We still have strong buffers — BoG
Dr Ernest Addison — BoG Governor

We still have strong buffers — BoG

The Governor of the Bank of Ghana, Dr Ernest Addison has insisted that the central bank does not need a positive equity to be able to effectively play its role as the lender of last resort.

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The decision of the central bank to take a 50 per cent hair cut during the Domestic Debt Exchange Programme (DDEP) has resulted in huge losses which has affected the capital of the bank.

This has prompted the need for the bank to be recapitalised but considering the tight fiscal space that the government is operating in, talks and plans of recapitalising the BoG have been shelved until the country’s economic environment improves.

At a recent Graphic Business Twitter (now X) dialogue series, Banking Expert, Dr Richmond Atuahene advised that the recapitalisation of the central bank should be prioritised as soon as the fiscal situation improves.

He said although the impairment to the BoG’s balance sheet might not have any immediate impact on its operations, there could be a potential impact in the next year or two, reason why the government should act fast and recapitalise it.

“The losses itself may not directly affect you today, but have consequences over the period if it is not well managed.“

Today, banks are looking for capital and if the central bank cannot perform its role of the lender of last resort, what will be the situation?” he asked.

“There are certain specific roles that the central bank can continue to play effectively, but if the situation is not well managed, in the next year or two, the reality can hit us hard,” he stated.

But responding to a question at the 114th MPC press conference yesterday on how ready the central bank is to support any bank which may require liquidity support, Dr Addison said “yes, the BoG can assist as the lender of last resort.”

He noted that the banks were holding 12 per cent of their deposits with the central bank as liquidity, which meant the BoG have resources to fall on should any of the banks require support.

“The central bank can operate effectively even in the presence of negative equity, we don’t need positive equity to be effective and we don’t have to print money to do that,” he stated.

No bank has requested liquidity support

Dr Addison pointed out that no bank has yet approached the central bank for liquidity support.

He said should any of the banks need liquidity support, the BoG stands ready to assist them in line with the guidelines for assessing liquidity support.

He noted that the rate at which banks borrowed from one another, that is, the interbank weighted average rate, rose to 26.59 per cent in August 2023 from 21.93 per cent in August 2022, in line with increases in the monetary policy rate. 

Consequently, average lending rates of banks increased to 31.78 per cent in August 2023, from 27.96 per cent recorded in August 2022.

Banking sector stable 

The governor assured that the banking sector remained stable as the industry’s total assets increased to GH¢244.7 billion in August 2023 from GH¢204.6 billion in August 2022.

He said the growth in banks’ assets was funded by deposits, which grew sharply by 38.9 per cent to GH¢189.9 billion from GH¢136.7 billion in the same comparative period. 

Total borrowings by banks, however, contracted by 41.per cent to GH¢13.9 billion in August 2023 from GH¢23.5 billion a year earlier.

He said the central banks’ profitability remained strong in the first eight months of 2023, with the industry recording a profit-after-tax of GH¢5.7 billion, representing a 41.4 per cent annual growth, compared with 26.5 per cent growth recorded last year.

Specifically, he said net interest income increased sharply by 37.9 per cent to GH¢13.5 billion, while net fees and commissions went up by 27.3 per cent to GH¢2.9 billion.

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Dr Addison said key financial soundness indicators remained broadly stable. 

Profitability indicators improved, with Return-on-Equity (ROE) at 36.9 per cent in August 2023 from 23 per cent in August 2022, while Return-on-Assets (ROA) increased to 5.4 per cent from 4.7 per cent in the same comparative period.

Also, liquidity indicators for the industry improved during the period under review. Capital Adequacy Ratio (CAR) adjusted for the regulatory reliefs was 14.2 per cent in August 2023, higher than the revised prudential minimum of 10 per cent.

The industry’s NPL ratio ,however, increased to 20 per cent in August 2023, from 14.3 per cent in August 2022, attributable to elevated credit risk associated with the lagged effect of the macroeconomic crisis in 2022.

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