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A Bank of Ghana survey has indicated a decline in net demand for credit by both households and enterprises in the second quarter of the year. It said non-price terms and conditions such as shortening of the maturity of loans or credit lines, and the requirement of additional loan covenants and collaterals were used in tightening credit to both households and enterprises. Dr Paul Acquah, Governor of the Bank of Ghana, told a press conference in Accra on Tuesday that the net tightening was more pronounced for long term facilities than the short term ones. "In particular, the mortgage sub-sector, commerce and finance, transport and storage as well as services sectors witnessed significant reduction in credit allocation during the second quarter," he said. Provisional estimates of Domestic Money Banks credit to the private sector and public institutions over the 12-month period to May 2009 increased by GH�2,025.7 million (43.8 per cent) compared with GH�1,699.9 million (58.0 per cent) recorded for the same period in 2008. The private sector accounted for GH�1,649.8 million (81.4 per cent) of the credit flow. This was GH�1,440.6 million (84.7 per cent) for the same period in 2008. Dr Acquah said real annual growth of credit to the private sector was 19.1 per cent at the end of May 2009, a slowdown from 25.4 per cent for December 2008 and 36.9 per cent for May 2008. Credit flow to enterprises accounted for 81.2 per cent of total credit flow to the private sector over the 12-month period to May 2009, up from 79.2 per cent at end of March 2009 and 71.5 per cent for May 2008. The share of households eased to 17.1 per cent in May 2009 from 28.0 per cent in May 2008. There was also a significant slowdown in the flow of credit to households during the period from 89 per cent a year ago to 33 per cent in May 2009. Dr Acquah said distribution of the annual credit flow showed some shifts and reductions in certain key sectors. The share of the services sector which accounted for 35.9 per cent at the end of December 2008, reduced to 24.8 per cent in March 2009, and further to 18.4 per cent in May 2009. Similarly, the share of commerce and finance reduced from 20.2 per cent in March 2009 to 16.5 per cent in May 2009; manufacturing from 10.4 per cent to 9.3 per cent. On the other hand, electricity, gas and water increased from 10.6 per cent in March 2009 to 11.4 per cent in May and agricultural from 5.1 per cent in March 2009 to 6.6 per cent in May. The remaining sectors recorded varying levels of increases in the flow of credit to the private sector ranging between 1.7 and 5.1 per cent. Dr Acquah said banks increased their rates in the second quarter with average base rate quotations of the banks revised upward by 160 basis points (bps) in the second quarter in the range 25.75 per cent - 32.0 per cent compared with the earlier 170 basis points increase in the first quarter of last year. Average lending rates were similarly revised upward by 150bps in the second quarter to 32.75 per cent within the range 25.75 - 40.0 per cent. Dr Acquah said the expansion of the total asset portfolio of the banking system seen in the first quarter of the year continued into the first two months of the second quarter. Total assets of the banking industry for the twelve-month period to May 2009 grew by 36.0 per cent to GH�11,479.0 million, compared with a growth of 37.1 per cent for the same period in 2008. However, an increased proportion was in the form of investment in Treasury Bills. At the same time, deposits growth which was 36.4 per cent, compared with 40.7 per cent for the same period in 2008, was the main source of funds for expanding the asset portfolio of banks. Dr Acquah said external borrowings by banks, as a source of funding remained less than five per cent of total bank funding requirements. "The banking industry's total external credit lines constituted less than 10 per cent of total trade and no significant disruption has been observed in these credit arrangements," he said. Dr Acquah said a stress test of the solvency of the banking sector shows that only a recall of significant proportion (in excess of 50 percent) of external borrowings will impact on the risk adjusted capital of the banking industry. Capital adequacy ratio for the industry was 14.5 per cent, higher than the prudential level of 10 percent for the industry.