The cleanup exercise that was carried out in the banking sector by the Bank of Ghana (BoG) between 2017 and 2019 inadvertently prepared the banks that survived for the Coronavirus pandemic and its effect on the economy, Vish Ashiagbor, Country Senior Partner, at PricewaterhouseCoopers (PwC) Ghana, has said.
He said on the Business Focus programme hosted by Alfred Ocansey on TV 3 Monday May 18 that currently, the banks are much stronger and in better position to deal with the enormous impact of the COVID-19 on the economy than they would have been before the recapitalization was carried out by the central bank.
The clean-up of the banking sector led to the collapse of seven indigenous banks.
Mr Vish Ashiagbor said : “The restructuring that took place between 2017 and 2019 has actually put the whole sector in a much stronger position to face this pandemic.
“There was recapitalization, there was new regulation that came into place for the central bank to strengthen oversight regulation, the weaker banks were taken out of the system. So the whole chain is much stronger now.
“I think that mush as [COVID-19] is a significant threat to the whole sector the banks are in a much stronger position to deal with this as it would been two or three years ago.”
He also said banks savings and other investments are safe at the moment in spite of the impact of the coronavirus outbreak.
“Today the money is safe. I say today because obviously it is a dynamic situation,” he said.
He added that : “Before the full impact of COVID-19 has been felt, if you go back to March and you look at the Bank of Ghana report for the banking sector for March this year, the capital adequacy of the industry was running at 20%, the regulatory treasury is 13 %.
‘What that means is that there is enough buffer to take some shocks . That is why I am saying that today the money is safe.”
Regarding projections, he said : “I do not know what will happen seven months down the line but the confidence I have is that the Bank of Ghana may be strengthening the regulations or its supervisory activities. So, I believe that the money will be safe seven months from now.”
The Bank of Ghana has said the latest stress tests conducted in April 2020 suggest that banks are “strong and resilient and are well-positioned to withstand mild to moderate liquidity and credit shocks on the basis of strong capital buffers and high liquidity positions."
Announcing the maintenance of the policy rate at 14.5 per cent at the central bank’s monetary policy committee meeting on Friday, 15 May 2020, Bank of Ghana Governor Dr Addison said: “Capital Adequacy Ratio is well above the revised regulatory floor of 11.5 per cent”.
However, he noted, the industry nonperforming loan ratio has “inched up during the quarter, reflecting the emerging impact of the [COVID-19] pandemic on low credit growth and higher loan provisioning”.
So far, he noted, “banks are also responding positively to the recently-announced policy initiatives to support the economy by reducing lending rates and supporting credit growth, as well as offering moratoriums on loan repayments to cushion customers."
The Governor, however, pointed out that the three-week lockdown imposed by the government as part of measures to control the spread of the virus, “resulted in a decline in currency as consumers resorted to the use of electronic modes of payment”.
General economic uncertainty, he observed, “reduced demand for credit, as commercial banks tightened their credit stance."
As a result, “credit to the private sector remained virtually flat during the period”, Dr Addison told journalists, adding: “Broad money supply (M2+) slowed significantly to 13.5 per cent in March 2020, compared with 21.6 per cent growth a year ago."