By: Fred Yaw SARPONG
fsarpong@theeventpr.com
As part of the transformational agenda to the banking sector in the country, the Bank of Ghana (BoG), regulator of the banking sector says its meeting all the 32 banks operating in Ghana ahead of the minimum capital requirement deadline.
According to the central bank, the meeting is to have further update on where each bank is as far as the recapitalization is concerned.
The regulator increased the minimum capital requirements of all commercial banks in Ghana from GHc120 million to GHc400 million. All the banks have been given up till December, 2017 to fully meet the new requirement.
The commercial banks are supposed to be submitting their plans to capitalize up to GHc400 million to the central bank, hence the meeting is to assess their plans put in place.
“We had requested quite a number of banks to put into place recapitalization plans as far back as April, 2017. So since April we have seen some a number of banks improves the level of capitalization. All of that reduces vulnerabilities in the banking sector.”
The Governor of the central bank, Dr. Ernest Addison explained that it is important for his outfit to meet the banks and know the challenges facing them as far as the GHc400 million is concerned.
“Currently, five out of the 32 banks have already met the GHc400 million before the process started. The central bank expects that more banks will meet it,” he added.
Even though he did not mention the names of the banks, the Daily Express gathered that the banks include Ecobank Ghana, Barclays, and GCB bank.
The Governor pointed out that it is impossible for all the 32 banks to raise the GHc400 million capital requirement and for that he expect consolidation in the sector. “We expect that there will be consolidation in the sector,” he added.
“Well if all the 32 banks are able to raise the capital from outside, then maybe we will not see the consolidation that we want to see. But that is highly unlikely that all the 32 banks will be able to raise that type of money externally within the period that has been given,” Dr. Addison noted.
Touching on financial challenges of the banks, Dr. Addison mentioned that the banks has right to borrow from the central bank.
“As a central banks and the lender of final point to the financial system, if a bank has liquidity challenges they are allow to borrow from the central bank, because that’s one of the functions the central bank is supposed to play,” he stated.
He further stated that so long as the bank has the securities to back that borrowing as collateral, “we do extend that liquidity support to that bank.”
He indicated that the level of financial difficulty of the banks has been improved significantly from the beginning of the year, where banks were in very serious need of liquidity. “At least over the last two months we have not seen that time of pressure coming in. So there are improvements in that as well.”
He told the Daily Express that the fact that non-performing loans (NPLs) have marginally improved, it means the managers are doing something right.
Commenting on policy rate reduction whether it has been reflecting in the lending rate of the banks, he noted that that has not been reflected.
The central bank thinks that given the sustained reductions that the industry has been seeing, the banks will eventually have to come down on their lending rate.
“I think we have already seeing some movements this year and we know that if we sustained the trend that we are seeing in inflation rate, in the policy rate and in the money market rate, the lending rate as part of the market will eventually also come down.”
“Obviously, the speed in which lending rate will come down is hide a bit in some of these structural issues in the sector including the high levels of NPLs. The inefficiencies in the banking sector that has to be work on, then we expect that one’s those efficiencies are gain, you will see a faster transmission of movement in the policy rate to the lending rates.”
He said the reason for recapitalization of the bank is that most of the banks were over stretching themselves in terms of the sizes of the loans they were given out relative to the capital and they needed to come to the banking supervision department to be granted waivers.
The fact is that the banks undertake larger and bigger transactions but they do not have the capital to support it. “Now going forward under the BASEL 2, BASEL 3 requirements this will not be possible because they will require to provide additional capital that is related to the risks that the banks undertake.
The BASEL is a set of international banking regulations put forth by the Basel Committee on Bank Supervision (BCBS) that sets out the minimum capital requirements of financial institutions with the goal of minimizing credit risk.
“If you look at the pillar (1) of that particular framework, focus on the bank providing capital not only to cover for the credit risk but they also to provide additional capital for operational market risk. So that disjoint between the level of capital and the size of the transaction that they support will be addressed by BASEL 2 and BASEL 3 framework.”
“But I think we also need to be mindful of the important of macroeconomic stability within that framework as well. Because when you are in an environment of very high inflation, rapid exchange rate, depreciation you also suffer what is called capital erosion because of the currency depreciation of the cedi.”
In addition to putting into place tighter regulatory standard in terms of BASEL 2, BASEL 3 he said it is also important to ensure that the banking sector continue with the policies that will entrench the stability that the sector seeing.
Last week Monetary Policy Committee (MPC) report stated that the banking sector remains liquid and solvent although non-performing loan ratio remains high.
Total asset base of banks increased to GH¢88.9 billion in October 2017, representing an annual growth of 20.5% compared to 23.7% same period last year. The growth in assets was mainly funded by deposits which went up by 18.2% on a year-on-year basis.
The quality of banks’ loan portfolio has improved marginally since the last MPC meeting. The Non-Performing Loans (NPLs) ratio declined from 21.9 percent in August to 21.6% at the end of October. Similarly, NPL ratio net of provisions declined from 11.3% to 10.5%.
The industry’s Capital Adequacy Ratio (CAR) averaged 15.0% at the end of September 2017, significantly above the 10.0% prudential requirements.
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