We won’t reduce new Minimum Capital Requirement – BoG

BoG Pix 2 - CopyThe Bank of Ghana (BoG), says its directive to banks in the country to increase their Minimum Capital Requirement (MCR) to GH₵400 million and meet same by the end of December, 2018 still stands.

“Our directive still stands and banks should meet the GH₵400 million paid-up capital by December 2018,” Elsie Addo Awadzi, Second Deputy Governor said in Accra.

It will be recalled that shareholders of the local banks made an appeal to the executive arm of government to intervene for the BoG to reduce the new MCR and extend the deadline to five years, after the central bank increased it from GH₵120 million to GH₵400 million , but the request fell through.

Explaining the central bank’s directive at a breakfast meeting with members of the Ghana Bankers Association and other stakeholders in the banking industry yesterday, Mrs. Awadzi said the decision to increase the paid-up capital for banks was to build a vibrant banking and financial industry.

She said the increase in the MCR was also to build the financial capacity of the banks to finance big ticket projects.

The meeting, dubbed, ‘Engaging stakeholders for stronger partnerships to restore confidence in the banking sector’, was to brief the players of the new developments in the banking industry.

Mrs Awadzi, who delivered the keynote address, said though the banking industry was profitable, liquid and solvent with a positive outlook, “there are a few pockets of vulnerability in the sector”.

The Second Deputy Governor said the legacy problems in the banking sector, such as weak capital, liquidity challenges, poor corporate governance, regulatory breaches, which led to the collapse of some banks, still persisted.

She said a number of banks depended on the BoG Emergency Liquidity Assistance (ELA) as their main source of liquidity due to poor credit risk and liquidity risk management practices, saying “to avoid such undue reliance on ELA with attendant moral hazard risks and credit risks for the BoG, the BoG has initiated a review of its ELA framework to make it more robust and less prone to abuse”.

She said the BoG would not renege on its mandate of promoting the stability of the financial system and would step up its regulatory supervision and enforcement to “protect depositors’ funds and “restore trust and confidence in the banking system as well as promote a strong and resilient banking sector to support robust macroeconomic growth”.

“Through effective supervision and enforcement, we will ensure that banks obtain and maintain the right levels of capital and liquidity, employ sound risk management practices, effective internal control systems, and good corporate governance, in order to remain safe, sound and resilient.  This should help to reduce the likelihood of bank failures, the loss of depositors’ funds, and the loss of jobs,” she said.

The Second Deputy Governor disclosed that the BoG would operationalise the Deposit Protection Scheme established under the Deposit Protection Act, 2016 (Act 931) to provide protection to depositors’  funds, ensure a smooth transition to the new capital requirement by December, 2018.

“BoG will strengthen regulation and supervision of bank holding companies and affiliate companies to reduce intragroup exposure and continue to strengthen our Banking Supervision Department through capacity building and improved supervisory processes, in order to identify early warning signs of bank distress and to rake prompt corrective action to address such risks,” he said.

The Managing Director of Stanbic Bank, Alhassan Andani said more than 50 per cent of the exposures of banks were to government and other quasi government institutions.

He said the delay by government to pay back the loans advanced to it by the banks was creating the challenges facing the banking industry.

Mr Andani also indicated that the power crisis which occurred between 2013 and 2016 induced the financial challenges the banks were facing.

The Stanbic Managing Director entreated the courts to expedite actions on financial litigations, saying it took more than three years for a court to adjudicate on a financial ligation and said this was not good for the banking industry.

Asked whether he was concerned about the decision of the BoG not to rescind its decision on the MCR, Mr Andani responded in the negative.

He expressed gratitude to the BoG for organising the programme to explain to players in the banking industry new developments in the banking sector.

The Head of Banking Supervision at the BoG, Osei Gyasi, opening the programme, said the banking industry in Ghana had witnessed incidents that threatened the stability of the financial system, stressing the BoG has taken steps to protect the industry, instill discipline and ensure that the banks were safe and sound.

“In this age of information, the BoG cannot afford to work in isolation, as information asymmetry can have detrimental effects on an otherwise well intentioned supervisory practice that will restore trust and confidence in the financial sector.  It has therefore become necessary to engage the general public and stakeholders of the banking sector to forge strong partnership aimed at restoring confidence in the financial system,” he said.

 

 

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