According to the Bretton Woods institution, the high-risk exposure is therefore crowding out the private sector’s resolve to lend.
In a recent Article IV Consultation paper issued on Ghana, the IMF explained, “government lending supported the banking sector through the pandemic, but is crowding out private-sector credit and increasing balance sheet risks”.
The IMF adds that government’s share of lending to total assets has hit 44.7 percent in February this year from an earlier 36.5 percent recorded the previous year.
This was however driven by large budget deficit as well as risks to credit and demand as a result of the coronavirus pandemic.
“This growing sovereign exposure, a trend that started even before the pandemic, props up bank profitability but undermines private-sector credit growth.”
“Moreover, the exposure could create bank balance sheet losses if government yields were to increase, amplifying the impact of potential debt rollover difficulties or other exogenous shocks on credit growth and economic activity,” the IMF explained. Read Full Story
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