Bank of Ghana drops policy rate to 18 per cent

The Monetary Policy Committee (MPC) of the Bank of Ghana (BOG) has reduced the policy rate by some significant margin.

BOG dropped its key lending rate to commercial banks by 200 basis points to 18 percent.

According to the Governor of the Bank of Ghana, Dr Ernest Addison the move was influenced by positive economic outlook.

The committee at its last meeting reduced the rate by 100 basis points to 20 percent.

The cut in the policy rate is the biggest drop since November 2014.

The governor maintained that recent regulatory measures are aimed at stabilizing the banking sector and to increase investor confidence in the economy.

Some economists and analysts engaged by JoyBusiness had earlier predicted the rate was likely to be maintained or reduced marginally.

BOG's reforms

The central bank has revealed a troubled financial sector in a statement released Tuesday, citing “poor banking practices” as one of the many causes.

The Bank of Ghana (BoG) reveals the takeover of the management of Unibank announced Tuesday is among target actions to correct the situation.

“Poor banking practices, coupled with weak supervision and regulation by the Bank of Ghana has significantly undermined the stability of the banking and other non-bank financial institutions and we all know some of the consequences by now—revocation of licenses of two banks while other banks were placed under comprehensive capital restoration plans,” the central bank acknowledged.

The central bank Governor annouced the takeover of the manangemnt of the privately-owned Unibanl by KPMG at a press conference in Accra, citing 10 reasons that point to severe challenges.

The BoG has set out the following measures as a means of restoring confidence in the financial system:

- Introduction of the Basel Regulatory Capital Requirement Directive;

- Review of guidelines, directives and regulations to the industry in line with the new Banks and Specialized Deposit-taking Institutions Act, 2016 (Act 930);

- Roll-out of the Basel II/III supervisory framework, and ensure implementation of IFRS 9 by banks;

- Full implementation of the new minimum capital requirements for banks by end-December 2018 deadline. To this end, the BOG will issue guidelines to the industry on compliance with the capital increase directive of 2017 and strictly monitor compliance;

- Address specific risks from high NPLs, poor corporate governance and poor risk management systems. To this end, we will issue directives on corporate governance, risk management (including cyber and information security-related risks);

- Strictly enforce Fit and Proper Guidelines for Shareholders, Directors and Key Management Personnel of Banks and SDIs as well as other supervised Non-Bank Financial Institutions to ensure bad behaviour is not recycled within the financial sector;

- Strengthen the capacity and resources of the Banking and Supervision Department, undertake a comprehensive review and improvement of all supervisory processes, and ensure strong enforcement of prudential and conduct regulatory requirements;

- Strengthen overall financial stability risk assessments and establish adequate measures to promote stability of the financial system;

- Roll out implementation of the deposit insurance scheme established under the Ghana Deposit Protection Act, 2016 (Act 931),

- Introduce Banking Sector Cyber and Information Security Guidelines to protect consumers and create a safer environment for online and e-payments products in line with the government’s interoperability objective, and finally

- Improve collaboration with other regulatory bodies to prevent regulatory arbitrage