The Bank of Ghana (BOG) in its monetary policy report has revealed that a whopping amount of GH¢2.92bn has been written off as bad debt by banks operating in Ghana as of October 2022.
The term bad debt refers to loans or outstanding balances owed that are no longer deemed recoverable as a result of a default on the part of the debtor.
In such a situation, a creditor writes off unpaid loans after it has exhausted every possible avenue to collect on bad debts, including collection activity and legal action.
According to the BoG, the bad debt recorded this year was 66.8% more than the previous year.
BoG in its report, disclosed that during the same period in 2021, GH¢1.75 billion was written off as bad loans.
Per reports, bad debts are recorded if the debtor can’t or refuses to pay because of bankruptcy, financial difficulty, or negligence.
Nonetheless, the industry’s asset quality, Non-Performing Loans (NPL) improved during the period under review from 16.4 percent in October 2021 to 14.0 percent in October 2022.
When adjusted for the fully provisioned loan loss category, the industry’s NPL ratio declined sharply from 6.2 percent to 3.9 percent.
The decline in the NPL ratio was due to higher growth in total loans (57.7% y/y growth) relative to the NPL stock (34.2% y/y growth) during the review period.
The industry’s NPL stock, however, increased to GH¢11.3 billion in October 2022 from GH¢8.4 billion in October 2021, also partly reflecting the revaluation of the foreign currency NPLs and deterioration in some domestic currency portfolios.
The NPL ratios for all the other sectors declined with the exception of the services sector, which recorded an increase in its NPL ratio from 8.4 percent in October 2021 to 8.6 percent in October 2022.
Specifically, the NPL ratio of the commerce and finance sector declined from 23.8 percent in October 2021 to 15.9 percent in October 2022, while that of agriculture, forestry, and fishing declined from 29.9 percent to 22.4 percent during the same comparative period.
Five (5) other sectors also recorded declines in NPL ratios, namely, mining and quarrying sector (from 8.9% to 4.6%); manufacturing (from 18.0% to 14.6%); electricity, water, and gas (from 15.4% to 11.1%).
The rest are “transport, storage and communications (from 11.8% to 11.2%), and construction (from 35.0% to 31.7%). The NPL ratio for the construction sector was the highest at 31.7 percent, followed by agriculture, forestry, and fishing at 22.4 percent, while the mining and quarry,” part of the statement read.
Source: The Independent Ghana