Banks have up to end of Q3 to submit plans for recapitalisation
Dr Ernest Addison, Governor, BoG

Banks have up to end of Q3 to submit plans for recapitalisation

ALL Banks whose capital have been affected by the Domestic Debt Exchange Programme (DDEP) have up to September this year to submit their recapitalisation plans to the Bank of Ghana.

While the central bank expects banks to approach their shareholders first to recapitalise, if they are not successful with that, they may have to seek assistance from the yet-to-be-operationalised Financial Sector Stability Fund to do so.

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Banks in the country have relatively been stable following the financial sector clean-up which saw them increase their stated capitals to GH¢400 million.

However, the recently concluded DDEP which saw the participation of all the 23 commercial banks in the country has hit hard at the industry, with 16 banks recording significant losses in 2022.

Although five banks recorded profits in the year under review, the profits recorded were a huge decline from what they recorded in 2021.

An analysis by the BoG indicated that the banks recorded losses totalling GH¢8 billion in the year under review.

The debt restructuring exercise forced the banks to set aside huge amounts of money as impairment losses and this is what has led to majority of the banks recording losses in 2022.

This has led to severe liquidity and capital challenges for the banks, with some already rolling out plans to quickly recapitalise.

As a sector which has already gone through some reforms which saw the collapse of nine banks, these fresh challenges have raised a lot of concerns 

Banks capital buffers 

Responding to questions by the Graphic Business at the Monetary Policy Committee press conference in Accra on Monday, the Governor of the Bank of Ghana, Dr Ernest Addison, emphasised that the impact of the DDEP had affected the capital buffers of banks.

He said an analysis by the central bank indicated that if it takes into cognisance the three per cent additional buffer, the banks would need to add up to their capital.

The BoG as a regulatory relief to the banks, reduced the capital adequacy ratio from 13 per cent to 10 per cent.

“Right now we have reduced the capital adequacy ratio to 10 per cent and we are hoping that over the next three years, the banks will be able to rebuild their capital buffers and hopefully at that time we may bring in the additional three per cent capital buffer,” Governor Addison stated.

He said most of the banks had started working towards that.

“They have been given a period of up to September to submit their plans and we will be following up on them to ensure that instead of distributing profits that they have started making, they will use those resources to rebuild their capital reserves,” he noted.

Liquidity support

Dr Addison also mentioned that no bank had so far approached the central bank for liquidity support despite the challenges. He said that could be partly due to the regulatory reliefs provided to them by the central bank.

He, however, noted that should any bank need liquidity, the BoG would stand ready to provide the resources in line with its rule books for liquidity assistance.

IMF concerns 

The International Monetary Fund in its report on Ghana’s $3billion programme said the DDEP presented a substantial challenge for the health of the financial sector given its exposure to government debt. Domestic bonds were widely distributed across the financial sector in Ghana, representing the most important asset class held by commercial banks, pension funds, asset management companies and insurance companies.

Banks held 30 to 50 per cent of their total assets in government securities before the DDEP, with especially high exposures in the state-owned banks who relied significantly on income from those securities.

The coupon reductions and maturity extensions meant that the value of those assets would decline to about 70 per cent of the par value. The IMF said revaluation represented a significant shock to the balance sheets of those financial institutions.

The Managing Director of the IMF, Kristalina Georgieva, in a statement, pointed out that preserving financial sector stability was critical for the success of Ghana’s IMF programme.

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She said given the adverse impact of the domestic debt restructuring on balance sheets of financial institutions, the authorities would devise and implement a comprehensive strategy to rapidly rebuild financial institutions’ buffers and exit from temporary regulatory forbearance measures.

Background

The debt restructuring programme which saw the participation of all the 23 banks forced the banks to set aside huge amounts of money as impairment losses and this is what has led to majority of the banks recording losses in 2022.

This has led to severe liquidity and capital challenges for the banks, with some already rolling out plans to quickly recapitalise.

To help address these concerns, the government announced the establishment of the Financial Sector Stability Fund to help solve the liquidity and solvency challenges of the affected banks.

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The financial services sector, banks especially, is set to receive a major boost of a total $350 million to operationalise the Financial Sector Stability Fund, a senior government official has revealed.

Last week government announced that it had secured a $350 million from the multilateral agencies to operationalise the Financial Sector Stability Fund.

The fund is made up of $250 million from the World Bank and $100 from the African Development Bank.

The recent Creditor Committee co-chaired by France and China granting of financial assurance to the country has thus paved the way for the IMF to finally approve Ghana’s three-year budgetary support programme of $3 billion.

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