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Clearing energy sector debts would reduce cost of credit – Ecobank MD

  • SOURCE: Myjoyonline | qwesa2big
  • Managing Director of Ecobank, Daniel Sackey, is optimistic moves to clear all the energy sector debts would help reduce the cost of credit in the country.

    The government last Thursday named StanChart and Fidelity Bank as joint lead managers of the process to raise GHC10 billion to the energy sector debts.

    The two institutions have been tasked to complete the fund raising exercise within two months according to sources close to government.

    The energy sector debts which is said to have reached alarming levels has resulted in high loan defaults in the banking sector, while some banks are said to be serious financial distress.

    But Mr Sackey tells JOYBUSINESS this would help free up a lot of capital so they can lend more to new businesses.

    “It will inject significant liquidity into the banks and allow the banks to support sectors of the economy that have hitherto been deprived of the economy as the funds are tied up in the SOE and energy sector debt.

    “So government’s ability to raise these funds will ensure that liquidity is pumped into the banking sector and hopefully the banks will be able to redirect it to other sectors of the economy that are in real need of such funding,” he said.

    Regarding the rise in Non Performing Loans (NPLs) and how it would impact on the cost of credit going forward, Mr Sackey said there are other determinants of the cost of credit.

    “However, high NPLs is one of the factors contributing to the high cost of credit but government’s ability to make this significant payment will help reduce the NPL on banks books,” he said.

    Mr Sackey believes this will lead to lower lending rates adding the banks are already happy with the current trends culminating in the reduction in rates of lending.

    “As consumers, we are looking at a faster reduction but we believe that as the factors are tackled, step by step we will see a gradual reduction which will filter through to the final consumer,” he said.

    Meanwhile, government might not struggle in raising the required funds for the energy sector bonds.

    This is because one of the biggest institutional investors in the country Social Security and National Insurance Trust (SSNIT) has indicated it’s preparedness to take up some of the bonds.

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