BoG urged to save local banks from collapse
A financial analyst with Deloitte Ghana, Dennis Brown, wants the Bank of Ghana (BoG) to adopt a more supportive approach to resolve the capital shortfalls of banks, particlarly the local ones, that may have been badly affected by the government’s Domestic Debt Exchange Programme (DDEP).
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The assistance, he suggested, might include providing liquidity support to the banks on very flexible terms and, or allowing for flexible or convenient timelines for these banks to restructure their capital and improve their capital adequacy ratios (CAR), which is used to measure the ability of a bank to meet its obligations by comparing its capital to its assets.
“Considering recent events and the impact of the DDEP on the banks, I would expect BoG to be more supportive in its approach to ensuring that such banks recapitalise as against an overly strict and punitive approach such as license withdrawal after an announced timeline.
In this regard, where BoG needs to offer support, priority must be given to banks hard hit by the Government’s Domestic Debt Restructuring Programme (DDEP)”, Mr Brown, who is the Senior Manager, Financial Advisory, Deloitte Ghana, said.
He was responding to questions about the impact of the DDEP on banks and the kind of support the BoG needs to offer to prevent another collapse of local banks in particular following the implementation of the DDEP in which 85 per cent of bondholders, including all banks, participated.
DDEP impact
The implementation of the DDEP has taken a heavy toll on banks, some of which are beginning to show signs of distress as captured in their unpublished financials for last year.
There are fears that the impact of the financial sector cleanup which forced the collapse of many local banks in the country a couple of years ago may recur in view of the negative impact of the DDEP.
The Bank of Ghana, in its latest Monetary Policy Committee (MPC) meeting, reported that developments in the banking sector broadly reflected the challenging operating environment in 2022 on account of macroeconomic conditions, and the recent implementation of the DDEP which all 23 universal banks participated in.
The bank’s preliminary assessment of the impact of the DDEP on the banking sector, based on December 2022 data, indicates significant losses on account of impairment of banks’ holdings in GoG bonds.
The central bank noted that the impact of the DDEP, as currently assessed, was moderated by the timely introduction of regulatory reliefs by the Bank of Ghana to support the banking sector, similar to the reliefs provided to banks at the onset of the COVID-19 pandemic.
Based on that, the BoG insists that the industry is still fairly resilient, an assurance industry players and financial analysts strongly dispute because of the dangers the banks face.
BoG, however, indicated that its preliminary assessment would be updated once banks’ external auditors completed their audits of banks’ 2022 financial performance making the necessary adjustments to fully reflect the DDEP impact.
Banks’ financials
Meanwhile, the banks are expected to publish their 2022 audited financial statements by the end of this month following a one-month dispensation granted by the central bank on the account of the DDEP.