Dr. Atuahene calls for re-channeling of Financial Stability Fund

Dr. Richmond Atuahene, a Banking and Corporate Governance Consultant, has proposed that the GH¢15billion Financial Stability Fund (FSF) – which was set up to provide liquidity support to the banking sector following the Domestic Debt Exchange Programme (DDEP), can instead be channeled to support banks’ recapitalization, especially locally-owned banks.

According to the banking expert, due to excess Post-DDEP liquidity and information asymmetry in the banking system, banks may not be as severely constrained as they would otherwise have been; therefore, they may not require significant liquidity support from the FSF.

Citing the example of Jamaica, he said: “…the establishment of a Jamaican Financial Sector Support Fund of US$1.2billion to support banks and other institutions that participated in the Jamaica domestic debt exchange was not utilized to support stability of the financial sector, because, there was no need for a financial stability support fund.

“Ceteris paribus, or all things being equal, the Bank of Ghana could use the same fund for capital support looking at the magnitude of capital losses to the Ghanaian-owned banks which will be required to recapitalise after DDEP capital losses.”

Recent Banking System Outlook

Regardless a decline from GH¢174.8billion in the previous month, to GH¢157.9billion at the end of December 2022, the industry’s total deposits has grown by 30.4 percent on an annual basis; thus, driving total assets to GH¢209.4billion.

More so, the industry’s capital adequacy ratio (CAR) – adjusted for the regulatory reliefs, was 15.7 percent in December 2022 and was well above the minimum of 10 percent. It was reduced from 13 percent in December 2022 as part of measures by the central bank to mitigate the DDEP’s impact on lenders.

Nonetheless, there has been heightened need to recapitalize; spearheaded by foreign banks operating in the country.

A couple of weeks ago, Standard Bank and First Rand Bank – both based in South Africa – revealed their plans to recapitalize their operations in Ghana. Standard Bank has reportedly reserved 1.5 billion South African Rand (ZAR) – approximately US$81million for impairments – to account for possible losses resulting from the DDEP.

Also, Nigerian-owned Zenith Bank has revealed that it set aside US$267million to account for its holdings of bonds in Ghana, with the lender saying the debt programme has resulted in significant impairment expense.

The governor of the Central Bank of Ghana, Dr. Ernest Addison at a press briefing during the most recent Monetary Policy Committee meeting, stated that work continues to progress on finer details of the fund.

Already, the World Bank has pledged US$250million toward ensuring solvency – not liquidity support – for the banking system. This is in addition to a 2.5 percent provision in the 2023 budget for the fund.