BOG published guidance on the utilization of capital and liquidity releases to banks and specialized deposit-taking institutions, in light of the COVID-19 crisis. Banks and specialized deposit taking institutions are expected to refrain from declaring and paying dividends or making other distributions to shareholders for the financial year 2019, unless BOG is satisfied that the institution meets the regular prudential requirements and is not relying on the additional liquidity released by the policy measures to pay shareholders. All banks and specialized deposit-taking institutions shall, therefore, seek prior approval from BOG before the declaration and payment of dividends.
Banks and specialized deposit-taking institutions should also desist from utilizing the released liquidity based on policy interventions, to purchase the securities of Government of Ghana and BOG. BOG shall monitor weekly the financial dealings of banks and specialized deposit taking institutions, to ensure full compliance with the directives. BOG has put in place this monitoring mechanism to ensure that policy measures introduced by BOG are effective in achieving their stated policy objective. Certain policy measures were introduced to enable banks and specialized deposit-taking institutions to provide more liquidity and financial support to critical sectors of the economy to mitigate the adverse impact of COVID-19 on the Ghanaian economy. The policy measures included:
- Reduction of the Primary Reserve Requirement from 10% to 8% to provide more liquidity to support critical sectors of the economy
- Reduction of the capital conservation buffer for banks from 3.0% to 1.5% to provide the needed financial support to the economy
- Reduction of provisions for loans in the “Other Loans Especially Mentioned” category from 10% to 5% for all banks and specialized deposit-taking institutions as a policy response to loans that may experience difficulty in repayments due to slowdown in economic activity
- Loan repayments that are past due for micro-finance institutions for up to 30 days to be considered as “Current,” as is the case for all other specialized deposit-taking institutions
Related Link: Guidance
Keywords: Middle East and Africa, Ghana, Banking, COVID-19, Dividend Distribution, Regulatory Capital, Credit Risk, CCB, Liquidity Risk, BOG
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