The Bank of Ghana (BoG) says it will soon take a decision on some banks that are said to be going through some financial challenges and have resorted to liquidity support from the Central Bank.

JOYBUSINESS understands that some commercial banks are said to be in distressed positions because of significant portions of their loans that have gone bad and have become impaired.

Sources say the development has even affected the operations of some of these banks. This has resulted in the Bank of Ghana requesting the banks to make additional provision for their bad loans.

The audit of the banks (the asset quality review exercise) also revealed that policy of recapitalizing the banking industry had to be implemented soon.

Speaking in his first media engagement with some journalists on the sidelines of IMF/World Bank spring meetings in Washington DC, BoG Governor Dr Ernest Addison said, the Central Bank is committed to following through on the recommendations contained in the Asset Quality Review report.

The report recommends for BoG to recapitalise the banking system and to place them in a better stead to support private sector growth.

The Governor added that “this recapitalization plan by these banks needed to be credible and we are hoping that in the next few weeks, on the basis of the report that they submit, some decisions will be taken by the Bank of Ghana”.

It was believed that this is one of the areas that recent IMF mission visit to Ghana made some proposals to the Bank of Ghana to act quickly to restore to bring about stability in the banking sector.

Source say finalizing this issue could pave way for the Bank of Ghana to announce the general recapitalization of commercial banks in the country.

Sustaining the cedi’s performance and determination of exchange rate

Dr Ernest Addison noted that in a free market environment it is important to allow the market to determine the cedi’s value, rather than pursuing a deliberate policy of keeping the value of the currency at a certain value through auctioning or pre-determining the value.

“In terms of the determination of the exchange rate, Ghana has had an auction system before, so what we have seen, was an improvement up on the auction system, in the development of an interbank market, and we have argued that it is important, for us to strengthen the interbank market with foreign exchange.

"Therefore, I don’t see why the interbank market will not work, if the rules guiding the market are properly enforced," he said. 

He believes with an outlook for an improved fiscal policy implementation, a pick-up in exports earnings and reduction in the import bill, the stability of the cedi should be sustained.

Bank of Ghana’s inflation targeting and price stability

The Governor said that they are on track to achieving the inflation target of 11.2 percent for this year. There is also high government commitment to the medium-term target of achieving the single digit inflation target of about 8 percent from 2018.

“If you look at the budget that has just been read, you can describe it as consolidation of the fiscal policies, and if we are effective in achieving the planned fiscal balances, there is no reason why we cannot stay on the disinflation path,” the Governor added.

We have also seen some sort of alignment of the policy and interbank rates and therefore should expect some better transmission of monetary policy actions to the banking sector and ultimately to the rest of the economy.

Zero financing of government by Bank of Ghana

This is will not be a major issue for the Bank of Ghana this year at all, the Governor noted. This is because we are not expecting the Budget to be dominant in this particular regime.

“If we have been able to stick to a zero-financing regime in an election year, we do not see that being a problem in a non-election year," he said. 

The current banking law places restrictions on the Bank of Ghana from lending no more than five percent of the previous year’s revenue to government.

This was after, parliament voted against a key structural benchmark in the IMF-supported program currently under implementation to limit government financing to zero.

The IMF had then argued that reducing the financing to zero percent will go a long way to limit fiscal dominance and help curb inflation.

This was after, parliament voted against a key structural benchmark in the IMF-supported program currently under implementation to limit government financing to zero.

The IMF had then argued that reducing the financing to zero percent will go a long way to limit fiscal dominance and help curb inflation.