By Elorm Desewu
The Bank of Ghana is very optimistic that the banks operating in the country remain liquid and well-positioned to support growth, benefitting significantly from the recent reforms.
According to the governor of the Bank of Ghana, Dr Ernest Addison, the policy interventions have also helped improve the soundness of the banking sector and reduced the potential adverse spillback effects that the banking sector may have had on the macro-financial landscape. The sector remains robust as reflected by the strong Financial Soundness Indicators – Capital adequacy levels are above the regulatory limits, the NPL ratio has declined, and profitability remains strong.
As part of financial sector surveillance, the Bank assessed the resilience of the banking system to credit and liquidity shocks emanating from the pandemic. The findings revealed that the banking sector is robust and largely resilient to pandemic-related shocks. In addition, tail risks arising from the changing macroeconomics landscape has had a moderate effect and the banking sector soundness index has improved from the pre-pandemic levels.
Broadly, the prompt policy response to the COVID19 pandemic, including the freeze on dividend pay-out, reduction in the Cash Reserve Requirement and the reduction in policy rate supported the sector to build reserves to withstand credit shocks.
In the financial sector, the policy and regulatory relief measures introduced by the Bank of Ghana have enhanced liquidity in the banking system, preserved capital buffers, and provided relief to customers severely impacted by the pandemic.
These measures have also helped banks and specialised deposit-taking institutions provide support to critical sectors of the economy to mitigate the adverse impact of the pandemic. The downward adjustment of the monetary policy rate impacted positively, and average lending rate of banks has steadily declined to 20.9 percent in November 2020 from 24.0 percent last year. Banks have also signalled a net easing of credit stance on enterprises’ loans in the months ahead as new advances steadily rise.
