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Credit To Private Sector Bouncing Back

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THE CENTRAL Bank on Monday announced that credit to the private sector is recovering to the pre-pandemic levels, reflecting commercial banks’ portfolio rebalancing.

It said in year-on-year terms, private sector credit increased significantly by 33.7 percent in June 2022, compared with 6.8 percent in the same period of 2021.

“In spite of the sustained price pressures, private sector credit, in real terms, recorded a 3.0 percent growth. A year ago in June 2021, real private sector credit had contracted by 0.97 percent.

“The latest credit conditions survey of banks revealed tightened credit stance on loans to enterprises and households. Notwithstanding these tight credit conditions across the industry, banks’ credit extension improved during the review period,” Dr Ernest Addison, Governor and chairman of the Monetary Policy Committee said.

He said new advances to the economy broadened across the industry, with 20 out of 23 banks extending new credit.

“Total new advances as of June 2022 was GH¢24.6 billion (54.0 percent year-on-year growth), compared to GH¢15.9 billion (1.0 percent growth) recorded for the same period of 2021,” the BoG Governor said.

He continued that results from the bank’s latest confidence surveys conducted in June 2022 showed significant softening of business and consumer sentiments adding that “While consumers felt less optimistic about future economic conditions, businesses were concerned about the impact of high cost of raw materials, rising labour costs, exchange rate volatility, and weak consumer demand.”

These conditions adversely impacted business optimism and prospects. At the same time, the Purchasing Managers’ Index (PMI), which provides information on inventory accumulation and new orders at the firm level, also declined.

Beyond the first quarter, the Bank of Ghana’s high frequency indicators reflected further slowdown in economic activity, consistent with the recent GDP data.

“The updated Composite Index of Economic Activity (CIEA) recorded an annual growth of 1.7 percent in May 2022, compared to 2.5 percent in April 2022 and 5.0 percent in December 2021.

“The key growth drivers were exports, credit to the private sector, and tourist arrivals, while construction activities and industrial production contracted over the period.

“The pace of expansion in monetary aggregates moderated in the first half of 2022. Broad money supply (M2+) grew by 19.1 percent in June 2022, compared with 21.3 percent in the same period of last year,” he said.

The Governor added that the slower growth was driven by a contraction in the Net Foreign Assets (NFA) of banks, which was partly offset by a significant expansion in Net Domestic Assets (NDA). Reserve money growth also slowed to 33.8 percent from 41.2 percent, recorded over the same comparative period.

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