By Elorm Desewu
The government plans to recapitalize all the state interest banks in the country by the end of September this year.
Cabinet has approved an amount of GH¢22.8 billion or 2.6% of GDP to further strengthen the financial system and rebuild capital buffers to improve resilience. This overall resource envelope will be deployed under the framework of the Ghana Financial Stability Fund (GFSF) in phases with an initial commitment of the Ghana Cedi equivalent of U$750 million.
The initial commitment will consist of a funded portion of US$250 million from the World Bank/IDA and US$500 million to be funded from the issuance of marketable debt to help rebuild capital buffers of affected banks and other eligible financial institutions.
The support for the financial system under the GFSF framework will be based on transparent eligibility criteria for Financial Institutions (FIs) which include full participation in the DDEP, a viable capital restoration plan notwithstanding the GoG debt restructuring impact (discounting regulatory forbearance and other reliefs), and existing GoG/GAT equity participation.
Under the GFSF framework, Government’s direct budget funding will focus on ensuring the recapitalization of state interest banks such as GCB, CBG, ADB and NIB, among others. Specifically, all state interest banks will be capitalised by endSeptember 2023. Government will also streamline the strategic focus of all stateowned banks to ensure that they better support areas of the economy such as agriculture, industry, and key SMEs.
The Bank of Ghana expects banks to submit recapitalization plans with regulatory approval for such plans scheduled for end-September 2023.
For privately owned FIs, a commitment will be required from other shareholders to inject additional capital to complement GoG’s funding support to ensure that dilution of private shareholders is kept to a minimum.
Evidence of strong governance and prudent management is also required to be demonstrated. For example, banks which are to benefit from the arrangement must achieve a minimum of 75 percent implementation rate of the most recent on-site examination prescriptions, and full compliance with the BoG’s Corporate Governance Directive, Cyber Security Directive, and Risk Management Directive.
Government will also strengthen and preserve the resilience of the insurance industry, including the recapitalization of the stateowned SIC Life Insurance Company, and work to restore normalcy in the debt capital market to improve liquidity, especially for capital market institutions. This is important in positioning the country to continue to expand the frontiers of private sector growth.
The Government will also support GAT-assisted banks and other locally controlled privately-owned banks that request assistance from the GFSF in line with the operational framework agreed with the IMF and the World Bank. The World Bank facility under the GFSF will provide a debt only (non-equity dilution) capital support to banks, both foreign-owned and locally-owned to support their strong recovery post the DDEP.
The Ministry of Finance is working with the Bank of Ghana and other regulators to ensure that the framework of the GFSSS is finalised, and its operationalisation commences immediately after the approval of the Mid-year budget.
