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The Managing Director of Fidelity Bank, Mr Edward Effah, has predicted a decline in credit to businesses this year as a result of the current harsh economic conditions.

With the energy crisis continuing into the second half of the year, Treasury bill rates averaging 25 per cent, inflation at a year-high of 16.9 per cent and the Bank of Ghana policy rate pegged at 22 per cent, Mr Effah said banks would generally be discouraged from lending to businesses for fear of defaults.

“It is natural that looking at the economic situation, most banks will slow down on lending and when things stabilise they will go up again,” he told the GRAPHIC BUSINESS in Accra.

A drop in credit to businesses will complicate the troubles of the business community, especially those in the manufacturing sector whose fortunes have been dampened by the ongoing power crisis.

Already, power supply challenges and the depreciation of the local currency have impacted negatively on businesses, causing a rise in their cost of production and subsequently reducing their profit margins.

The risk associated with lending to businesses has heightened and consequently, most banks have slowed down on giving out loans and are rather focusing on investing in treasury bills and other securities.

A recent survey of credit conditions by the Bank of Ghana indicated an overall net tightening for all loan types

The findings of the survey, which was published in the May 2015 report of the bank’s Monetary Policy Committee (MPC) showed that in the first quarter of this year, private sector credit growth declined to 36.4 per cent from 42.1 per cent in December 2014. In real terms, the report showed that credit growth declined from 21.9 per cent in the last quarter of 2014 to 17 per cent in the first quarter of this year.

Rising NPLs

Mr Effah said it was likely that the ratio of Non-Performing Loans (NPLs) might go up in 2015 if banks did not adopt the right lending strategies.

“Looking at the economic situation, NPLs may go up, but every bank has its own strategy and you have to manage your NPL your own way and make sure you are lending right,” he said.

The May 2015 of the BoG report indicated that the NPL ratio in the banking system increased to 5.6 per cent at the end of December 2014, compared with 4.6 per cent in the corresponding period in 2013.

However, the unadjusted NPL ratio declined to 11.3 per cent from 12 per cent in 2013.

These notwistanding, the MD of the Fidelity Bank was optimistic that businesses could survive the challenge, explaining, “About 90 per cent of businesses in Ghana are Small and Medium Enterprises (SMEs), we don’t believe all of them will go bankrupt, but we have to be a little more cautious. But we will certainly be doing something with SMEs to create more jobs, generate exports and develop the agricultural sector.”

Fidelity- ProCredit integration

In August 2014, Fidelity Bank Ghana Limited acquired 100 per cent of ProCredit Savings and Loans Company Limited, Ghana.

Sharing insights on the merger, Mr Effah said the integration between the bank and ProCredit had been successful and the merger was, therefore, expected to grow the bank and improve its balance sheet.

“The integration has been successful, am sure when you drive around you see that all former ProCredit branches are now Fidelity Bank branches. We expect those branches to grow and as more and more people bank with them, that will also improve our balance sheet and we will become a much bigger bank in terms of our deposit base and balance sheet base.”