Governor of the Bank of Ghana (BOG), Dr. Johnson Pandit Asiama has announced that the central bank will be supporting some local banks to recover from the harsh impact of the 2022 Domestic Debt Exchange Program (DDEP) implemented by the previous government.
He was speaking to journalists at the 123rd Monetary Policy Committee (MPC) press conference, where he announced a 100 basis point increase in the Monetary Policy Rate from 27% to 28%, due to inflationary pressures.
In his address, the governor said currently some local banks are undercapitalized and they also have significant amounts of non-performing loans (NPLs) on their books, particularly dating back from the DDEP period.
“Yes NPL is a big problem facing the banking sector but we must remember that the domestic dept exchange program also contributed significantly to the NPL problem,” he noted. “The local banks especially, have a disproportionate impact of this problem.”
The governor said the BOG is therefore monitoring those banks closely in the interest of the stability of the financial sector. But the approach, this time round will be to support them to manage their risks properly so they could get back on their feet.
”Going forward, particularly in the case of the local banks, we have to find ways of strengthening their risk management…and it is something we are planning to do very aggressively,” he stated.
Dr. Asiama said local banks are going to continue to be in the banking space because there is a role for them, so “what we need is to put in the framework to support them so that they can continue to thrive.”
Clean up a SDI/MFI levels
Dr. Asiama however noted that there will be some clean up in the special deposit-taking institutions (SDI) levels, such as saving and loans and microfinance institutions, adding that discussions are currently ongoing with the ministry of finance on when and how to do the clean up.
Meanwhile, he also announced three specific measures for liquidity management to enhance the impact of the of the 28% MPR on the economy.
The three measures were:
- Introduction of a 273-day instrument to augment the central bank’s existing sterilization toolkit.
- Intensified monitoring of banks’ Net Open Positions (NOPs) to ensure strict compliance with regulatory requirements.
- Review of the Cash Reserve Ratio (CRR) structure to assess its broader impact on liquidity conditions and financial intermediation.
