The Bank of Ghana has announced an increment in the Capital Adequacy Ratio (CAR) regulatory requirement for banks to 13 percent from an initial 10 percent.
This represents a 300-basis point adjustment in the CAR requirement for banks operating in the country.
Addressing journalists at the 105th Monetary Policy Committee press conference on Monday, March 21, 2022, Governor of the central bank, Dr Ernest Addison, said the upward adjustment in the CAR takes effect from April 1, 2022.
He further urged banks in the country to ensure their CAR falls in line with the new CAR announced by the Central Bank.
“In addition to the upward policy rate adjustment, the Bank of Ghana will, effective April 1, 2022, enforce the following measures in relation to universal banks: The Cash Reserve Ratio is increased to 12 percent.”
“The Capital Conservation Buffer is reset to the pre-pandemic level of 3 percent, making the Capital Adequacy Ratio a total of 13 percent; and the provisioning rate for loans in the Other Loans Exceptionally Mentioned (OLEM) category is reset to the pre-pandemic level of 10 percent,” the BoG Governor said.
The CAR refers to the measurement of a commercial bank’s accessible capital which is expressed as a percentage of a bank’s risk-weighted assets and liabilities.
It also mandates that a certain number of deposits are kept aside whenever a loan is facilitated. The deposits in turn serve as provisions to cover up losses in case the loan defaults.
For a commercial bank to avoid insolvency, a high CAR means it will become proficient in protecting depositors’ funds.
Meanwhile, the Bank of Ghana has hiked its monetary policy rate to 17 percent from an initial 14.5 percent.
The decision by the central bank is a 250-basis point adjustment.
Governor, Dr. Ernest Addison, attributed the increasing public debt stock, risks to the inflation outlook, straining fiscal policy, global financial constraints among others as some contributing factors to the increase in the monetary policy rate.