It appears the woes of commercial banks regarding their exposure to Non Performing Loans (NPLs) may not be ending anytime soon with the latest development from the Bulk Oil Distributors regarding their indebtedness to some banks.
Information available to Citi Business News indicates that banks that are owed by the Bulk Oil Distributors (BDCs) are to lose at least 800 million cedis to their debtors over their inability to recoup such monies.
As a result, the businesses indebted to the banks risk folding up or find alternative means to sustain their operations.
Citi Business News analysis also shows that this situation could adversely affect the banking sector hugely.
According to the CEO of the Chamber of Bulk Oil Distributors, Senyo Hosi, the latest development has become necessary due to the government’s excessive delay in the payment of monies owed the oil distributors.
He tells Citi Business News a decision on the payment plan is however expected to be taken this week.
“We are hoping that we will finalise negotiations on what is left but it is likely we are going to take a major haircut. The outstanding indebtedness is about 1.6 billion cedis and about fifty percent of it (800 million cedis), we will have to swallow,” he stated.
The total indebtedness to the Bulk Oil Distributors stood at 2 billion cedis as at 2016.
Government paid 600 million cedis out of the amount and had hoped to complete payment by the end of June the same year.
But two years on, the oil distributors are yet to see the debts cleared off their books as well as that of their bankers.
There are concerns that the losses are likely to be passed onto consumers by the BDCs as a result.
But Senyo Hosi maintains that will not be the case.
“We are not passing unto the consumers but we are sharing with the banking sector which will take a hit…those who cannot pay the debts to the banks may have to fold up or find other coping mechanisms,” he stressed.
Already the banking industry is struggling to come out of the impact of the rising Non Performing Loans due to the private sector.
For instance, the bank of Ghana’s banking stability report showed that the NPLs increased from GH¢6.14 billion to GH¢8.58 billion between 2016 and 2017.
This translates into an NPL ratio of 22.7 percent in December 2017 from 17.3 percent in December 2016.
Shaving off 800 million cedis will mean such banks will have to resort to new ways to cater for the losses.
This may also impact on their ability to raise funds to meet other regulatory obligations such as meeting the minimum capital.