IMF Unhappy With Banks’ Asset Decline

Tao Zhang, Acting Chair and Deputy Managing Director, IMF

The decline in the assets of banks in Ghana in recent times has caught the attention of the International Monetary Fund (IMF) which has called on the Bank of Ghana (BoG) to, as a matter of urgency, help address the problem.

The Non-Performing Loan ratio of banks increased to 18.8 percent in June 2016 from 11.2 percent the previous year, reflecting the lagged impact of exchange rate depreciation and disruptions to energy supply.

Under-provisioning

An Asset Quality Review (AQR) finalized in December 2015 revealed significant under-provisioning among some banks, particularly regarding loans to state-owned enterprises (SoEs) and the petroleum sector since assumptions in the initial AQR were very conservative.

It is as a result of this that the Central Bank has been asked to conduct an updated AQR to include an impact assessment of government’s 14 IMF plans to address state-owned enterprises debt on banks’ capital.

A recapitalization plan was required from banks with capital shortfall.

“Recent agreements on SOEs debt restructuring and plans to settle gradually oil importing companies’ claims on government should improve banks’ balance sheets.

Supervisory action

“By end-February 2017, upon review of these plans by the Board, the BoG shall communicate its decision to banks. Banks that fail to timely regularize their capital situation or repay their emergency liquidity support shall face supervisory action in accordance with the Banking Act,” the IMF noted in its 121-page document.

The IMF has further directed the BoG to include the introduction of a temporary special liquidity monitoring scheme, adoption of a new ELA framework in line with international best practice and issuance of a new directive to banks, clarifying some grey areas of the IFRS standard.

Amended BoG Act

Banks increased provisions in response from 5.1 to 7.9 percent of gross loans.

The ratio of regulatory capital to risk-weighted assets was similar to a year earlier at 16.2 percent, although system profitability declined, with return on equity falling to 23 percent in June from 29 percent a year earlier.

 

By Samuel Boadi

[email protected]

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