Banks appetite for T-bills to drop; Loan book to expand – Report

March 27, 2024 / Comments (0)

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Banks’ appetite for treasury bills in favour of lending is expected to drop following the increase in the Cash Reserve Ratio (CRR) of banks.

The Bank of Ghana (BoG) adjusted the Cash Reserve Ratio for banks beginning Monday, March 25, 2024.

The measures are banks with Loan to Deposit ratio above 55% will have to meet a CRR of 15%, banks with Loan to Deposit ratio between 40% and 55% will have to meet CRR of 20% and banks with Loan to Deposit ratios below 40% will be required to hold CRR of 25%.

GCB Capital said it sees the orientation gradually shifting towards a more aggressive credit stance, which will have ramifications for the government’s deficit financing operations and the real sector.

For the real sector, it pointed out that the competition for quality credit could drive down lending rates and, potentially, stimulate growth through increased investments.

“However, with banks dominating T-bill holding (banks held 35.3% of outstanding Future Value of T-bills as of February 2024), the anticipated reduction in demand for T-bills could result in a higher interest cost for the Treasury’s [government’s] funding operations immediately. With the BoG also facing high interest costs (around the policy rate) for its Open Market Operations (OMO) operations amidst the need to mop up excess liquidity to douse inflation, the directive will sweep substantial liquidity from the system (without the bank’s response) at no cost to the regulator”.

While total deposits of the banking sector grew by 25.5% year-on-year in February 2024 to GH224.4 billion (+GHS45.6 billion), loans and advances grew by a paltry 1.77% year-on-year to GH74.8 billion (+GH1.3 billion). Private sector credit also increased by 5% to GH68.8 billion (+GHS3.3 billion) but contracted by 14.7% to GH331.1 million in real terms.

The data shows that banks have generally channelled their deposits into investment in Government of Ghana bills and BoG OMO bills, with the investment portfolio increasing by 67.6% year-on-year (+GH53.6 billion) amidst the increased aversion to loan book expansion due to the uncertain operating environment.


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