Banks remain resilient – BoG

• Recapitalisation efforts on track, profitability rebounds
• Stability Fund offers additional support

Bank of Ghana Governor Dr. Ernest Addison has stated that recapitalisation of banks following the Domestic Debt Exchange Programme (DDEP) should continue without any significant hitches, on account of their performance in 2023, as well as the Ghana Financial Stability Fund (GFSF).

Speaking during a press briefing after the Monetary Policy Committee’s (MPC) 116th meeting, the central bank chief said banks were generally ahead of the 2026 window they had been given to restore their capital levels – while disclosing that GH¢2.5billion has been disbursed under the Stability Fund.

“From what we have seen, given the performance of banks in 2023, a lot of them should be able to fill the gaps with profit they made in 2023; so, the situation is not very critical. Banks are doing much better than we had anticipated; after giving them three years, they are way ahead of the recapitalisation schedule and many have had AGMs wherein they got their shareholders commitment to raising resources. Therefore, the problem has been taken care of,” Gov. Addison explained.

He added that banks with Ghana Amalgamated Trust (GAT) investments will see further involvement of the state in their recapitalisation endeavours.

“Rest assured, our banks are very strong and resilient; and we do not foresee any problems with banks recapitalising in the country,” he added.

The GH¢15billion stability fund was established ‘as an additional safety net provider’ to help mitigate potential impacts from GoG debt operations on the financial sector, following the full participation of all commercial banks in the DDEP.

Under the arrangement, an initial allocation of US$750m – consisting of a US$250m loan facility from the World Bank and US$500m from government – was earmarked for the GFSF solvency window.

The Fund however extends beyond banks and includes special deposit-taking institutions (SDIs) and Rural and Community Banks (RCBs), insurance companies, fund managers, collective investment schemes and broker-dealers.

Industry in 2023

Without giving too much away, Dr. Addison had previously mentioned that the banking industry experienced enhanced performance as negative effects stemming from domestic debt restructuring and macroeconomic challenges diminished.

As at the conclusion of 2023, data indicate that banking sector continues to exhibit stability, liquidity and profitability. Profits for the sector have rebounded from losses reported in the audited accounts of 2022; showcasing sustained growth in net interest income and fees & commissions.

“The industry’s balance sheet was generally strong, underscored by increased assets in December 2023 funded largely by deposits. Key financial soundness indicators remained broadly positive, with the Capital Adequacy Ratio (adjusted for reliefs) above the regulatory minimum; while liquidity and profitability ratios were higher in December 2023 compared to the same period last year,” he added.

The Non-Performing Loans ratio however saw an increase in 2023, attributed to general repayment challenges among borrowers and reflecting the lingering impact of macroeconomic challenges experienced in 2022. Nevertheless, the latest stress tests affirm the industry’s stability, thanks to the aforementioned recapitalisation efforts by shareholders and support from the GFSF.

Unsurprisingly, due to a tight monetary policy stance and heightened risk-aversion among banks in response to escalating credit risks, private sector credit expansion remained generally sluggish throughout the year.

By December 2023, the growth rate in private sector credit decelerated to 10.7 percent; a significant drop from the 31.8 percent annual growth observed in December 2022. In real terms, credit to the private sector contracted by 10.2 percent in 2023 compared to a 14.5 percent contraction during 2022.

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