HomeBanking and FinanceRevitalizing the Banking Sector: Crucial US$250M Facility Set to Drive Innovation and...

Revitalizing the Banking Sector: Crucial US$250M Facility Set to Drive Innovation and Growth

Revitalizing the Banking Sector: Crucial US$250M Facility Set to Drive Innovation and Growth

The World Bank’s approval of a US$250million credit facility has been hailed as crucial for the recapitalisation of some battered banks and further reinforcing stability in the industry.

Dr. Richmond Atuahene, a banking consultant, believes the World Bank’s support could provide much-needed relief to institutions grappling with the fallout from government’s debt restructuring efforts.

“Already, one bank has been locally recapitalised by government through the Ministry of Finance. CBG has also been recapitalised with bonds,” Dr. Atuahene told B&FT.

“When these come in you could possibly redeem some of the bonds and provide cash, as bonds are very difficult to use,” he added.

Banks in the country have seen heightened profitability driven by exceptionally high yields on Treasury bills, aiding their recovery in capitalisation after large losses due to the debt exchange programme in early 2023.

Dr. Atuahene also highlighted the funds’ significance for the National Investment Bank (NIB), slated to receive a GH¢400million capital injection from government as part of a broader GH¢2.3billion recapitalisation plan.

However, he pointed out that some private banks are also facing challenges. He believes the World Bank’s support could be extended to institutions that previously received assistance through the Ghana Amalgamated Trust (GAT) programme in 2019.

“Some private banks are also facing problems. If the money is sufficient, they might help those institutions that previously received support from GAT,” he explained.

Fitch Ratings projected in February 2024 that several banks would raise core capital from shareholders and seek support from the Ghana Financial Stability Fund. Government has committed the local-currency equivalent of US$500million to the fund, in addition to the World Bank’s US$250million commitment.

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The rating agency further noted that foreign-owned banks are generally best placed to deal with the difficult operating environment in Ghana, as they can call on extraordinary support from their large shareholders.

The World Bank’s US$250million credit facility, approved for a five-year Ghana Financial Stability Project, will support government’s Financial Sector Strengthening Strategy (FSSS).

The funds will be channeled through the Solvency Fund A1 of the Ghana Financial Sector Stability Fund (GFSF), established by government to provide solvency support to affected institutions.

Robert R. Taliercio, World Bank Country Director for Ghana, Liberia, and Sierra Leone, earlier emphasised the project’s significance; stating it will enhance financial stability by providing solvency support to banks and specialised deposit-taking institutions (SDIs) impacted by the domestic debt exchange programme.

“This project will benefit Ghana’s financial sector and economy by supporting access to savings, payments and other core financial services provided by adequately capitalised banks and SDIs,” Mr. Taliercio said.

Carlos Leonardo Vicente, Senior Financial Specialist and Team Lead, noted the broader economic implications of the World Bank’s support.

“The World Bank Group’s support aims to help address short-term shocks and improve prospects for long-term sustainable development and resilience against future shocks,” he said.

Recent banking sector indicators point to a recovery from the  domestic debt exchange programme’simpact. Total assets increased by 28.8 percent to GH¢306.8billion at the end of April 2024, driven by domestic currency deposits and other funding sources. Banks reported higher profits for the first four months of 2024 compared to the same period in 2023.

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The central bank reported that key financial soundness indicators improved, with the capital adequacy ratio rising to 15.5 percent in April 2024 from 14.7 percent in April 2023 – reflecting the rebound in profits. However, the non-performing loan ratio increased to 25.7 percent in April 2024 from 18.0 percent in April 2023 due to lagged effects of the COVID-19 pandemic and 2022 economic crisis.

Other analysts have expressed confidence that as the financial sector shows signs of recovery, the World Bank’s support is seen as a crucial step toward restoring stability and confidence in the banking system. The influx of funds is expected to facilitate recapitalisation of viable institutions, enabling them to navigate the challenges posed by the debt restructuring programme and positioning them for long-term sustainability.

The project complements other international efforts, such as the International Monetary Fund’s Extended Credit Facility and World Bank’s Development Programme Financing series aimed at supporting macroeconomic reforms and enabling financial institutions to operate profitably and generate internal capital.

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