Small and Medium Scale Enterprises (SMEs) face tougher financing of their business this year, as banks have continued to tighten access to credit against the background of a challenging business environment hobbled by the ongoing erratic energy supply.
Banks have over the past year kept tightening the credit conditions for SMEs whenever the central bank assessed the credit access situation in the country as perceptions of increasing macro and micro risks as well as the company-specific outlooks -- in particular of SMEs -- have played an increasing role in tightening business credit standards and reduced availability of external financing, despite policy support.
While the provision of credit by banks has been eased for large enterprises and households, SMEs and people looking for loans to buy houses on mortgages have seen access to credit constricted.
The Bank of Ghana has found from its survey of credit conditions that credit from banks is drying up for small firms more than for both large enterprises and households.
The Governor of the Bank of Ghana, Dr. Henry Kofi Wampah, explained on Wednesday that banks lending conditions have eased -- but slightly less so for smaller firms.
“Small and Medium Enterprises’ (SMEs’) access to credit and loans for mortgages were tightened marginally. However, access to credit for large enterprises remained easy,” he said.
The findings are in line with those of the Association of Ghana Industries -- the umbrella arm of industry -- which has also found accessing credit to be the second-most important challenge behind availability of power supply facing businesses in the country.
The problem of obtaining bank loans has been aggravated by the erratic power supply, which has impacted negatively on the input costs and production output of smaller firms -- putting substantial pressure on profit margins.
According to the central bank’s figures, in nominal terms credit to the private sector grew by 42.1 percent in December last year compared to 28.6 percent in the same period 2013.
At the same time, real credit growth was 21.9 percent compared to 13.3 percent a year earlier. “The credit growth was mainly funded by increased mobilisation of domestic deposits by the banking system,” Dr. Wampah added.
It is envisaged that in spite of these pressures on the economy, small and medium businesses are less likely than larger ones to respond to economic pressures by cutting staff and capital investment.
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