The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has broadly assessed Ghana’s banking sector, indicating that it’s well capitalized, profitable and liquid.
Dr Ernest Addison, Governor of the Bank of Ghana, who doubles as chairman of the MPC, disclosed this to the media at a press conference recently in Accra.
He, however, stated that “this does not mean that there are no pockets of weaknesses or vulnerabilities. Obviously, these are average numbers, so within the broad averages there may also be a few weak points. And we’ve already made these assessments in the past and stressed the need for banks that do not have enough capital to rebuild their capital. And if you look at the latest numbers, we are reporting a Capital Adequacy Ratio of 19 percent from around 16 percent, so there’s a lot going on.”
Dr Addison said banks were rebuilding their capital buffers and becoming more resilient compared to what pertained six months ago.
“As the banks continue to increase their capital towards meeting the new GH₵400 million minimum capital requirement, we expect that banks’ resilience would firm up. So broadly, we should take it that yes, we have had some challenges but reforms are ongoing, capital buffers are growing, and we should expect to see a stronger banking system by the end of the year.”
“Banks’ capital adequacy ratios are going up, so there is some additional effort by banks to raise their capital and that includes some six indigenous banks.
“Obviously, they must be the ones that are contributing to the increasing resilience that we are seeing.”
Non-performing loans
He said a significant portion of the non-performing loans were legacy debts and so it would take some time for these to be written off.
“I am told that our legal systems are so complicated that it could take four years to write off some of these loans, but the most important thing is that NPLs net of fully provisioned loans is near single digits, so we are making progress.
“The NPLs are highly concentrated. For instance, the top 10 non-performing loans account for almost 41 percent of the total non-performing loans stock. In other words, if you resolve just the top 10 of the loans, you would be able to resolve the NPL problem.”
He continued that ESLA helped reduce the public sector portion of the non-performing loans, but not by much because a lot of the energy sector loans were already classified as performing loans so it did not have such a big impact on the NPLs.
State of indigenous banks
“The indigenous banks are also improving and trying to rebuild capital, obviously, we have a number of them that are smaller, so we expect that they would consolidate. As part of the broader recapitalization process for 2018 we expect that the smaller indigenous banks would in a sense come together and become stronger.”
Microfinance sector
On this, he said there were a lot of challenges and BoG had put out a lot of directives recently to right the wrongs.
“Now, we are trying to look at the numbers. The issue is that micro-finance institutions are doing everything that they are not supposed to do and behaving like they are banks, that’s the core part of the problem. So, the Other Financial Institutions Supervision Department has given the sector new guidelines on business practices.”
He added also that there was an intention to increase the capital requirements for micro-finance institutions, which BoG was discussing with the government to devise a roadmap on possibly consolidating that sector and finding a way in which it can deal with the issue of depositor’s funds.
“This is not unrelated to the attempt we are making at pushing for the deposit insurance. It is because of this problem that the deposit insurance arrangement becomes very important and as you are aware, Parliament last Friday passed the Deposit Insurance Amendment Bill and when that is operationalised at least, deposits up to a certain threshold would be covered by insurance.”
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