A new report authored by Banking Consultant Dr. Richmond Atuahene and Data and Research Analyst Isaac Kofi Agyei has sounded the alarm on a potential crisis looming over Ghana’s banking sector.
Titled ‘Thirsty Banks: Ghana’s 2023 Challenge with High Cash Reserve Ratios,’ the report sheds light on the growing concern surrounding the excessive subscription of government bonds by many banks in the country.
According to the report, an alarming portion of commercial banks’ total deposits, totaling GH¢224 billion, has been diverted towards the acquisition of government bonds following the domestic debt exchange programme. These bonds, set to mature in 2031, pose a significant risk to banks’ liquidity, potentially leading to a depletion of resources crucial for day-to-day operations.
Dr. Atuahene and Mr. Agyei argue that the Bank of Ghana’s recent decision to increase Cash Reserve Ratios (CRR) fails to account for the restructured bonds held by commercial banks, which are primarily funded by depositors’ money. This oversight could exacerbate liquidity challenges for banks, rendering them illiquid.
The report advocates for urgent action from the Bank of Ghana, recommending a reconsideration of CRR reductions and measures to mitigate Non-Performing Loans (NPL). By factoring in restructured bonds and addressing NPL risks, the authors believe that the central bank can restore resilience and stability to the banking sector.
Moreover, the report emphasizes the importance of fiscal measures, including significant budget cuts, to alleviate inflationary pressures and redirect credit towards the private sector. This comprehensive strategy aims to bolster banking sector resilience, foster economic stability, and promote sustainable growth in Ghana.
In light of the report’s findings, there is an urgent call for the Bank of Ghana to review its policies to avert a potential crisis in the country’s banking sector.
