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5 Banks have met new ¢400m capital requirement - BoG Governor

Governor of the Central Bank has indicated that five banks have met the new minimum capital requirement of ¢400 million even before the deadline.

Dr Ernest Addison disclosed this at a press conference on Monday after a meeting last week to review the health of the economy.

Status of capital increase for banks

Bank of Ghana (BoG) earlier this year announced an increase in the minimum capital requirement for commercial banks in the country from the current ¢120 million to ¢400 million by December 2017. 

According to the Governor, all the commercial banks are required to submit a recapitalisation plan to the regulator by the end of next month.

The BoG had maintained that this move is to ensure that the regulator is fully aware of how these banks are working to meet the new capital levels.

Governor on cedis’ recent challenges

Regarding the current problems with the local currency, the Governor noted the challenge was not supported by current fundamentals of the economy.

“The fundamentals do not warrant that type of volatility, so if the fundamentals do not warrant that, then the logical question is why it happened,” he added.

He, however, admitted that there might be the need to review their strategy in stabilizing the local currency in the short to medium term. 

“We have some work to do to ensure that the interbank market works more efficiently than it currently is, so that is ongoing in a way that the bank would have to pursue to ensure that our foreign exchange market becomes more," he said.

Possible takeover of two banks by regulator 

There were reports that the regulator could be forced to step in and take over some commercial banks because of some serious liquidity challenges.

But Dr Addison noted that most of the banks have seen an improvement in their liquidity position, therefore, there might not be the need to take any action on them.

“I think that the situation has improved significantly from the beginning of the year where banks were in very serious need of liquidity at least over the last three months we have not seen that kind of pressure coming in so there are improvements in that as well,” he said.

The Governor was, however, of the view that “if a bank has liquidity challenge, you are allowed to borrow from the central bank, so long as the bank has securities to back that borrowing as collateral, we do extend that liquidity support to the bank”.

Proposed merger of NIB and ADB to create National Development bank

Dr Addison said the regulator had no objection to moves to merge the two banks if government really wants to go ahead with that plan.

Bank of Ghana is said to have interest in NIB and ADB, therefore it may play some role in this plan to merge the two commercial banks. But the Governor added that the move is in line with plans to recapitalize banks in the country.

“Just to be consistent with the new requirement for capitalisation for the banks to the extent that ADB and NIB both have to raise ¢400 million each and the fact that government has large shares in those banks, it makes sense to start thinking of consolidating," he said. 

Reasons for a slowdown in rate of increase in the public debt

The public debt which has been increasing over the past months, however, witnessed a slowdown in the rate of increase from June to September this year reaching ¢139 billion.

But the Governor is attributing this to government‘s decision to re-profile the debts and efforts aimed at stabilizing the economy. 

“At any time that a government issues euro debts, we also have old debts that are maturing so it’s a net situation that we record at the end of the month.

"And at any point in time you would have had some debt mature while you issue more debt and it’s the net impact of the two which will lead to the marginal increase or decrease that you saw and I think,” he said. 

The Governor also attributed the reduction, to government’s decision to some significant payment made in the third quarter of this year for the last installment of the 2017 sovereign debt and that should impact significantly on the stock of debt. 

When would interest rates drop following significant cut in policy rate?

Governor in responding to question was of the view the move should happen very soon, as all the variables that influence the interest rate reduction are coming down.

“Giving the sustained reduction that we are seeing the banks would have to eventually come down on their lending rates, and I think that we have already seen some movements this year,” he said.