Struggling banks to submit recapitalisation plans
By Isaac AIDOO, Accra
Banks significantly impacted by Ghana’s current macroeconomic conditions and government’s domestic debt restructuring exercise have been instructed to submit recapitalisation plans to the Central Bank for review, Governor of the Bank, Dr Ernest Addison has revealed.
According to the regulator, “we have already met affected banks which are currently reporting Capital Adequacy Ratios of 10% and below and requested recapitalisation plans from them.”
Dr Addison told journalists in Accra that preliminary assessment by the Bank of Ghana (BoG) of the impact of the Domestic Debt Exchange Programme (DDEP) on the banking sector using 2022 data had revealed significant losses on account of impairment of banks’ holdings in government bonds.
The Governor further stated that macro-prudential risk assessments conducted during the last Monetary Policy Committee (MPC) meeting indicated increased pressure on profitability and solvency of banks prior to the implementation of the DDEP.
“The preliminary data available at this MPC, show that the pre-pandemic capital buffers in the banking sector have been weakened somewhat by the recent macroeconomic challenges and the DDEP, although banks remain liquid. These require contingency measures by banks, supported by the regulatory reliefs to contain potential risks to financial stability,” he said.
Meanwhile Dr Addison who announced an increase in the Bank’s prime rate by 150 basis points to 29.5% disclosed that the Monetary Policy Committee had decided to reset the Cash Reserve Ratio on domestic currency deposits for banks from 12 to 14%, effective April, 13, 2023.
The decision to tighten monetary policy was according to Dr Addison “to place the economy firmly on the path of stability and reinforce the pace of disinflation.”
“It is important that the monetary policy stance be tuned further to re-anchor inflation expectations towards the medium-term target,” he added.
Developments in the banking sector broadly reflected the challenging operating environment in 2022 on account of macroeconomic conditions, and the recent implementation of the Domestic Debt Exchange Programme (DDEP) which
The Governor noted however that the impact of the DDEP on the banking sector had been moderated by the timely introduction of regulatory reliefs from the BoG, “ to support the banking sector, similar to the reliefs provided to banks at the onset of the COVID-19 pandemic.”
Work on Financial Stability Fund still in progress
Dr Addison said the processes as to how the banks could apply for support from the Financial Stability Fund were being finalised, as funds pledged by the World Bank to support the fund were still being expected.
Total assets of the banking industry stood at GH¢209.4 billion in December 2022, representing a growth of 16.4 percent, reflecting sustained growth in deposits and exchange rate variations on banks’ balance sheets.
Total investments declined significantly to GH¢64.8 billion in December 2022 from GH¢83.1 billion in December 2021, indicating a contraction of 22.1%, compared with the 29.0 percent growth in the same period a year before.
Credit, on the other hand, increased by 28.5% to GH¢69.1 billion in December 2022 from GH¢53.8 billion in December 2021. Of the total liabilities of the banking system, total deposits stood at GH¢157.9 billion, representing an increase of 30.4 percent year-on-year, compared with 16.6 percent recorded during the same period in 2021.
