Reduction in primary reserves to expand lending support to all sectors – BoG

The central bank says it is hopeful that the reduction in primary reserve requirements will broaden and expand the coverage of additional funds to support lending to all critical sectors of the economy.

According to the Bank of Ghana’s latest banking sector report for March 2020, the reduction in primary reserves from an initial 10 percent to 8 percent is expected to cushion external shocks in the formal and informal sectors.

“The Bank of Ghana is hopeful that the reduction in the prudential capital adequacy ratio from 13.0 percent 11.5 percent will compliment the reduction in primary reserves by helping to boost credit expansion to support all sectors of the economy,” the report added.

Meanwhile, the BoG adds reduction in provision for loans in other loans mentioned in the category, from 10 percent 5 percent, could minimize the impact of the potential challenges of non-performing loans on loan loss provisions and profit margins of banks.

Adding, the classification of loan repayments past due for microfinance institutions increased to 30 days, will help minimize the impact of loan repayment challenges on microfinance institutions.

Also, the BoG has assured it will ensure the additional liquidity released from these policies do not move to investment in government securities and paying dividends to shareholders.

Last month, the central bank on March 18, 2020, cut its monetary policy rate by 150 basis points, to 14.5 percent, to help ease the challenges in securing credit at reasonable rates for businesses and individuals.

The BoG then followed up by plummeting the primary reserve requirement that commercial banks are obliged to maintain from 10 percent to 8 percent, to free up more liquidity for lending.