Featured Product

    IMF Report Examines Developments in Banking Sector in Ghana

    April 05, 2019

    IMF published its staff report on the last review of the Extended Credit Facility for Ghana. Extensive supervisory and regulatory reforms and interventions of problem banks by the Bank of Ghana (BoG) are boosting resilience in the banking sector. Over the past few years, BoG has resolved nine banks, approved three bank mergers, issued new regulatory directives, and overseen completion of the increased statutory capital for banks.

    The report highlights that capital adequacy in the banking sector continues to improve (21.9% at the end of 2018, an increase of 330 basis points year-on-year) while the system-wide non performing loan (NPL) ratio (18.2% at the end of 2018) is steadily declining since its peak in April 2018, also supported by the adoption of the NPL resolution plan of BoG. Yet, loans classified as loss, as per the prudential classification rules of BoG, continue to comprise about 50% of the system-wide NPLs. Actions to alleviate balance-sheet constraints associated with the legacy NPLs should be stepped up. Addressing the NPL overhang is crucial to foster sustainable credit growth. The authorities are moving ahead with the implementation of their NPL resolution plan. Further write-offs of loans with no reasonable expectation of recovery, as per IFRS 9, is expected to free the balance sheets of banks. In addition, ongoing improvements in the insolvency framework and enforcement of creditor rights should enable more effective workouts of problem loans by banks.

    Following the publication of the Capital Requirements Directive in July 2018, to align regulatory capital requirements with Basel II/III, BoG issued, among others, new Directives on Corporate Governance and Cyber and Information Security; a new guideline on the prevention of money laundering and terrorism financing; and draft requirements on the fitness and propriety of shareholders and bank management, financial holding companies, and mergers and acquisitions. The introduction of IFRS 9 (effective as of 2018), along with the ongoing enhancement of practices for risk-based supervision, the envisaged introduction of a Pillar 2 capital framework, and the new liquidity requirements, will further enhance the supervisory and regulatory framework in the financial sector in Ghana. The breadth and scope of the new requirements will require effective enforcement, while testing the absorption capacity of the banking sector.

    The financial-sector reform agenda has broadened substantially over the course of the program, with important initiatives still in train. The closure of nine distressed banks and the initiation of forensic audits are crucial steps toward restoring confidence and strengthening accountability, though further actions remain necessary to address the remaining weaknesses. Bank-specific restructuring measures are needed to reduce fiscal risks going forward. Timely finalization of the regulatory reform agenda is critical to prevent recurrence of financial-sector fragility. Important progress has been made and implementing the pending initiatives—including a draft directive on risk management, implementation guidance on IFRS 9, and the envisaged introduction of a Pillar 2 capital framework—will further enhance the regulatory framework in Ghana. However, implementation will need to be carefully tailored to the absorption capacity and the resource constraints of the supervisory function of BoG. Enhanced risk-based supervision practices need to be combined with a more robust enforcement culture.

    The report notes that the IMF mission welcomes the commitment of the authorities to further strengthen the Banks and Specialized Deposit-Taking Institutions (BSDI) Act, duly informed by lessons learned from the financial sector clean-up. Understandably, such reforms have been put on hold during the bank interventions but should be pursued at the earliest opportunity, as conditions continue to stabilize. Going forward, robust enforcement of prudential rules, combined with a greater scrutiny of the business models of specialized deposit-taking institutions, is needed to prevent the fragility from reemerging. The authorities have reiterated their resolve to complete the ongoing financial-sector reforms to support credit growth and financial inclusion. They are well aware that more work lies ahead, but strongly believe that actions taken so far have helped to lay a stronger foundation. The authorities remain confident that further financial weaknesses can thus be effectively prevented and financial institutions will be able to better support the development agenda post the Extended Credit Facility program.

     

    Related Link: Staff Report

     

    Keywords: Middle East and Africa, Ghana, Banking, NPLs, Capital Adequacy, Financial Stability, Pillar 2, IFRS 9, Basel III, BoG, IMF

    Featured Experts
    Related Articles
    News

    FASB Proposes Taxonomy Changes Related to Topics 848 and 470

    FASB proposed taxonomy improvements for the proposed Accounting Standards Update on topic 848 on facilitation of effects of reference rate reform on financial reporting.

    September 16, 2019 WebPage Regulatory News
    News

    BoE Statement on Recalculating Transitional Measures Under Solvency II

    BoE notified that it will be willing to accept applications from firms to recalculate transitional measure on technical provisions (TMTP) as at September 30, 2019.

    September 16, 2019 WebPage Regulatory News
    News

    PRA Publishes Waiver by Consent of Continuity of Access Rules

    PRA published a new waiver by consent to waive the Continuity of Access requirements contained in the Depositor Protection Part of the PRA Rulebook (DPP).

    September 13, 2019 WebPage Regulatory News
    News

    EBA Single Rulebook Q&A: Second Update for September 2019

    EBA updated the Single Rulebook question and answer (Q&A) tool with answers to three questions.

    September 13, 2019 WebPage Regulatory News
    News

    BoE Paper on Market-Implied Systemic Risk and Shadow Capital Adequacy

    BoE published a working paper that presents a forward-looking approach to measure systemic solvency risk.

    September 13, 2019 WebPage Regulatory News
    News

    HKMA Consults on Policy Module on Pillar 2 Supervisory Review Process

    HKMA is consulting on the revised Supervisory Policy Manual module CA-G-5 that sets out the HKMA approach to conducting the supervisory review process under Pillar 2.

    September 13, 2019 WebPage Regulatory News
    News

    PRA Revises Branch Return and Updates Guidance for Regulatory Reports

    PRA published the policy statement PS17/19, which contains the final policy related to changes in the format and content of the Branch Return Form and reporting guidance.

    September 12, 2019 WebPage Regulatory News
    News

    ESA Report Highlights Risks of No-Deal Brexit in EU Financial System

    ESAs published a Joint Committee report on risks and vulnerabilities in the EU financial system.

    September 12, 2019 WebPage Regulatory News
    News

    ECB Modifies New Targeted Longer-Term Refinancing Operations

    The Governing Council of ECB decided to modify some of the key parameters of the third series of targeted longer-term refinancing operations (TLTRO III) to preserve favorable bank lending conditions (Decision (EU) 2019/1558).

    September 12, 2019 WebPage Regulatory News
    News

    ECB Publishes Version 1.5 of AnaCredit Validation Checks

    ECB published Version 1.5 of the AnaCredit validation checks.

    September 12, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3819