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The Bank of Ghana has given banks up to four years, ending in 2025 to ensure that their minimum paid-up capital is restored due to capital shortfall from derecognition losses from the Domestic Debt Exchange Programme.
The Central Bank noted that these losses will be spread equally over a period of four years, effective 2022 to enable Capital Adequacy Ratio (CAR).
According to the International Financial Reporting Standards (IFRS), derecognition is the removal of all or part of a previously recognized asset or liability from an entity’s statement of financial position.
The domestic debt exchange programme had some negative impact on banks, compounding the woes of some of the banks which were still recovering from the shocks of the COVID-19 pandemic.
Recent stress tests conducted by the Bank of Ghana to gauge the financial health of banks in the country revealed that some banks were at risk.
The tests also revealed the potential impacts of the debt exchange on banks’ solvency, liquidity, and profitability.
It, therefore, announced some policy and regulatory reliefs for banks that fully participated in the debt exchange to reduce the effect on their operations.
These reliefs include a reduction of the Cash Reserve Ratio (CRR) from 13% to 12% on foreign currency deposits to be held in foreign currency and a reduction of the Capital Conservation Buffer from 3% to zero, effectively reducing the minimum Capital Adequacy Ratio (CAR) from 13% to 10%.
Risk weights attached to New Bonds have been set at 0 percent for CAR computation and at 100% for Old Bonds.
The Central Bank has pledged to provide liquidity support to banks, adding that banks can access the Emergency Liquidity Assistance (ELA) using the New Bonds as collateral.
Also, on the impact of the Domestic Debt Exchange programme, a myjoyonline.com report has noted that banks recorded more than GH¢10 billion in losses in 2022.
Banks that usually record profits and have published their results ahead of the April 30, 2023 deadline, have recorded losses.
Bad debt written off by Banks in December 2022 stood at GH¢5.9 billion, about a 184.2% increase from the previous years.
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