Banks slow in adopting GMRA-backed repos

Dr. Ernest Addison, Governor of the Bank of Ghana (BoG), has lamented the failure of banks to adopt the Global Master Repurchase Agreement (GMRA), which was introduced in October, for their repurchase (repo) transactions.

The Governor said repo activities under the GMRA are yet to pick up, as banks continue to use collateral lending rather than repo under GMRA transactions.

According to the Central Securities Depository (CSD), as at end-October, a total of GH¢108.83bn of repo transactions had been settled under the collateral lending option. However, just about GH¢24 million has been traded so far under the classic repo transaction, which is based on the GRMA.

“Considering the risk implications of collateral lending, I encourage you to patronise the repo under GMRA transactions,” Dr. Addison said.

A key feature of the GMRA-based repo, relative to collateral lending, is that it allows for the transfer of title to collateral securities from the seller to the buyer.

The title transfer reduces credit and liquidity risk, as it allows the buyer to make use of the collateral during the tenor of the transaction, but return the same or equivalent securities to the seller at maturity.

Prior to the BoG’s adoption and implementation of the GRMA, Fidelity Bank Ghana, Societe Generale and Frontclear, in January this year, completed a US$40 million repo trade, the first ever GMRA-based transaction in Ghana, using the cedi government bond collateral.

Addressing bankers at the 2020 Annual Dinner of the Chartered Institute of Bankers, Dr. Addison said, “The Bank of Ghana recognises the key role that financial markets play in the effective transmission of monetary policy.

Therefore, in the last three-and-a-half years, the bank has championed reforms in the repo markets, resulting in the adoption and implementation of a Global Master Repurchase Agreement (GMRA) effective October 1, 2020.”

The Governor further noted that these reforms have led to the most improvement in Ghana’s ranking in the ABSA Africa Financial Markets Index, climbing five places on the pillar for the “legality and enforceability of standard financial markets master agreements” in a single year.

“The reforms in the financial markets are yielding the expected benefits to the securities market, with increased levels of bond settlements and transactions on the secondary market,” the Governor highlighted.

At the end of October, GH¢86.2bn secondary bond market transactions were settled through the banks on the CSD platform. This represented a 54.7 percent growth over the GH¢55.7 billion bond market transactions settled in the whole of 2019.

Dr. Addison said the reforms have broadly eliminated settlement delays and reduced its attendant systemic risks.