Build resilience of banks to withstand shocks
Ghana's banking sector is facing significant challenges, with a Capital Adequacy Ratio (CAR) of just 14 per cent, ranking third-lowest among Sub-Saharan Africa's top 10 countries.
The sector's weakened fundamentals are attributed to the government's Domestic Debt Exchange Programme (DDEP) and a persistently tight monetary environment. High Non-Performing Loans (NPLs) and liquidity constraints have further compounded the sector's fragility.
The DDEP, introduced in 2023, aimed to restructure the country's domestic debt and provide relief to the financial sector.
However, the programme has had mixed results, with some banks facing challenges in meeting regulatory requirements.
The Bank of Ghana's decision to temporarily lower the CAR requirement reflects the challenges facing the sector and the need for regulatory flexibility.
The NPL ratio currently stands at 21.8 per cent, the highest among Sub-Saharan Africa's top banking sectors.
This high NPL ratio poses significant challenges for banks, including reduced profitability and increased provisioning requirements.
The anticipated gradual easing of interest rates in 2025 could improve loan quality and support balance sheet recovery, but the sector's fragility remains a concern.
The tight monetary environment, characterised by high interest rates, has reduced borrowing and lending activities, impacting the sector's profitability. The DDEP has also had a significant impact on the sector, with some banks facing challenges in meeting regulatory requirements.
Furthermore, the sector's high NPL ratio and low CAR pose significant risks to financial stability, and policymakers must take proactive measures to address these challenges.
To promote stability and growth in the sector, regulators, policymakers and industry stakeholders must work together to address these challenges.
Clear and consistent policy frameworks, robust regulatory oversight and prudent risk management practices are essential to mitigating the sector's vulnerabilities.
The banking sector plays a critical role in the country’s economic development, providing financial services to businesses and individuals.
It is imperative that policymakers and regulators prioritise measures to strengthen the sector's resilience and support its growth.
This can be achieved through a combination of policy measures, including strengthening regulatory frameworks, improving asset quality, enhancing liquidity management and promoting financial inclusion.
For the Daily Graphic, the impact of the challenges on the economy cannot be overstated.
A fragile banking sector can have far-reaching consequences, including reduced access to credit, decreased economic activity, and increased financial instability.
Therefore, policymakers and regulators must take proactive measures to address the challenges and promote stability and growth in the sector.
In addition to strengthening regulatory frameworks and improving asset quality, policymakers must also prioritise measures to enhance liquidity management and promote financial inclusion.
This can be achieved through a combination of measures, including maintaining adequate liquidity reserves, diversifying funding sources and improving liquidity management practices.
Ultimately, the future of the country’s banking sector depends on the ability of policymakers and regulators to address these challenges and promote stability and growth.
By working together, regulators, policymakers and industry stakeholders can ensure that the sector remains a reliable partner in the country’s economic development journey.
The stakes are high, but with careful planning, prudent risk management and a commitment to stability and growth, the country’s banking sector can overcome these challenges and continue to play a critical role in the country's economic development.
By prioritising measures to strengthen the sector's resilience and support its growth, policymakers and regulators can help ensure a stable and prosperous future for Ghana's economy.
