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DBG barred from investing in gov’t securities – Management

Adnan Adams Mohammed

Management of the newly launched wholesale bank, Development Bank Ghana, has assured the business public that it will implement effective measures that will ensure they support key sectors of the economy.

The bank, launched last week, in the wake years of lamentation by business players in the agricultural and manufacturing sectors of the economy of inadequate access to funding to start and or expand their businesses that could create more jobs and help spur the economy to achieve the industrialization agenda of the governments. DBG is a non-deposit taking wholesale bank that is expected to provide funds to existing commercial banks and other qualifying financial institutions to provide long-term lending to businesses.

According to Bank of Ghana’s data, less than 15 percent of loans granted by banks and Specialised Deposit-taking Institutions (SDIs) are for 5 years or longer. This, according to finance experts has affected the structure of the country’s economy as the financial sector are not able to complement the industrial, agro-economy and infrastructural development agenda of the economy as those sectors mostly require long term investments. But, the managers of the DBG say they have put enough measures in place to ensure that funds it lends to banks are used as planned.

“We have specifically put in place certain measures that will ensure that funds that get to the Commercial Banks we are working through eventually get through to the SMEs”, Deputy CEO of the Bank, Michael Mensah-Baah, noted when speaking to the media on steps taken by the DBG to ensure it doesn’t repeat the mistakes of current national banks.  

“First of all, we will select Commercial Banks that are already lending to SMEs. Number two, we’re going to make sure that the Commercial Banks do understand the credit risk of the SMEs, and finally, we have an agreement with the Commercial Banks that specifically ensures the funds we give them to go to specific sectors of the economy, i.e agriculture, manufacturing, ICT and high-value services sectors. These are all enshrined in the master lending agreement that we have with the Commercial Banks.

“Within that agreement, there’s a specific timeframe that the funds stay with the Commercial Banks. If the time (one month) elapses without the funds being given out, then the funds return to the DBG,” he added.

Corroborating the Bank of Ghana’s data, universal banks in the country, for some time now, have been accused of using a chunk of their funds to invest in less risky government securities instead of giving such funds out as credit to the private sector.

According to the May 2022 edition of the Bank of Ghana’s Monetary Policy Report, the asset and liability structure of the banking industry remained tilted towards less risky assets as of April 2022.

Investments continued to dominate the asset mix, but its share declined from 47.0 percent in April 2021 to 43.2 percent in April 2022 while the share of “Cash and Due from banks” increased from 18.6 percent to 21.7 percent during the same comparative period.

Loans and advances (net), however, remained the second-largest component of banks’ assets, recording a higher share of 27.4 percent in April 2022 from 26.5 percent in the previous year on account of the stronger growth in credit in April 2022.

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