A Senior Finance Lecturer at the University of Ghana Business School, Dr. Benjamin Amoah has disclosed that the loss position of banks in Ghana may continue into next year, as a result of the negative impact of the Domestic Debt Exchange Programme (DDEP) on their balance sheets.
The DDEP, which was implemented to help the government to reduce its domestic debt burden, has reportedly resulted in banks in Ghana losing around GHS 15 billion, prompting the Bank of Ghana to increase the minimum capital requirement for financial intermediaries.
As per the Bank of Ghana’s regulations, banks have until 2025 to restore their minimum paid-up capital.
Speaking during an interview, Dr. Amoah suggested that even without the DDEP, banks in Ghana would still be required to shore up their capital because of exchange rate losses.
He emphasized that the performance of banks is heavily intertwined with the broader economy, so any negative impact on the economy is likely to be reflected in the banks’ balance sheets.
“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.”
Dr. Benjamin Amoah
According to the financial expert, the situation of banks recording looses is of no news due to the current situation the country finds itself.
“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.”
Dr. Benjamin Amoah
Banks And Their Derecognition Hurdles
The Central Bank of Ghana in its recent statement reminded banks that they had a maximum of four years, ending in 2025, to restore the minimum paid-up capital.
According to BoG, this is as a result of capital shortfall arising solely from the derecognition losses.
The Bank of Ghana clarified that the derecognition losses resulting from the DDEP will be spread over a four-year period starting from last year, 2022, for the purposes of computing the Capital Adequacy Ratio (CAR) under the International Financial Reporting Standards (IFRS).
According to the IFRS, derecognition refers to the removal of an asset or liability (or a portion thereof) from an entity’s balance sheet.
The impact of the DDEP on banks’ balance sheets has prompted some analysts to call for a review of the programme.
Some have suggested that the government should consider alternative measures for reducing its domestic debt burden, as the DDEP may have unintended consequences for the broader economy.
The negative impact of the DDEP on banks in Ghana is a reminder of the interdependence between banks and the broader economy, and highlights the need for effective regulation and risk management practices in the financial sector.
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