Report: BoG Governor’s MPC briefings and justification for banking reforms

Governor of the Bank of Ghana, Dr Ernest Addison, has maintained that the recent banking reforms have made the sector safer.

Responding to a question posed by Joy Business at the Monetary Policy Committee (MPC) briefing on whether the banking clean-up has gotten the desired results, the Governor said the reforms were needed to promptly deal with some challenges in the financial banking sectors.

The Governor’s response comes at a time when there are still complains of liquidity squeeze and some persons still struggling to redeem their deposits despite confidence picking up in the banking sector.

Banking sector data

The economic and financial data recently released by the Bank of Ghana reveals confidence in the banking sector appears to be improving.

Total Assets in the sector ending May, went up by 12.4% over the same period last year to reach GHS112 billion.

Total deposits ending May this year reached GHS75.6 billion, representing a 13.4% jump from what was realised in May 2018.

Loan advances were pegged at GHS45.8 billion — up by 18.3% from what was recorded in May of 2018.

Non-Performing Loans went down marginally from 22.6% to 18.1%

Justification for banking sector clean up

Concerns have been raised about the justification given for the closure of some of the institutions.

Responding to questions on the approach used to close down some institutions, the Governor argued that, “we do not make license revocation based on liquidity shortage of an institution.”

He maintained that no institution that was solvent and had liquidity challenges was closed down by the Bank of Ghana

Debt sustainable

Responding to a question about the country’s rising debt, which has reached GHS200 billion, the  Governor argued that the situation is only worrying if the economy does not expand and the cedi is not able to hold its ground against the major trading currencies.

“Our assessment of Ghana’s debt is that it is sustainable, however, I don’t think we should shy away from the fact there are vulnerabilities, especially when you have a significant part of the debt held by foreigners.”

Policy cuts and market response

The Governor was of the view that based on the market data, banks have indeed been responding to the policy rate cuts.

“When you look at Ghana Reference Rate, which is the base rate for all banks in Ghana, despite the statistical relationship with the policy rate we do see the movement.”

This should then lead to the expected reduction in the cost of credit for businesses.

The Governor said clean-up in the Non-Deposit Taking banking sector has also led to the lowering of rates in that “space”.

Cedi’s performance so far for this year

The Ghana Cedi cumulatively depreciated by 8.2% in the year to July 18, 2019, compared with 5.8% for the corresponding period of 2018.

Against the British pound and Euro, the Ghana cedi cumulatively depreciated by 5.9% and 6.5% respectively, compared with 2.5% and 2.9% depreciation over the same corresponding period.

However, responding to a question posed by Joy Business, the Governor argued that just the numbers should not be used to make draw conclusions that the cedi’s depreciation this year is worse than last year, but the underlying drivers also should also be looked at.

Fiscal performance

Provisional data for the first five months of 2019, showed an overall budget deficit (on a cash basis) of 3% of GDP against the target of 2.4% of GDP.

This excludes some legacy energy-related payments of about 0.7% of GDP.

The higher-than-projected fiscal deficit outturn was primarily driven by lower-than-expected revenues outturn against the increased pace of spending.

The revenue shortfalls were mainly from international trade taxes. Over the review period, total revenue and grants amounted to GH¢18.5 billion compared to a programmed target of GH¢21.5 billion, indicating an annual growth of 7.6%.

Total expenditures, however, reached GH¢28.6 billion, marginally below the target of GH¢29.7 billion, and representing 25.2% annual growth.

On the Midyear Budget review that would be presented on July 29, Dr Addison said he is hopeful government would be able to come up with measures to deal with the revenue mobilisation challenges.

Ghana and ECO

ECOWAS has set 2020 for the introduction of the single monetary currency that’s ECO.

But the Governor of the Bank of Ghana noted it might be early days to comment about the country’s preparedness.