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Banks to cut back lending to energy sector

Oct. 26, 2017, 12:15 p.m.

Banks are expected to tighten their lending to the energy sector soon. It will follow the repayment of the accumulated energy debt to the affected banks.

Currently, bids are being accepted for the first tranche of the bond to raise 6 billion cedis.

This is expected to close by Friday, October 27, 2017.

But Economist at the University of Ghana Business School, Dr. Lord Mensah tells Citi Business News the reduction in loans to the energy sector is inevitable as the development has adversely affected the financial position of most banks.

Dr. Mensah says the decision would also be influenced by the available options in lending with relatively lower defaulting rates.

“Looking at the duration that these loans have stayed in as much as it is accruing interest, more or less to some banks, it is turning out to be some bad debt. In as much as if government owes you, it is not a bad debt, but then the alternative that you could have used your money for but you are not getting it?” he asserted on Business Today.

Banks worst hit

Commercial banks have been the worst hit in the accumulated legacy debt in the energy sector.

The debt is currently estimated at 2.5 billion dollars. This translates into about 10 billion cedis.

As at the end of 2016, the debt stood at an estimated 2.5 billion dollars. A breakdown showed that the banks are owed 782 million dollars.

This has largely been accounted for by state-owned Volta River Authority (VRA).

Bankers have always been upbeat about the issuance of the energy bond as they say it will largely help correct their balance sheets.

Banks want expedited action

The Executive Director of Unibank, Clifford Mettle in a recent interview with Citi Business News said,

The liquidity situations in most banks are a bit critical…the energy bond will certainly help ease the liquidity so banks are actually looking forward to the settlement,”

Managing Director of Cal Bank, Frank Adu Jnr also indicated that, “the move should correct the balance sheets of banks that are exposed to the debt…This will also restore confidence in the banking sector.”