Financial sector stability, a healthy signal
Dr Ernest Addison, Governor - BoG

Financial sector stability, a healthy signal

For most watchers of the financial sector, we dreaded the outcome of the financial results of majority of the banks in the country at the end of the 2022 financial year.

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The heavy losses posted by the banks were a source of worry in view of the potential impact on the ailing economy.

Analysts and industry watchers have attributed the unprecedented misfortune of the banks to the Domestic Debt Exchange Programme (DDEP) which was meant among other things to restructure the country’s debt as a precondition for the government to access a $3 billion bailout from the International Monetary Fund (IMF).

They also blamed the phenomenon on the slow business and economic activities in the year under review as well as the method used in calculating their losses.

The fears harboured by many was not really as a result of the losses per se as every company goes through some turbulence at some point in time but the anticipation of the potential impact on the entire financial sector in the coming years, particularly at a time when the country is in dire need of support from the domestic lenders to help in the economic revival process.

In a country where the least negative outcome is heavily politicised in a manner that only goes to aggravate a challenge that is surmountable, the swift turnaround of the loss-position of banks can only be deemed as a welcome news for all.

By observing the banking space, the Graphic Business has noticed the profits being posted by the banks in the first quarter of the year, a development it finds not only refreshing but encouraging because of the positive impact on the economy.

We are aware from the various interpretations given to the results published so far. For instance, some have argued that the turnaround is a result of the manner to which the banks treated their impairments on their books only to look clean and start afresh, hence the profits.

Others have also predicted that the profits made will not be sustainable because the real impact of the DDEP on the financials of the banks will be felt in the second quarter and the latter part of the year hence, no need for celebrations yet.

Much as we take on board the various positions as freely expressed, we as a paper would prefer to consider the brighter side of things by encouraging the banks, particularly those which turned their losses into profits, to work hard to sustain the progress made.

The fears expressed can only be used as a guiding principle for them to put their house in order to avoid a reverse of the loss-making situation.

Graphic Business aptly sees a sector that is resilient and robust, thanks to a combination of regulation on the part of the central bank which also gave clear policy direction and subsequently supervised the process.

We also applaud the managers of the banks for the leadership shown and the effective management of their resources.

The new banking sector reforms occasioned by the financial sector clean-up has positioned the banks to be in a healthy state financially and we, therefore, expect them to be able to withstand any shocks in the future, using the DDEP as a test case.

It is undisputable, as earlier indicated, that the financial services sector is one that drives the economy. For any economic activity to succeed, access to funds or financial services is critical. 

This speaks to a robust financial service sector because the multiplier effect of a resilient banking sector, positively impacts on the economy. It drives investments, ensures growth of the private sector, and shifts capital to where it is needed most. 

Against this background and more, the Graphic Business is optimistic that the progress made so far will be sustained into the future because this is not the time to fail.

We urge the boards and managers of the banks not to rest on their oars but take the advice of analysts on board to ensure that they work towards a positive outlook because it is in the interest of all to have a sound financial sector to play its critical role in the economy.

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