Dr. Richmond Atuahene, a renowned banking consultant, has made a persuasive recommendation asking the Bank of Ghana (BoG) to issue Financial Sector Stability Fund (FSSF) bonds in an effort to address the urgent solvency difficulties faced by financial institutions in Ghana.
This proposal, developed in collaboration with financial analyst K.B. Frimpong, comes at a time when the government seeks to alleviate its fiscal burden, while simultaneously facilitating the much-needed restructuring and recapitalization of local banks that have incurred losses through the Domestic Debt Exchange Program (DDEP).
In line with Dr. Atuahene’s proposed framework, the losses incurred through the DDEP would be transferred from banks’ capital, where they are currently recognized in financial records, to the Financial Sector Stability Fund Secretariat Office at the Apex bank.
To cover the consequent capital shortfalls, the central bank would issue interest-bearing FSSF bonds, which are expected to generate an annual interest rate between seven and nine percent. “The initial statutory life of these bonds would be four years,” he noted.
Elaborating on the mechanism, Dr. Atuahene emphasized the importance of this recommendation, stating, “By transferring DDEP losses from banks’ capital to the Financial Sector Stability Fund Secretariat Office, the burden on banks is alleviated. The issuance of interest-bearing FSSF bonds by the Bank of Ghana replaces the capital shortfall, ensuring a viable pathway for banks to recover and thrive.”
Significance Of FSSF Bonds Issuance
More so, according to Dr. Richmond Atuahene, the release of FSSF bonds would not only offer the crucial financial support for the restructuring and recapitalization of eight local banks, but it would also lessen the pressure on the government’s finances.
The Ghana Financial Sector Stability Fund, he said, would also be repaid by bank shareholders over a four-year period, highlighting the fact that banks and the government share responsibility for restoring financial sector stability.
He further disclosed that banks would be subject to enhanced monitoring if they fail to meet minimum capital adequacy ratios. Early recapitalization efforts, as stated by Dr. Atuahene, would receive support from the Financial Sector Stability Fund, thereby creating a conducive environment for sustainable recovery.
According to him, the recommendation draws inspiration from successful international models, such as Greece’s state-sponsored recapitalization of banks during their debt restructuring in 2013. Furthermore, Ghana had previously implemented a similar model during a severe banking crisis in 1985. At that time, with support from the World Bank, the country established the Non-Performing Assets Recovery Trust (NPART) as part of the Financial Sector Adjustment Programme (FINSAP), which facilitated the restructuring and recapitalization of major state-owned banks.
Dr. Atuahene emphasized the need to build upon Ghana’s past experiences, including the successful implementation of FINSAP between 1988 and 1997, incorporating the lessons learned and international best practices into the current Financial Sector Stability Fund Program (FSSFP).
As stakeholders eagerly anticipate the response from the Ministry of Finance and the Bank of Ghana, the successful implementation of the proposed FSSF bonds holds the potential to reshape the financial landscape and foster a healthier and more resilient banking sector in Ghana, positioning it for a prosperous future.