Bank of Ghana: No Request for Liquidity Support from Banks
The Governor of the Bank of Ghana (BoG) Dr Ernest Addison has said that at the moment no bank in Ghana has applied for liquidity support from the central bank.
He however said the BoG stands ready to provide liquidity support to banks that ask for it but that will be done within the rules governing liquidity assistance.
Answering questions during the 112th Monetary Policy Committee (MPC) press conference in Accra on Monday, May 22, Dr Addison said “we have not had any bank ask for liquidity assistance partly because of the regulatory reliefs that we gave them.
“We reduced the reserve requirement as part of the Domestic Debt Exchange Programme (DDEP) but I always make the point that should any bank need liquidity, the Bank of Ghana would stand ready to provide the resources in line with our rules for liquidity assistance.”
He further indicated that banks have been asked to increase their capital buffers and given up until September this year to submit to the central bank their recapitalization plans.
He said the regulator will be following up on that and ensure the banks comply.
When asked whether any bank is going to be asked to increase its capital buffers, he said “The answer is yes. The impact of the exchange has been to reduce the capital buffers of banks, so if you look at the analysis that was done when we take cognizance of the three percent additional buffer the banks will need to add up to their capital.
“Right now we have reduced the capital adequacy ratio to 10 percent and we are hoping that over the next three years the banks will be able to rebuild their capital buffers and hopefully, at that time we may bring in the additional 3 percent capital buffers so yes most banks are working towards that, they have been given a period, up to September to submit to us what their recapitalization plans are.
“We will be following up on that to ensure that banks, instead of distributing the profits that they have started making, use those resources to rebuild their capital buffers.”
Regarding the reduction in the public debt, Dr Addison explained that the strength that the Cedi gained against the Dollar in December last year is what has accounted for the drop.
He explained that when a country has a chunk of its total debt dominating in foreign exchange, whenever the local currency drops, it means the debt stock will increase.
Ghana’s public debt stock has reduced from GHS575 billion to GHS434.6 as of December 2022, according to the BoG’s Summary of Economic and Financial Data for April 2023.
This represents GHS141billion reduction in the debt stock
The Governor of the BoG Dr Ernest Addison explained at the 112th Monetary Policy Committee (MPC) Press conference in Accra on Monday, May 22 that the decline in the debt stock was a result of the strength that the Cedi gained against the Dollar in December last year.
“Largely due to the exchange rate appreciation that we saw. You all know what happened at the end of last year, the very large depreciation of the Cedi was corrected somewhat in the latter part of the year, that helps in terms of the Cedi value of the debt,” he said.
He added “It has to do with the issue of debt sustainability at the very heart of debt sustainability and the composition of our debts. So when half of your total debt stock is dominated in foreign exchange, a slight movement in your exchange rate will, and the sensitivity of your debt to exchange rate movement becomes paramount in the sustainability of that debt.
“So this is one of the major problems that we have faced probably since 2020. Anytime you saw a slight movement in the currency, it complicates the situation, and the government has to find more resources to service that debt and this is how the debt became almost unsustainable over that period.
“So yes, when you have a high composition of foreign debt in your total debt stock, you must be sensitive to the management of the exchange rate but that doesn’t mean that the Bank of Ghana’s policy is to focus on a particular exchange rate, we are focused on the inflation rate. The interest rate decisions that we take are geared towards attaining inflation target.”