Irrespective of the strong performance the banking sector recorded in the first two months of the year, the COVID 19 pandemic will have negative repercussions on the industry going forward, the Bank of Ghana (BoG) has said.
“Initial assessments of the potential impact of the COVID-19 pandemic indicates that banks’ operations may face challenges with credit extension, loan repayment, and correspondent banking relationships,” the Bank of Ghana (BoG) said in the Banking Sector Report (BSR) for March, 2020.
The BSR discussed developments in the banking sector based on the prudential returns of the twenty-three (23) banks as at February 2020.
The report said the banking sector showed improved financial performance at the end of February this year, characterised by stronger total assets growth, higher credit growth to the private sector and strong growth in deposits as confidence in the sector firmed up.
It said the industry’s profit after tax was also higher relative to the same period last year, stressing that indicators of financial soundness pointed to a solvent, liquid and profitable banking sector.
“The banking sector’s performance revealed strong growth in total assets, credit, deposits, and profits. Theimproved financial soundness indicators further cemented the stability and resilience of the sector. In particular, solvency, liquidity, asset quality, efficiency and profitability improved in the review period,” it said.
However, the report said “the major risk in the outlook is the potential impact of the COVID-19 pandemic on the financial sector”.
To help mitigate the effect of corona virus on banks and the wider economy, the BSR said the BoG had initiated a lot of policy measures to boost financial intermediation while minimising the risk of deterioration in asset quality.
The measures the report mentioned included, lowering of the Monetary Policy Rate by 150 basis points to 14.5 per cent, reduction in Primary Reserve Requirement from 10 per cent to 8 per cent, reduction in prudential limit of Capital Adequacy Ratio from 13 per cent to 11.5 per cent.
The rest are reduction in provisions for loans in the “Other Loans Especially Mentioned” category from 10 per cent to five per cent, and classification of loan repayments past due for the micro finance institutions for up to 30 days as current.
“The Bank of Ghana will continue to monitor ongoing developments to ensure the safety and soundness of the overall financial system in the midst of the COVID-19 pandemic,” BSR said, indicating that the “proactive policy measures announced by the Bank of Ghana should provide some support and help moderate some of the potential risks from the COVID-19 pandemic”.
BY KINGLEY ASARE
