Reinforce balance sheet of banks to cope with coronavirus disruptions – Consultant tells BoG

Banking Consultant, Nana Otuo Acheampong says the Bank of Ghana (BoG) needs to reinforce the balance sheet of banks in order to cope with any possible disruptions of the coronavirus pandemic.

According to him, the central bank must continue to undertake periodic assessments of the financial sector to protect depositors’ funds in the wake of the pandemic.

“When you return profits to shareholders, effectively you’re reducing your capital buffer and with the disruptions that we’re witnessing with this pandemic means that if you decide to return profits to shareholders and reduce your capital buffer, in case of any crisis, you won’t have any capital to fall on.

So, it’s in your interest to ensure that you don’t return any capital to shareholders because if you do, you’d probably end up with no bank at all and having your company in existence is more preferable than collapsing it because you want to return profit to shareholders so the balance sheet of banks are supposed to be reinforced to cope with the disruptions,” Nana Otuo Acheampong explained in an interview.

Meanwhile, the BoG has recently directed all banks, Specialized Deposit-Taking Institutions (SDI’s) to desist from paying dividends or distributing reserves to its shareholders until further notice.

This according to them will absorb any potential operational losses for banks and SDIs from the global pandemic.

But, Mr Acheampong explaining the rationale behind the move said the central bank is preparing against distractions that may occur in financial institutions due to the pandemic.