The recent domestic debt exchange programme (DDEP) has raised concerns among industry players in the banking sector about the potential impact on their exposure to government securities in the future.
Available statistics suggest that the banking industry is one of the most affected sectors by the programme, and this has prompted questions about the credibility of government as a debtor.
Despite these concerns, some industry leaders remain confident that the government’s dealings with commercial banks will not be significantly affected in the long term.
Mr. Daniel Asiedu – the managing director of Omni BSIC, speaking during an interview acknowledged the difficulties caused by the debt exchange programme but emphasized that the government remains one of the most credible debtor to the financial sector.
According to Mr. Asiedu, the government still remains attractive to the financial sector, hence despite the DDEP, banks would continue to lend to the government.
The managing director further noted that the banking industry had been through similar situations in the past and would be cautious in selecting which government instruments to invest in, adding that: “The government’s creditworthiness is closely tied to the country’s economic performance, and as such, it is in the interest of banks to maintain a positive relationship with the government.”
Mr. Asiedu’s views on the matter reflect a broader sentiment in the banking industry that while the debt exchange programme may have caused some short-term difficulties, the government remains a crucial partner for the financial sector and the economy as a whole.
The debt exchange programme itself, as indicated by Mr. Daniel Asiedu, is part of a wider effort by the government to manage its debt levels and improve its financial standing. “While there may be short-term disruptions, it is hoped that the long-term benefits of the programme will outweigh any temporary challenges,” he assured.
“The government’s commitment to improving its financial situation is a positive signal for the banking industry as it suggests that the government is taking steps to address its debt levels and improve its fiscal management.”
Mr. Daniel Asiedu
BoG Reiterates Position Of Closely Monitoring Banks To Prevent Insolvency
Meanwhile, it can be recalled that to help reduce any pressure on the bank’s balance sheet and consequently avert the probability of insolvency as banks keep lending to government, the Central Bank of Ghana (BoG) revealed its plans to closely monitor some developments among banks due to the domestic debt exchange programme, which is increasing liquidity pressures.
According to Dr. Ernest Addison – the Governor of the Central Bank of Ghana, regulatory relief measures were being worked on to moderate the potential impact of the DDEP initiative.
“Indeed, the Bank’s macro prudential risk assessment of the banking sector indicated the emergent of signs of spill overs from the current macro-economic conditions characterised by high inflation and rising interest rates to the banking sector.
“Already, some regulatory relief measures have been lined up for banks to moderate the potential impact of the Domestic Debt Exchange Programme and and ensure stability in the sector.”
Dr. Ernest Addison
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