the decrease in non-performing loans (NPLs) in Ghana is a positive development for the country's banking sector. According to Christos Theofilou, Vice President and Banking Analyst at Moody's, the drop in NPLs, which followed a recent clean-up and recapitalization exercise, is crucial for enhancing financial stability in Ghana. The report indicates that the Bank of Ghana's efforts have led to a significant decrease in NPLs from over 17% in October 2019 to below 14% by December 2019. This reduction is attributed to various factors such as increased loan recovery, write-offs of fully provisioned legacy loans, and higher credit growth. Additionally, recent regulatory reforms and the enforcement of the central bank's loan loss write-off policy have contributed to this positive trend. Asset risks continue to pose a challenge for Ghanaian banks, despite improvements in capital and profitability. Moody's emphasizes that while NPLs remain a key risk factor, the strengthening of provisioning levels and the banks' solid capital and profitability levels support overall financial stability. With NPLs becoming less burdensome for banks, Moody's anticipates a shift towards increased lending activities, fostering economic growth. The recent uptick in loan growth announced by the central bank, from 10-11% to 18%, indicates a positive trajectory for bank lending in Ghana. By addressing legacy issues and focusing on growth, Ghanaian banks are poised to play a more active role in extending credit to the economy, supporting sustainable development. The report reflects a turning point for Ghana's banking sector, signaling a brighter outlook for financial stability and credit growth in the country.