The Ghana Association of Bankers wants government to rescind its decision to reset the Capital Conservation Buffer (CCB) for banks to the pre-pandemic level of 3%.
CEO of the Association, John Awuah, believes that since businesses and the economy have not fully recovered from the ramifications of the pandemic, it is only prudent to maintain the rate at 1.5% to serve as a cushion.
He believes maintaining it will help to steer liquidity into the productive sectors instead of being used for speculation.
Speaking on the Joy FM’s Super Morning Show on Tuesday, March 22, 2022, he stated that “You would agree with me that the pandemic is not behind us as we all would have loved to see. Businesses are still ravaging from the impact of the pandemic. The sectors that were significantly impacted have not really come back on to the normal track of business and to that extent, as banks, we thought the Capital Conservation Buffer was still relevant – the reduction should have been kept,” he explained.
“And we also thought that the Cash Reserve Ratio which has now increased, even before where it was before the introduction of the measures, we believe that given the circumstances that we find ourselves in as a country, those measures are still relevant,” he added.
In 2020, The Capital Conservation Buffer was reduced from 3% to 1.5%. This was to enable banks to provide the needed financial support to the economy in the wake of the Covid-19 pandemic but in an address on March 21, 2022, the Bank of Ghana announced its decision to reverse the 1.5% CCB rate to the initial 3.0%.
The Governor of the Bank, Dr. Ernest Addison made the announcement in addition to the upward policy rate adjustment, the Bank of Ghana with effect from April 1, 2022, enforces the following measures in relation to universal banks.
These are; increased in cash reserve to 12%, whilst the Capital Conservation Buffer is reset to the pre-pandemic level of 3%, making the Capital Adequacy Ratio a total of 13 percent.
Dr. Addison explained that the decision is due to the current pressures on the economy, the uncertainty about the economic outlook, and developments in Russia – Ukraine, which has pushed fuel prices up astronomically.
Reacting to the adjustments, Mr. Awuah said “as a community of banks, our reaction to the announcement by the regulator is a bit mixed.
“On one hand, we believe that inflationary pressures needed some attention and to that extent, the decision to up the policy rate, we believe is in the right direction,” he said.
However, “…I’m not sure people are borrowing money from the banks to speculate on the currency. There may be some excess liquidity hovering around for speculation which I believe the hike in the policy rating will address, but we still need lending to propel the economy forward to the extent that, that is being curtailed, and ones ability to have needed liquidity to lend is being ploughed back, we do not think that it may necessarily lead to the intended consequence,” he added.
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