Government has failed to fulfill its promise to pay its debts to some Bulk Oil Distribution Companies (BDCs) at the end of June, this year.
The operations of many bulk distributors of petroleum products could grind to a halt by the end of 2016 if government fails to pay the debts owed them.
Senyo Horsi, Chief Executive Officer (CEO) of BDCs, recently told the media in Accra that “we have liquidity heavily stacked. A number of BDCs are not operational. We are using the private sector to fund government fiscal policy indirectly. That is what we have been doing.”
Government is currently indebted to about 17 BDCs in excess of GH¢500 million.
The majority of the BDCs contracted loans from commercial banks in the country to facilitate their operations but have failed to pay up the loans due to government’s indebtedness.
The development has led to a significant rise in bad loans on the books of banks recently. And some 11 banks in the country are adversely affected by the development.
Moses Asaga, Chief Executive of the National Petroleum Authority (NPA), said that government would hopefully repay the debt by the third quarter of this year.
It expects to issue a $530 million bond to raise funds to settle its indebtedness to the BDCs.
The debt was incurred as a result of under recovery from subsidies on petroleum products.
The bond, according to Mr Asaga, would also be used to clear all legacy debt obligations to the BDCs.
The accumulated debts have also affected the balance books of most commercial banks in the country.
The development was reported to have contributed significantly to the Non-Performing Loan (NPL) portfolio of the commercial banks.
“The BDC debt is a real threat to the banking system. Our banking system will suffer a crisis if we do not take care. The banks are exposed to the BDCs and if the BDCs don’t pay they will collapse.”
Central bank statistics
The Bank of Ghana, in its first financial stability report for 2016, revealed that bad loans on the books of commercial banks in the country increased by 14.9 percent to GH¢4.52 billion in 2015 against GH¢2.72 billion recorded in 2014.
Players in the banking industry have described the development as troubling.
Edward Effah, CEO of Fidelity Bank, noted at the bank’s AGM: “We have also seen a deterioration of loans from the BDCs, this is because government owes the BDC foreign exchange losses and under recoveries. So the BDCs are unable to pay the loans. But I believe this is being resolved through the energy sector levy act, which has been passed and we hope that by the end of the year, a lot of progress would have been made towards this resolution.
HFC Bank, also at its AGM early this year, told shareholders it might be forced to stop giving out loans to BDCs due to their indebtedness to the bank.
The bank’s loan impairment expense went up by a whopping 474 percent to end 2015 at GH¢81,848,000.
Dr. Mahamudu Bawumia, the NPP Vice Presidential candidate of the New Patriotic Party (NPP), has also warned that a number of banks could collapse if the debts owed BDCs are not settled soon.