Governor of the Bank of Ghana, Dr Ernest Addison, has remarked that the Central Banks will ensure that banks use net profits recorded in the first quarter and the subsequent quarters in rebuilding capital buffers that have been eroded by the domestic debt exchange programme.
Making the assertion during the 112th MPC press briefing on Monday, May 22, 2023, Dr Addison noted that banks in the country have been given up to September 2023 to disclose their recapitalisation plans to the Central Bank.
“Banks have up to September to disclose their recapitalisation plans to the Bank, and so instead of distributing profits to shareholders, profits can be used to rebuild capital buffers,” he remarked.
“In the event that the use of profits to rebuild capital buffers is not enough, banks can fall on the Financial Stability Fund (FSF) to recapitalise,” he added.
Banks in the country for the first quarter of 2023 have posted net profits indicating a rebound from the net losses recorded in December last year.
For the first four months of this year, banks in the country have recorded total net profit of GHS 2.8bn, a significant improvement from the GHS 6.6bn net losses recorded last year.
According to the Governor, the need for a recapitalisation by banks is based on a stress test conducted by the Central Bank.
On whether or not some banks in the country have requested for liquidity support from the Central Bank, the Governor noted that no bank has asked for liquidity support largely because of the regulatory reliefs activated by the Central Bank last year on the back of the domestic debt restructuring programme.
Regulatory reliefs and some policies implemented by the BoG that took effect from December 23, 2022 are as follows:
1. Reduction of Cash Reserve Requirement Ratio (CRR) to 12% on GHC deposits;
2. Maintain CRR of 12% on foreign currency-denominated deposits to be held in foreign currency;
3. Reduction of Capital Conservation Buffer from 3% to zero percent, effectively reducing the Capital Adequacy Ratio (CAR) from 13% to 10%;
4. New Bonds will be fully deductible in determining the financial exposure of banks to counterparties under section 62(8) of the Banks and Specialised Deposit-Taking Institutions Act 2016 (Act 930), while Old Bonds will not be deductible for that purpose;
5. Risk weights attached to New Bonds to be set at zero percent for CAR computation, and at 100% for Old Bonds;
6. Increase in Tier II component of regulatory capital from 2% to 3% of Total Risk-Weighted Assets.
7. Increase in allowable portion of property revaluation gains for Tier II capital computation, from 50% to 60%;
8. Issuance of Guidance on standardised accounting treatment of the Debt Exchange impact, following engagement with external auditors.
