The Central Bank has disclosed that all banks whose capital were affected by the Domestic Debt Exchange Programme have complied with the directive to submit their recapitalization plans ahead of the September deadline set out under the IMF programme.
The Governor of BoG, Dr Ernest Addison, while addressing the media on the back of the Monetary Policy Committee report said “all the banks have fully complied and summited their recapitalisation plans for review.”
Meawhile, under the IMF programme, individual banks were expected to submit their credible time-bound plans to rebuild capital buffers on a phased basis in line with timelines set out under the financial sector strategy.
Although he did not give details of the plans by the banks, Dr Addison indicated that the central bank expects banks to approach their shareholders first to recapitalise and if they are not successful with that, they may have to seek assistance from the yet-to-be-operationalised Financial Sector Stability Fund to do so.
Banks in the country have relatively been stable following the financial sector clean-up which saw them increase their stated capitals to GH¢400 million.
However, the recently concluded DDEP which saw the participation of all the 23 commercial banks in the country hit hard at the industry, with 16 banks recording significant losses in 2022. Although five banks recorded profits in the year under review, the profits recorded were a huge decline from what they recorded in 2021.
Banks Recorded Losses Totalling GH¢8 billion
An analysis by the BoG indicated that the banks recorded losses totalling GH¢8 billion in the year under review. The debt restructuring exercise forced the banks to set aside huge amounts of money as impairment losses and this is what led to majority of the banks recording losses in 2022.
This has led to severe liquidity and capital challenges for the banks, with some already rolling out plans to quickly recapitalise. As a sector which has already gone through some reforms which saw the collapse of nine banks, these fresh challenges have raised a lot of concerns
To help address these concerns, the government announced the establishment of the Financial Sector Stability Fund to help solve the liquidity and solvency challenges of the affected banks.
The World Bank has committed to support the establishment of the fund with US$250 million, with the government also in discussions with African Development Bank (AfDB) for another US$100 million to support the fund. Government recently noted that it has so far raised US$750 million for the operationalisation of the fund.
The fund intends to raise US$1.5 billion in total. The Minister of Finance, Ken Ofori Atta, is expected to give more details on the operationalisation of the fund when he presents the mid-year budget tomorrow July 27.
Despite the liquidity challenges of the banks, Dr Addison indicated that no bank had so far approached the central bank for liquidity support. He said that could be partly due to the regulatory reliefs provided to them by the central bank.
He, however, noted that should any bank need liquidity, the BoG would stand ready to provide the resources in line with its rule books for liquidity assistance.
Giving an update on the banking sector, Dr Addison, said data submitted by banks for the first half of 2023 reflected the lingering effects of the DDEP, notwithstanding the strong rebound in profitability. He said the industry’s total assets as at June 2023 was GH¢242.4 billion, showing a moderation in growth of 21.2 per cent from 22.8 per cent in June 2022.
“Total deposits grew significantly by 42.8 per cent to GH¢187.6 billion in June 2023, relative to GH¢131.3 billion, representing 19.1 per cent growth in June 2022. Total borrowings however contracted by 39.1 per cent to GH¢16.0 billion compared with GH¢26.4 billion a year earlier.”Dr Ernest Addison
Dr Addison, meanwhile, mentioned recently that the key financial soundness indicators remained broadly sound, supported by the temporary regulatory reliefs extended to the banks in the wake of the DDEP. The industry’s Capital Adequacy Ratio (CAR) for June 2023, stood at 14.3 per cent.
This is higher than the revised prudential minimum of 10 per cent, but lower than the CAR of 19.4 per cent recorded in June 2022.