News Guide Africa

Tag: Ghana banks

  • Banks reducing interest rate amidst monetary policy rate tightening 

    By Adnan Adams Mohammed

     

     

    The Bank of Ghana’s Monetary Policy Committee (MPC) in the past two months tightened the monetary policy rate to 28 percent for the months of March and April. 

     

    The central bank’s Governor, Dr Johnson Asiama, last week, announced that the benchmark MPR was being maintained at 28%, for the next two months. This is the rate it had been hiked to at the end of March when the MPC voted for a 100 basis point increase from the previous 27% it had inherited from the previous BoG administration.

     

    The position of MPC to keep the MPR was expected by most monetary economists despite some positive adjustments in the country’s macroeconomic indicators. 

    While borrowers will be disappointed that the recent strong gains in Ghana’s key performance indicators did not translate into a cut in the benchmark MPR, Dr Asiama correctly pointed out that, the restoration of macroeconomic stability is already driving down interest rates across board, despite the central bank’s continued tight monetary policy to squeeze out stubbornly high headline inflation, the Ghana Reference Rate – which is set by the Ghana Association of Banks and serves as the base lending rate for the industry – fell from 29.31% at the start of this year, to 23.99% by April. 

     

    Similarly, the average lending rate charged by banks, fell from 30.25% to 27.40% over the same period. This is despite the 100 basis points increase in the benchmark  MPR in late March. 

     

    Pending the release of data for May, it is safe to assume that this trend of falling interest rates is continuing. Between January and April, the 91 day treasury bill rate fell much more sharply than lending rates, from 27.73% to 15.47%, while the 182 day bill declined from 28.43% to 16.23% and the 264 day bill fell from 29.95% to 18.62%. Instructively, at the most recent weekly tender of government treasury bills – concluded at the same time the MPC was deciding to retain the MPR at 28% – the 91 treasury bill interest rate reached a new low of 14.93%, with the 182 day bill rate having fallen to 15.55% and the 364 day bill having declined to 16.00%.

     

    Based on interest rate trends over the previous couple of months this suggests that lending rates are likely to have fallen further during current month of May and look set to continue declining over the coming weeks, despite the MPR having been retained at 28%.

     

    It is instructive that despite the ongoing decline in interest rates, lending rates remain positive in real, inflation adjusted terms, and the negative gap between treasury bill rates and inflation, although inordinate, looks set to dissipate as inflation edges lower towards the central bank’s target for end of 2025  of 11.9%.

     

    Meanwhile, explaining the decision to maintain the MPR at 28%, Dr Asiama  noted that “The latest forecast points to continued easing of inflationary pressures on the back of tight monetary policy stance, exchange rate stability, and fiscal consolidation. Inflation is expected to ease faster towards the medium-term target in the first quarter of 2026 as opposed to the second quarter as earlier envisaged, barring unanticipated shocks.

     

    “Despite these positive developments, the Committee observed that the current level of inflation remains high relative to the medium-term target and will require maintaining the tight stance to reinforce the disinflation process. Under the circumstances, the Committee, by a unanimous decision, maintained the policy rate at 28.0%.”

     

    The BoG now expects inflation to end the year at 11.9%, down from 21.4% currently, and fall further into its medium term target range of between 6% and 10% by the first quarter of 2026.

  • ADB with NIB merger: stakeholders slam idea

    ADB with NIB merger: stakeholders slam idea

    ADB and NIB Merger

     

    Adnan Adams Mohammed 

     

    Government’s plan to merger two major state banks National Investment Bank (NIB) and the Agricultural Development Bank (ADB)  have met stiff opposition.

     

    Various stakeholders of the economy disagree with the idea. 

     

    Latest to contribute to the raging debacle is the Head of the Business School at the University of Ghana, who believes the proposed merger would be economically senseless. The government over the years has been holding onto plans to merge ADB and NIB due to the struggles of the two banks.

     

    “You cannot put two big banks together,” he said, adding: “Prudent economic management will not allow merging two state-oriented banks”, Professor Laud Mensah said in an interview last week. 

     

    “Any outcome from the decision-making level is likely to create imbalances in the bank’s balance sheet.”

     

    Professor Mensah called out the finance minister, who is supporting this initiative, to provide a paper indicating the economic value they intend to generate by allowing ADB to acquire NIB.

     

    Additionally, he suggested that external funds would be the best way for an economy to divert.

     

    Professor Mensah stated that if ADB absorbs NIB, their balance sheets would be weakened.

     

    NIB, being cash-trapped, needs an external investor to inject funds into the bank.

     

    Already, the Minority in Parliament has expressed its opposition to the government’s plans to either collapse the National Investment Bank (NIB) or merge it with the Agricultural Development Bank (ADB).

     

    The Spokesperson on Finance, Isaac Adongo, speaking to journalists in Parliament fortnight ago alleged that this plan is merely a smokescreen to sell off the two banks after their merger to government cronies as part of State capture efforts.

     

    “It is clear that this is not about the interest of NIB. This is the last step towards passing through the back door to acquire NIB and ABD for themselves in a state capture,” he said on Thursday, September 28.

     

    The Minority has asked the government to pay the debt owed to the bank and further proscribed measures that will make it viable.

     

    “Government should just restructure the balance sheet of NIB to swap all the NIB debt that it owes to government and give government equity. Government says it doesn’t have money to capitalize the bank, but it has given 500 million debt to NIB, it has given 800 million debt… The two will give you 1.3 billion. It is your money. You owe the bank. The money is already sitting there. Commit to saying that this is my contributing towards capitalisation so that we issue shares to you and move the money to equity.

     

    Hon Adongo said the move by the imminent collapse and subsequent acquisition by ADB will lead to the loss of about 800 jobs.

     

    The MP further indicated that contractors NIB engaged to work on government projects are yet to be paid by the Finance Ministry.

     

    “As a result of that, NIB has incurred GHC1 billion on its loan books, resulting from Ken Ofori-Atta’s refusal to pay, now you say NIB is weak.”

     

    Also, a banking consultant, Dr Richmond Atuahene, has condemned the proposed merger idea. 

     

    “I don’t think merging NIB and ADB is solving any problem, it is not a solution at all,” the Consultant reacted to the government idea. 

     

    He contends that the government should not rush on the matter but take its time to conduct a diagnostic study of the two banks first.

     

    According to him, the NIB has suffered from corporate government crises in addition to its current fiscal challenges noting that the buildup to the current point started in 2016.

     

    He added ADB is also going through the same challenges based on a report published in 2022.

     

    “…ADB does not have the capacity to acquire NIB. He said even if government refinances ADB, it may not be enough to take over NIB’s debts.”

     

    For this reason, he suggested that both banks – NIB and ADB be recapitalised, explaining that “you don’t bring a weak institution to buy a bad institution. You have what we call a good bank buying a bad bank, there is a theory there but the two of them are not good for anything.”

     

     

  • Govt recapitalizes state interest banks by September

    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.

     

  • Banks recapitalisation: gov’t support to be conditional on long-term profitability

    Adnan Adams Mohammed

     

    The International Monetary Fund (IMF) says commercial banks are expected to submit their credible time-bound plans to rebuild capital buffers on a phased basis.

     

    The banks are to raise some GH¢400 million to remain in business as most banks reported significant losses on the back of the mark-to-market valuation on their respective holdings in Government of Ghana bonds following the implementation of the DDEP. Other losses were due to higher impairments on loans and rising operating costs.

     

    The governor of the Bank of Ghana, last week, confirmed initial figures predicted by financial analysts as the value of losses suffered by the 23 banks that participated in the DDEP as GH 6.6 billion. The industry posted before-tax losses of GH¢8.0 billion in 2022 compared with a profit of GH¢7.4 billion recorded in 2021. This has prompted the second recapitalisation of banks in a period of less than five (5) years. However, the central bank says any government support from Financial Stabilisation Fund to the banks will be purposefully base on a condition.

     

    “Any government support for recapitalization will be designed to incentivize private capital injection and will be conditional on reforms to improve long-term profitability”, Dr. Ernest Addison said while answering questions during the 112th Monetary Policy Committee (MPC) press conference in Accra.

     

    “…further incentives to banks to expedite the process will include the prohibition of distributing dividends, restrictions in risk exposures, and enhanced monitoring for those that do not meet minimum CAR, and support for early recapitalization from the GFSF [Ghana Financial Stability Fund]”, he explained.

     

    The banking sector has up to September this year to provide a recapitalisation plan. This is in line with timelines set out in the financial sector strategy. According to the IMF Staff Report, the plans will be reviewed by the Bank of Ghana and finalised by the banks for BoG approval by end-September 2023 (structural benchmark). As part of this process, it said, regulatory forbearance, including capital requirements, will be lifted as soon as possible.

     

    “The BoG will monitor the expected capital shortfalls stemming from the ongoing recognition of debt restructuring losses in CAR [Capital Adequacy Ratio] calculations and ensure the plans on rebuilding capital buffers are implemented based on periodic milestones”.

     

    “Most banks are working towards that, and they have been given a period I think up to September 2023 to submit to us [BoG] as to what their recapitalizations are, and we will be following up on that. To ensure that instead of banks distributing profits that they have started making, use those resources to rebuild their capital buffers,” Governor of the Central Bank, Dr. Ernest Addison noted.

     

    Meanwhile, the Ghana Association of Banks has described the Bank of Ghana’s end-of-September timeline for banks to provide their recapitalisation plans as a prudent decision.

     

    The Chief Executive Officer, John Awuah, in an interview last week noted that, the directive is in the best interest of the banks to further aid in improving the banking sector. According to him, this would also position the banks to support economic growth.

     

    “We all heard from the Governor [Dr. Ernest Addison] just around the time we signed the debt exchange documentation that with the banks they had given us some reliefs on capital and when are we supposed to build up capital”.

     

    “What the Governor is saying is within that period they want to know when capitalization will be coming in so that they have good visibility of the plans of the banks in terms of capital accumulation and the capital to build capital buffers. I think it’s in the spirit of building a base to support the economic recovery”, he explained

     

    Mr Awuah expressed optimism about the further recovery of the banking sector in the second and third quarters of 2023.

     

    He added that the various reforms done by the sector and positive economic indicators in recent times will boost more confidence within the sector.

     

    “It will not be a day or night event, but a situation when we will witness gradual improvement within the sector. We are seeing certain positive trajectories within the economic variables.”

     

    “We have seen inflation coming down and the cedi also appreciating against other major foreign currencies so I will say the banking sector is gradually taking shape but we all have a role to play”, he continued.

     

    He however indicated that government and the regulator would have to put in more effort to improve the banking sector.

     

    Consequently, the International Monetary Fund (IMF) Staff Report on Ghana has revealed that Ghana’s financial sector was relatively robust before the debt restructuring, but the sector’s cleanup were yet to be fully implemented.

     

    According to the Fund, the aggregate Non-Performing Loans (NPLs) had declined from 17% in 2019 to about 15% at end-2022, and the sector had been well-capitalised except for a few institutions.

     

    However, several steps under the financial sector cleanup were yet to be implemented.

     

    The main profitability indicators, namely, return-on assets and return-on-equity all turned negative in 2022 because of the industry’s loss position.

     

    The 2022 audited financial statements of banks also pointed to some impairments in capital levels, although most banks posted Capital Adequacy Ratios (CAR) above the 10 percent regulatory minimum at end-December 2022.

     

    This was attributed to the effect of the roll-out of the temporary regulatory reliefs extended to the banks to cushion them against the impact of the DDEP as was done at the onset of the pandemic.

     

    However, in the first four months of this year, prudential data show some turnaround in the banking sector’s performance following the conclusion of the DDEP, and following consensus reached among stakeholders on the treatment of losses arising from same.

     

    Banks continue to rebalance their portfolios in response to the impact of the DDEP on their balance sheet shifting away from medium-to-long term investments to short term investments and increases in new loans.

     

    In general, the banks have returned to making profits in the first four months of 2023, broadly reflecting higher operating income.

     

    Loan loss provisions also increased relative to a year ago, due to the pickup in credit growth and elevated credit risks.

     

    These developments culminated in a 47.0 percent increase in profit-before-tax in April 2023 compared with 26.3 percent growth recorded during the same period a year ago.

     

    Similarly, the industry’s net income or profit-after-tax increased to GH¢2.8 billion from GH¢1.9 billion, representing 45.8 percent increase in April 2023.

     

    The industry’s return-on-assets increased to 5.5 percent from 4.7 percent, while return-on-equity rose to 36.3 percent from 22.3 percent.

     

    Key financial soundness indicators remained strong on the back of the impact of the regulatory reliefs.

     

    Also, the industry’s Capital Adequacy Ratio, adjusted for the regulatory reliefs, was 14.8 percent in April 2023, higher than the revised prudential minimum of 10 percent, but lower than the 21.3 percent recorded in April 2022.

     

    The decline in the ratio highlights the increase in risk-weighted assets of banks from the impact of exchange rate changes and some losses on mark-to-market investments.

     

    Non-Performing Loans (NPL) ratio deteriorated to 18.0 percent in April 2023 from 14.3 percent in April 2022, reflecting higher loan impairments and elevated credit risks.

     

    While, liquidity indicators have also improved following the implementation of the revised Cash Reserve Requirement.

     

    Performance of the banking sector broadly reflected the general macroeconomic operating environment as well as the impact of the DDEP as indicated in the 2022 audited financial statements.

     

    However, prudential returns for the first four months of 2023 have shown signs of recovery in the profitability of banks and a gradual improvement in the solvency positions, supported by the regulatory reliefs issued to safeguard stability of the financial sector.

     

     

     

  • Economists warn of looming crisis in the banking sector

     

    Adnan Adams Mohammed

     

    Ghana’s banking sector is to face another crisis if the Bank of Ghana fails with its control measures to avert the downturn consequence of the Domestic Debt Exchange Program (DDEP).

     

    The DDEP has caused many Ghanaian local banks to record huge losses already with further losses expected in coming months. To mitigate this challenge facing the banking sector, the government created a Ghana Stability Fund expecting about US$1.5 billion to ensure appropriate solvency and liquidity.

     

    This, according to Economist at Louisiana Economic Development in the USA, if government is not able to get the funds by July this year, some banks will start collapsing since they will not be able to pay their workers and keep their operations running. Already, some banks have recorded huge losses, therefore the lack of liquidity support from the Stability Fund will leave them with no option than to fold up or reduce their number of branches, which will result in job losses.

     

    “We are heading into a banking crisis, believe it or not, we are currently suffering. If government is not able to get the $1.5 billion Stability Fund by July 2023, some banks will start collapsing”,  Dr. Sa-ad Iddrisu alarmed in an interview last week. “Even what is happening in Ghana is affecting the Nigerian economy because a lot of the Nigerian banks in Ghana, are also recording loses.”

     

    The government must speed-up processes in mobilising funds to cushion the banks from this timing canker, he urged.

     

    The Ghana Stability Fund, set up to provide liquidity support to banks participating in a domestic debt exchange and being managed by the Bank of Ghana under unique operational guidelines being developed by the Financial Stability Council, has already secured $250 million from the World Bank in addition to Ghana government’s commitment of $750 million as announced by minister of state for finance Mohammed Amin Adam weeks ago.

     

    Also, a Professor of Economics at the London Business School has warned that banking crises could happen, especially if Central Banks, including that of Ghana, continue to tighten monetary policy.

     

    According to Prof Lucrezia Reichlin, banking crises cannot be prevented in all contingencies, at least not in a fractional reserve system where loans do not need to be fully backed by deposits, like the system of today, adding, the recent crisis is a painful reminder of the fundamental instability of banks’ business model.

     

    Speaking on the topic ‘Early lessons from the recent banking turmoil’ championed by the International Monetary Fund, she expressed hope that banks are well equipped to face generalized liquidity crises through Central Banks’ interventions.

     

    “In principle, we also have tools to deal with the insolvency of a single institution. However, those crises are rarely managed in an orderly way. Today, if the world economy were to plunge into a deep recession, we are likely to see many cases of institutions facing solvency problems that will test this assertion”, she explained.

     

    She added that the Credit Suisse episode rings an alarm on whether Central Banks can be confident that problems can be solved following the rulebook.

     

    “If a bank is failing, the regulator can seek resolution with a bail-in or a bailout. A bail-in in theory is a good option to protect taxpayers, but in some cases a bailout may be wiser. The way to think about the choice is that a bail-in may cause financial instability while a bailout causes moral hazard and is an implicit subsidy to the banking sector”, she continued.

     

    In many cases, she pointed out that the crisis of one bank is addressed by a national regulator facilitating a merger with a national bank, either by moral suasion, subsidy, or both.

     

    This was the case in Switzerland, where UBS was encouraged by the regulator to absorb Credit Suisse at a very unfavorable exchange for Credit Suisse shareholders. Such a solution is not always feasible.

     

    Apparently, the Second Deputy Governor of Bank of Ghana (BoG), Elsie Addo Awadzi, has reiterated that the Ghana’s banking sector remains solvent and strong to support economic growth, despite the recent challenges faced by the country.

     

    She boldly posited that, the banking system is liquid and well positioned to lend to businesses and individuals after government’s debt exchange programme, despite the government’s acknowledgement that the DDEP have had effect on the banking and financial industry.

     

    “Our banking sector remains solvent and liquid even after the pandemic, in the face of recent macroeconomic challenges, and in particular the government debt restructuring efforts”, Mrs Awadzi noted while speaking at the launch of the “Absa SME loan at 10%” in Accra last week.

     

    She explained that the banking sector clean-up and recapitalisation exercise before the onset of the Covcid-19 pandemic, provided the industry with the necessary capital and liquidity buffers to withstand the pandemic and the recent macroeconomic challenges.

     

    “We expect banks over the next few years to take steps to rebuild strong buffers so that they remain resilient for the long-term”, she advised  and further pointed out that, while regulating and supervising banks to promote their safety and soundness, the Bank of Ghana expects banks to be more inclusive in their product and service offerings to ensure that all economic actors in Ghana are able to access much-needed finance to grow their businesses and contribute to the growth of our economy.

     

    Meanwhile, a Banking Consultant, Dr. Richmond Atuahene has urged government to engage mining and telecom firms to help mobilise revenue to salvage the imminent danger.

     

    “We need to structure it in such a way that we engage the mining and telcos because they are a cash cow especially some of the telcos. We need to get the inflows to support the sector”.

  • Analysts predict extended hard times for banks in Ghana

    Adnan Adams Mohammed

     

    A Financial data analysis firm, Bloomberg, has estimated that banks operating in Ghana have been hit by about US$1.4 billion impairment due the debt restructuring.

     

    Aside this loss, some financial analysts have predicted that banks should expect extended tough times as they foresee additional impairment losses of about ¢6.1 billion due to factors imported by the Domestic Debt Exchange Programme (DDEP).

     

    Despite this historical loss positions reported by banks operating West Africa’s second largest economy, the Ghana Association of Banks (GAB) has reechoed that banks in the country are in good standing with their financial position. The President of the GAB, in an interview last week said, the capital position of banks are strong, while there is enough liquidity in the banking system.

     

    “Even though banks appear to have been negatively impacted, the situation was anticipated, hence adequate measures were put in place to protect banks in the country”, John Awuah retorted. “As we speak, there is strong liquidity in the environment. I have not heard that anybody has gone to a bank and cannot get their money. The banking system has enough liquidity in the system.”

     

    Mr. Awuah noted that the strong liquidity in the financial system could be partly attributed to the decision by the Bank of Ghana’s monetary control management that hiked the policy rate fortnight ago to mop up excess funds in an effort to control inflation.

     

    He also pointed out that the Bank of Ghana has put in several measures to cushion commercial banks from shocks as a result of the debt exchange programme.

     

    “The central bank has put in measures to help banks to weather the storms where there are difficulties. The Bank of Ghana has given us time to rebuild our capital”, he said.

     

    He stated that the numerous measures in addition to the financial sector stability fund will help banks support the economic growth agenda by lending to businesses.

     

    Meanwhile, a recent assessment of financial statements of banks by Dr. Richmond Atuahene and K B Frimpong revealed that banks will lose additional ¢6 billion due to reduced coupon rate and the extension of the maturity period from five to 15 years.

     

    According to the liquidity gap analysis, the 23 banks would have generated positive cash flow of about ¢10.1 billion over the period, from the original coupon rate of 19.3% per annum.

     

    But following the implementation of Domestic Debt Exchange Programme (DDEP), the extension of maturity period and reduction of coupon rate will impact heavily on their earnings from investments in Government of Ghana Bonds.

     

    “This liquidity gap is a result of the drop in the average bond rate of 19.3% to weighted average rate of 9% per annum, thus leading to nominal negative liquidity gap of 10.3%. The liquidity gap is expected to get worse if the average customer deposit rate was around 10% per annum, but later declined to weighted average rate of 9% per annum”.

     

    “For example, Bank A with the bond value of ¢9,I06,452,000 and average coupon rate of 19.3% would have had cash flow of ¢1,821,290,000, but with the Domestic Debt Exchange Programme, the effective rate of 9% per annum will cause a drop in cash flow to ¢720,927,000, thus leading to liquidity gap of ¢1,100,363,000”, it added.

     

    To qualify for a $3.0 billion Balance of Payment support facility from the International Monetary Fund, Ghana had to restructure its local-currency and overseas debt to bring down the Debt-to-GDP ratio to below 70 percent. The public debt is estimated at GHC576 billion.

     

    The country has finished with the first of debt restructuring which was the DDEP. The DDEP contributed to some top banks recording their first loss.

     

    GCB Bank Plc, the country’s largest lender by assets, posted a GHC593.4 million ($50.5 million) net loss for the year to end-December, its first since 1993 when Bloomberg started maintaining data.

     

    Also, Standard Chartered Bank Ghana Ltd., the biggest by market value, reported a loss of 297.8 million cedis.

     

    The impairments prompted Guaranty Trust Holding Co., Nigeria’s largest bank by market value, to vow to slow lending and bond trading in Ghana.

     

    GCB Bank took a charge of 1.83 billion cedis after impairing its debt securities, while for Standard Chartered Bank Ghana the amount was GHC173 million.

     

    Ghana’s lenders were allowed a month’s extension to release full-year earnings.

     

    The nation’s debt rose after spending pressures from an energy crisis between 2013 and 2015 and a sweeping banking-sector cleanup in 2018 were compounded by shocks from the Covid-19 pandemic and Russia’s invasion of Ukraine.

     

    As part of the revamp, Ghana exchanged GHC87.8 billion of local notes that paid an average of 19%, with bonds returning as little as 8.35% — resulting in losses for financial institutions.

     

    The government has started discussions with international debt holders through the G-20 Common Platform Framework for debt respite as it seeks to finalise the IMF support programme.

     

    The IMF wants Ghana to bring its debt down to 55% of GDP by 2028. Before the government’s interventions, Debt-to-GDP had been projected to reach 109% by close of 2023.

  • Banks losses due to DDEP may continue into 2024 – Finance Lecturer

    The loss position of banks in Ghana may continue into next year, a Senior Finance Lecturer at the University of Ghana Business School, Dr. Benjamine Amoah, has stated.

     

    According to him, the impact of the Domestic Debt Exchange on the broader economy has impacted negatively on the banks’ balance sheets.

     

    Banks in Ghana are said to have lost about ¢15 billion as a result of the impact of the DDEP on their operations.

     

    This has triggered the increase in the minimum capital requirement of the financial intermediaries. Indeed, banks, according to the Bank of Ghana have a maximum of four years, ending 2025, to restore the minimum paid-up capital.

     

    Speaking to Joy Business, Dr. Amoah said even without the Domestic Debt Exchange Programme, banks will have still shore up their capital because of exchange rate losses.

     

    “It is simply the reflection of what has happened in the economy over the past year or so and the fact that these banks also operate within the economy”.

     

    “So whatever happens in the bigger economy would definitely reflect on the performance of the banks and to a large extent on the balance sheets of these banks”, he stressed.

     

    According to him, it is not surprising banks are reporting losses for 2022.

     

    “It is not surprising that the banks are reporting some of these non-performance for this particularly year and maybe hopefully next year because we are still not at the end of these challenges”.

     

    According to the Bank of Ghana, derecognition losses emanating from the Domestic Debt Exchange Programme will be spread equally over a period of four years, effective 2022, for the purposes of Capital Adequacy Ratio (CAR) computation.

     

    The International Financial Reporting Standards (IFRS) states that derecognition refers to the removal of an asset or liability (or a portion thereof) from an entity’s balance sheet.

  • Local banks resort to target lending.. mining firms luckiest– Fitch

    Local banks resort to target lending.. mining firms luckiest– Fitch

     

    Adnan Adams Mohammed

     

    The banks suffering from fall in capital levels due to the domestic debt exchange program (DDEP) may resort to target lending, Fitch Solutions has said,

     

    The investor firm predicts that, industries with low non-performing loans (NPLs) ratios and positive outlook, especially the mining sector may receive lending from the banks.

     

    While the mining sector has a low NPL ratio of 4.0%, with a positive outlook forecast for gold mining in Ghana which accounts for 95% of the country’s mineral revenue; the construction sector, which has about 35% NPL ratio ( thus, one-third of all loans are non-performing) as estimated by Fitch, is expected to receive less lending from local banks.

     

    “Local banks will be more inclined to lend to industries with low non-performing loans (NPLs) ratios and positive outlook, especially since we expect to see a rise in NPLs in the coming quarters, given the challenging macroeconomic backdrop and slowdown in loan growth”, Fitch Solutions said in its latest report.

     

    “We think that the Mining & Quarrying sector stands out as it has a low NPL ratio of 4.0%, and as we forecast a positive outlook for gold mining in Ghana (which accounts for 95% of the country’s mineral revenue)”, it explained.

     

    On the other hand, it said nearly one-third of all construction loans are non-performing, which suggests that banks are unlikely to increase their exposure to this sector amid challenging economic conditions.

     

    According to Fitch Solutions, the domestic debt restructuring programme has led to a significant fall in the capital levels of banks in Ghana and could threaten the solvency and stability of the sector.

     

    It said: “Banks are entering this phase with a mixed capital picture, with some banks very close to the minimum regulatory capital level of 13.0%”.

     

    Fitch Solutions also pointed out that capital buffers have fallen considerably in 2022, despite a sudden rise in December.

     

    The fall, it noted, was largely driven by mark-to-market losses on investments and increases in risk-weighted assets of banks, due to the depreciation of the cedi and growth in loans and advances.

     

    However, capital levels narrowly avoided falling below the minimum requirement in December 2023, likely as a result of banks retaining more of their earnings, in preparation for expected losses in profits and capital in 2023.

     

    “The debt restructuring and fall in capital could lead to higher funding costs for banks if they become less creditworthy, and could significantly impact the banking sector’s solvency and stability”, Fitch Solutions warned.

     

    The warning by Fitch Solutions dovetails into similar sentiments expressed by the Bank of Ghana recently.

     

    Admittedly, Bank of Ghana at its Monetary Policy Committee meeting press briefing, last week, indicated that macroeconomic challenges and the recent domestic debt exchange programme (DDEP) have weakened banks’ capital buffers.

     

    The situation, according to the Governor of the central bank, Dr Ernest Addison, requires urgent measures to forestall financial stability risks.

     

    “The macro-prudential risk assessments conducted during the last MPC meeting indicated increased pressure on profitability and solvency of banks prior to the implementation of the DDEP”.

     

    “The preliminary data available at this MPC, show that the pre-pandemic capital buffers in the banking sector have been weakened somewhat by the recent macroeconomic challenges and the DDEP, although banks remain liquid”, he explained.

     

    Consequently, the governor noted that, “These require contingency measures by banks, supported by the regulatory reliefs to contain potential risks to financial stability.

     

    “The Bank of Ghana will continue to monitor these developments going forward, and stands ready to act very swiftly to safeguard the stability of the financial sector”.

  • Banks’ profitability growth shrinks

    Banks’ profitability growth shrinks

    By Elorm Desewu

    Universal banks’ profitability growth has shrunk for the first six months of this year. The banking sector’s profit before tax was GH¢4.4 billion, representing 21.6 percent annual growth in June 2022, compared to 32.1 percent in the previous year.

    The net interest income grew at 12.4 percent, compared with 19.4 percent a year ago. Net fees and commissions, however, grew by 29.2 percent, compared to 19.6 percent in the previous year, reflecting a rebound in trade financerelated business. These developments culminated in a 23.0 percent growth in operating income, compared with a growth of 15.7 percent in the corresponding year.

    Operating expenses also recorded a higher growth of 22.9 percent, compared to 7.3 percent in the previous year, moderating the growth in profit before tax during the first half of 2022.  

    Total assets grew by 22.8 percent on a year-on-year basis to GH¢200.0 billion at endJune 2022, compared to the growth of 17.2 percent in the previous year. Total deposits grew at a slower pace by 19.1 percent to GH¢131.3 billion, relative to 22.5 percent growth a year earlier.

    Key Financial Soundness Indicators of the banking industry remained positive. The Capital Adequacy Ratio was 19.4 percent in June 2022, well above the regulatory minimum of 13.0 percent.

    Core liquid assets to short-term liabilities improved to 30.2 percent, compared with 27.5 percent in the previous year. The non-performing loans ratio also improved to 14.1 percent at end-June 2022 compared with 17.0 percent in June 2021, reflecting some moderation in the growth of the stock of non-performing loans, as well as the rebound in credit growth.

  • All banks debit will need Ghana card authentication from July 1 – BoG

    All banks debit will need Ghana card authentication from July 1 – BoG

    The Head of Financial Stability at the Bank of Ghana, Dr. Joseph France, says starting July 1, all persons who have failed to link their Ghana cards to their bank accounts will be unable to withdraw funds from their bank accounts.

    According to him, unlinked accounts will, however, be able to receive deposits till such a time when the owner finally links their Ghana card details to the account.

    He noted that the process of linking Ghana cards to bank accounts has no expiry date and clients only have to go to their banking centres to have their Ghana card details and biometric data collected.

    The linkage of Ghana cards to bank accounts is a government initiative to weed out fraudsters from the banking sector.

    He said, “The position is that you cannot transact banking, you cannot be involved in banking activity from 1st July. And so what it means is that you cannot go and withdraw money from your bank if you haven’t linked your Ghana card to your account.

    “However, there is no expiry date to when you can do so. Si there’s an expiry date to when you  can transact business, but there’s no expiry date to when you can link your account to your Ghana card. So you go tomorrow, you want to withdraw from your account, if you haven’t linked your account to your Ghana card, you won’t be able to withdraw, but you’d have the opportunity to link your Ghana card to your account then you withdraw.

    “And you can continually do so, or anybody who is not should not rush tomorrow or tomorrow next to go and withdraw. If you don’t have business of doing banking transactions to withdraw money, you can go anytime and withdraw money, and you’d be allowed to withdraw only when your account is linked.”

    He further explained that “the only deviation which I may have to come in is that if you’re going to put in money – let’s say you have deposits, you’re going to put into your account – you’d be allowed to do so.

    “Otherwise, you’d have to take the money home and then these same fraudsters will apprehend you and take the money from you. You’d be allowed to do so, but you’d not be allowed to withdraw. There will be no debits on your account so you’d not be allowed to withdraw.”

    However, for Ghanaians who are non-residing in Ghana and diplomatic missions, they can use their passports to conduct all banking transactions.

    “The next proviso which is an expansion of what we have said and not to deviate from that but an expansion is that Ghanaians who are living abroad, in other words, non-residents who are Ghanaians who are living abroad who through no fault of theirs have not been able to have access to Ghana cardwill be allowed to use their passports.

    “Again the diplomatic missions, the embassies, will be allowed to use their passports to do banking business. aside of this all other persons should have their Ghana cards and should link their Ghana cards before they’re allowed.”

    Meanwhile, Dr. France has warned against linking your Ghana crad to your bank account  via social media links.

    According to him, this may be the nefarious activities of fraudsters trying to take advantage of the system and phish for the banking details of unsuspecting customers.

    He has warned the general public to instead report to their banking centres and have their detail taken there.