Banking sector remains liquid, solvent — BoG
The Bank of Ghana (BoG) has indicated that the country’s banking sector remains liquid and solvent despite the collapse of two banks recently.
As of July 2017, the total asset base of banks increased to GH₵89.1 billion, representing an annual growth of 32.9 per cent compared to 24.6 per cent growth in 2016.
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The growth in asset was largely funded by domestic deposits, which went up by 32 per cent on a year on year basis and the industry’s capital adequacy ratio also averaged 14.3 per cent by the end of August 2017, which is above the 10
August 2017, which is above the 10 per cent statutory threshold.
A Research Economist at the BoG, Mr Christian Ahortor, who disclosed this, said the phenomenon was an indication that the country’s banking sector broadly remained liquid and solvent.
Mr Ahortor was speaking at a roundtable discussion which was organised by the Policy Initiative for Economic Development (PIED). The discussion was on the theme “Ghana’s financial sector; emerging issues, challenges and the way forward”.
Challenges
He said despite the strides in the sector, there still remained challenges in the industry, key among them being the rising non-performing loan (NPL) ratio.
“The high exposure of the banking system to the energy sector is partly to blame for the high NPLs, which have resulted in high risk premium that has led to high lending rates of banks,” he stated.
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He said there was also a challenge regarding the new capital requirement which took effect in September this year
“People have been asking how banks will be able to meet this requirement by December 2018 and some people have been expressing fears that if we don’t take time, foreign banks will swallow domestic ones through mergers and acquisitions,” he indicated.
“Yes, there are several options for the banks to take but the issue we have to resolve here is when it comes to meeting the minimum paid up capital by December 2018, we are saying that when you are bringing fresh capital, it can be through mergers and acquisitions but the local banks can strategically position themselves to take advantage of it and the BoG is ready to help in this direction by guiding the process,” he noted.
He said another option was for the banks to go to the capital market and raise additional capital, adding that this was very critical because the BoG was eager to see more local participation in the banking sector.
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“Our desire is that even the foreign banks will list because by so doing, Ghanaians will also benefit from the profits that banks make,” he said.
Conditions for recapitalisation
Mr Ahotor also pointed out that the BoG had also agreed with identified banks a roadmap for recapitalisation in accordance with the capital restoration plans stipulated by the Banks and Specialised Deposit-Taking Institution Act, 2016 (Act 930).
He said banks would be required to meet the new requirement through fresh capital injection, capitalisation of income surplus, or a combination of both.
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“What it means is that you can do that by bringing in fresh capital or if you have income surplus adequate enough, you can recapitalise that or if your income surplus is not up to that, you can bring in fresh capital to add up to your income surplus,” he explained.
He said the banks were, however, now allowed to capitalise revaluation reserves on financial instruments through comprehensive income, statutory reserves, credit risk reserves or unaudited profits.
Policy direction to govt
The Executive Director of PIED, Mr Daniel Amateye Anim-Prempeh, in his opening remarks, said PIED was a newly established economic and policy think tank with the sole aim of creating the necessary platform for professionals, experts and consultants to meet, discuss, analyse and provide alternative policy directions to government and the business community.
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He said the recent development in the banking sector demanded that it organised a conference that would allow stakeholders to recommend strategies necessary to develop a robust and resilient financial industry capable of stimulating economic activities.