Financial cost of pandemic still mounting – BoG Governor

Dr Ernest Addison, Governor of the Bank of Ghana (BoG) has stated that the human, health, economic, and financial costs of this pandemic are still mounting.

He said Ghana was fortunate that the financial sector reforms introduced over the last three years strengthened the balance sheet of banks and improved their solvency.

Delivering the keynote speech at the Ghana Association of Bankers (GAB) webinar on the topic: ‘Managing Banking Risks in Uncertain Times – COV ID-19 test case’ he said the Banking System in Ghana was better placed to absorb crisis and provide the financing needs of the economy as a result of the reforms including the recapitalisation of banks.

“Secondly, the government was also swift in putting into place measures to mitigate the impact of the crisis on the economy. The bold measures, including the COVID-19 Alleviation and Program to contain the economic burden of the pandemic on households and small businesses including the GH¢600 million financial support to medium and small-scale enterprises, absorption of water and electricity bills, tax reliefs for frontline workers, among others.

“On the financial sector, the Bank of Ghana introduced policies and regulatory reliefs to support credit extension and ease off possible banking sector liquidity constraints that may emerge as a result of the pandemic. Among others, the Bank lowered the policy rate by 150 basis points and reduced the macro-prudential Capital Conservation Buffer and Cash Reserve Requirement for banks, as well as lowered the primary reserve ratio of savings and loans companies, finance house companies, and rural and community banks. The provisioning for loans in the “OLEM” category was also lowered for both banks and Specialised Deposit-Taking Institutions (SDIs).

“To a large extent, these regulatory reliefs proved timely for the banking sector as it navigated the unchartered paths during the pandemic. The latest assessments have shown the resilience of banks to the first wave of the pandemic supported by strong policy support and COVID-related regulatory reliefs which helped expand lending activities.

“New Advances grew by 15.8 percent year-on-year to GH¢34.4 billion in 2020, and banks provided support and reliefs in the form of loan restructuring and loan repayment moratoria to cushion some 16,694 customers severely impacted by the pandemic. At the end of December 2020, total outstanding loans restructured by banks amounted to GH¢4.5 billion, representing about 9.4 percent of industry loan portfolio. These add to the strong outturn of the Financial Soundness Indicators, alongside strong growth in assets, deposits, and investments.

“These positive results notwithstanding, we must admit that thepandemic has also introduced several risks in the banking sector. Let me highlight three major risks that the pandemic either unearthed or intensified, which must be efficiently managed by banks to avoid any unintended consequences on the industry. These are cyber security risks, credit risks, and operational risks.