BoG moves to mop up excess liquidity from market

The Bank of Ghana (BoG) has reset the Cash Reserve Ratio on domestic curren­cy deposits for banks from 12 percent to 14 percent effective 13th April, 2023.

The Governor of the BoG, Dr Ernest Addison, who stated this at a news conference in Accra on Monday after the 111th regular meeting of the Mone­tary Policy Committee, said the move was to mop up excess liquidity from the market to tame inflation.

“In addition, the Bank will step up liquidity management operations to address excess li­quidity conditions in the market. The Committee will continue to monitor developments in the banking sector and deploy other macro prudential tools to ensure financial stability,” he said.

He stated that the macro-pru­dential risk assessments conduct­ed during the last MPC meeting indicated increased pressure on profitability and solvency of banks prior to the implementation of the Domestic Debt Exchange Programme (DDEP).

The Chairman of MPC ex­plained that the preliminary data available at the MPC showed that although banks remained liquid, the pre-pandemic capital buffers in the banking sector had been weakened somewhat by the recent macroeconomic challenges and the DDEP.

“These require contingency measures by banks, supported by the regulatory reliefs to contain potential risks to financial stabili­ty,” Dr Addison stated.

The Governor said devel­opments in the banking sector broadly reflected the challenging operating environment in 2022 on account of macroeconomic con­ditions, and the recent implemen­tation of the DDEP, which all 23 universal banks participated in.

He said the preliminary assess­ment of the impact of the DDEP on the banking sector, based on December 2022 data, indicated significant losses on account of impairment of banks’ holdings in Government of Ghana bonds.

The Governor said impact of the DDEP as currently assessed was moderated by the timely in­troduction of regulatory reliefs by the BoG to support the banking sector, similar to the reliefs pro­vided to banks at the onset of the Covid-19 pandemic, stressing that “As a result, the industry is still fairly resilient.

“Our preliminary assessment will be updated once banks’ external auditors complete their audits of banks’ 2022 financial performance, making the neces­sary adjustments to fully reflect

the DDEP impact. Banks are expected to publish their 2022 audited financial statements by the end of April 2023, following a one-month dispensation granted by the Bank of Ghana on the ac­count of the DDEP,” Dr Addison said.

He said the BoG would con­tinue to monitor developments in the banking sector and stand ready to act very swiftly to safe­guard the stability of the financial sector.