The funds under management of the securities industry recorded a drop of about 40 percent last year, according to the 2019 Financial Stability Review Report released by the Bank of Ghana on Wednesday, September 30, 2020.
According to the Financial Stability Review Report, total assets managed under the securities sector with the exclusion of pension funds decreased to10,370.81 million Ghana cedis in December 2019 from 16,978.01 million Ghana cedis in December 2018, representing a decline of approximately 40 percent year-on-year.
The report released by the Bank of Ghana indicated that the securities sector experienced a decline in the funds managed by the sector as a result of a ban placed on guaranteed investment products as well as the implementation of resolutions that were aimed at sanitising the sector. These funds, however, excluded pension funds under management.
“In the securities sector, a ban on guaranteed investment products and resolutions targeted at sanitising the sector, led to a drop in managed funds (excluding pension funds)”.
The Bank of Ghana’s report also stated that the financial sector as a whole is doing very well. It said that assets managed under the Ghanaian financial system expanded recording an increase from 168.42 billion Ghana cedis in December 2018 to 186.11 billion Ghana cedis in December 2019, indicating an upsurge of about 10.5 percent year-on-year. The Bank attributed this upturn to developments in the banking, insurance, and pension sectors.
“Total financial system assets expanded in the period under review. The assets of the financial system increased to GH₵186.11 billion at end-December, 2019 from GH₵168.42 billion at end-December, 2018. The improvement in the asset of the financial system was on the back of expansions in the banking, insurance, and pension sectors”.
According to the report, in terms of proportion, the banking sector contributed the highest share of approximately 76.78 percent of total financial assets, and was followed behind by the pensions sector with 14.13 percent, next in line was the securities sector with 5.57 percent and then the insurance sector recording a minimum of 3.51 percent in December 2019 according to the estimations presented in the Financial Stability Review Report.
“As at end-December 2019, the banking sector had the greatest share of total financial sector assets constituting approximately 76.78 percent, followed by the pensions (14.13 percent), securities (5.57 percent) and insurance (3.51 percent) sectors”.
Again, concerning the interconnectedness of the financial system, the report stated that “In the year under review, universal banks were largely exposed to securities firms (GH₵845.30 million), specialised deposit-taking institutions (SDIs) (GH₵652.04 million), insurance companies (GH₵25.86 million) and pension institutions (GH₵0.12 million)”. These exposures were attributed to loans and investment placement in other financial institutions.
“Exposures of banks to the other financial institutions were mainly in the form of loans and investment placements with the other financial institutions”.
Alternatively, the exposure of other financial institutions to the banks was about 37.3 billion Ghana cedis in the same year. These exposures were mostly from deposits and investments.
“Total exposure of the other financial institutions to banks as at end-December, 2019 was approximately GH₵3.73 billion. Majority of these exposures were in the form of deposits and investments”.
The Bank of Ghana also added that “These exposures suggest that, banking sector reforms did not only strengthen the banking sector but also minimised contagion risk”.
In conclusion, the report indicated that the financial sector is resilient and has the resources to foster economic growth and financial stability.
“Broadly, the financial sector remained well-positioned to support economic growth and financial stability”.
More so, it was anticipated that the initiatives that were undertaken by the securities sector such as a ban on guaranteed investment products and setting up resolutions to clean up the sector, accompanied by plans to recapitalise the sector will boost growth.
“In the medium-to-long term however, these initiatives together with plans to recapitalise the securities sector are expected to bolster growth”.
