Credit for SMEs to be tightened further

The recent Credit Condition Survey by the Bank of Ghana shows that universal banks in the country expect the stance on overall enterprise credit to tighten marginally over the next two months, driven by a net tightening of the credit stance to SMEs and large enterprises. 

The survey findings also pointed to net ease in banks’ overall credit stance to households which reflected in both loans for house purchases and loans for consumer credit and other lending. This was consistent with the sharp increase in credit to households observed during the review period, reflecting banks’ improved capital positions. 

Banks project further ease in the credit stance on overall loans to households over the next two months, driven by a net ease in the credit stance on mortgages.

The April 2019 Credit Conditions Survey pointed to a net ease in the overall credit stance to enterprises following net eases in banks’ credit stance on all categories of enterprise loans. 

This was corroborated by the gradual pick up in actual credit growth recorded in April 2019. The softened credit stance on loans during the first four months of 2019 was in line with expectations of recovery in credit growth following the post-recapitalisation period.

In respect of demand for credit, the survey results showed an increase in the overall demand for enterprise credit, driven by increased demand for long term and SME loans. 

The demand for short term loans and corporate loans however declined between February 2019 and April 2019. Banks project an increase in overall demand for credit by enterprises over the next two months, which will be reflected in demand for the different categories of loans except corporate loans. 

 The survey findings also revealed a net increase in the overall household demand for credit driven by a sharp increase in the demand for mortgage loans. The demand for loans for consumer credit and other lending however declined marginally. Over the next two months, banks project a net increase in the overall demand for credit by households from a net increase in the demand for mortgage loans while the net demand for consumer credit and other lending is projected to remain broadly unchanged. 

 The banking sector’s one-year inflation expectations index declined during the April 2019 survey round, indicating that banks expect inflation to decline one year from now.  Banks attributed the lower inflation expectation to the sustained single digit inflation over the past 10 months, as well as expectations of improved performance of the economy.

Banks’ lending rates expectations also declined during the April 2019 survey round. Banks’ lending rates expectations are projected to decline further with the resolution of the industry’s high NPLs and sustained macroeconomic stability