Banks recapitalisation: BoG satisfied with plans
The Bank of Ghana (BoG) has reviewed and is satisfied with the recapitalisation plans of all the 23 banks operating in the country, Governor, Dr Ernest Addison, has indicated.
He said all the plans submitted by the banks have been thoroughly reviewed by the Banking and Supervision Department of the central bank and sees all of them as credible plans.
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 hit hard at the industry, with 16 banks recording significant losses in 2022. 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, this presented fresh challenges for the industry.
Under the IMF programme, the banks were expected to submit their credible time-bound plans to rebuild capital buffers on a phased basis in line with timelines set out under the financial sector strategy.
The banks had up to the end of September to submit their recapitalisation plans to the BoG, a requirement they all complied with ahead of the September deadline.
Responding to questions from the media at the 115th Monetary Policy Committee press conference, Dr Addison said the BoG was confident that the plans submitted by the banks would help them recapitalise within two years.
“All 23 banks have submitted their recapitalisation plans and the Banking and Supervision Department together with myself have reviewed all these plans and we find them credible.”
“We are quite hopeful that within the next two years, most of the banks would have fully recapitalised and able to meet the capital adequacy threshold without reliefs.
He noted that at the moment, most of the banks were meeting the capital adequacy threshold because of the regulatory relief but expected that if they implemented the plans which have been approved, they would be able to meet it without the reliefs.
Although he did not give details of the plans by the banks, Dr Addison, at the May MPC press conference, indicated that the central bank expected banks to approach their shareholders first to recapitalise and if they were not successful with that, they might have to seek assistance from the yet-to-be-operationalised Financial Sector Stability Fund to do so.
Recapitalisation of BoG
Commenting on the recapitalisation of the central bank, Dr Addison said it was still engaging the Ministry of Finance in that regard. The DDEP also hit hard at the central bank, causing it to record losses of over GH¢60 billion for the 2022 financial year.
The losses were as a result of its decision to act as the last absorber and take a hit for the country by taking a 50 per cent hair cut during the DDEP.
The losses have affected the capital of the institution which acts as the lender of last resort and the IMF in its programme report hinted that the BoG’s balance sheet would be affected by the debt restructuring and therefore urged the government and the BoG to assess the impact and develop plans for recapitalisation with fund technical assistance support.
Dr Addison said the recapitalisation has to be in consultation with government and the Ministry of Finance, noting that the only way to deal with a negative equity position of that magnitude had to be through the budget with the issuance of a recapitalisation bond.
“This is an area that we will look at and we will work closely with the Ministry of Finance and come out with a plan to restore the capital of the central bank,” he stated.
Giving an update of the banking sector, the Governor said the sector remained stable, sound, liquid and profitable, even as banks continue to adjust to the impact of the DDEP.
He said the sector’s capital adequacy levels remained above the minimum regulatory level with regulatory reliefs, with most banks carrying excess liquidity.
He also indicated that the industry’s NPL ratio increased to 18.3 per cent in October 2023, from 14 per cent in October 2022 – and 15.7 per cent in January 2023, reflecting elevated credit risk associated with the lagged effects of the macroeconomic crisis of 2022.
He, however, noted that profitability continues to improve as banks continue to invest in high yielding short-dated BoG and government instruments.
“The banking sector showed some resilience as the various stress tests on banks’ capital, following adverse macroeconomic shocks, pointed to stability,” he said.