Reason for losses
The loss can be explained by a decrease in the Group’s net worth position caused by the impact of the Domestic Debt Exchange Programme (DDEP) and the impairment of a few of the Group’s assets, according to the 2022 Financial Accounts. According to the Bank of Ghana, “the total liabilities of the Bank of Ghana and its subsidiaries exceeded the total assets by GH54.52 billion.” The Bank had a surplus of 5.72 billion Ghana cedis in 2021.
Breakdown of Loss Positions
loss of GH48.45 billion worth of government securities. The Ghanaian government’s domestic debt exchange programme was the reason behind this. Impairment of GH6.12 billion in loans and advances given to quasi-government and commercial organisations.
In contrast to a gain of GH1.07 billion in 2021, the depreciation of the local currency caused a net exchange loss of GH5.27 billion.
Bank of Ghana records 60.8 Billion loss for 2022
Impact of Loss on Operations
According to the Bank of Ghana, the Board of Directors and Management of the Bank have evaluated the policy solvency implications resulting from the Group’s negative net worth position and its ability to continue to generate enough income to cover its monetary policy operations and other operational costs.
The Directors believe that the Bank will carry on as a going concern because of a number of factors, including expectations of a better macroeconomic environment and policy moves expressly aimed at enhancing the bank’s balance sheet.
Steps taken to recover from the losses
The Bank of Ghana stated these actions in its annual report because they were believed to aid in their recovery. These comprise:
Profits should be kept in order to restore capital until equity has firmly returned to the positive range.
avoiding providing financial support for the Ghanaian government’s budget. The Bank of Ghana and the Ministry of Finance signed a Memorandum of Understanding on Zero Financing of the Budget on April 26, 2023.
Other actions taken in this regard include the immediate optimisation of the Bank of Ghana’s investment portfolio and operating cost mix to increase efficiency and profits, as well as the assessment of the potential need for government recapitalization support in the medium- to long-term.
In their opinion, “ongoing efforts to restore macroeconomic stability and debt sustainability, along with long-term efforts to build reserves, provide enough basis for continued operational policy efficiency for the foreseeable future.”
Effect of the Domestic Debt Exchange Programme on the Banking Sector and Interventions by the Bank of Ghana
By the settlement date of February 21, 2023, each of the 23 banks had agreed to the DDEP of the government. Bank of Ghana stress testing revealed that the DDEP posed higher risks to the solvency, liquidity, and profitability of the institutions.
As a result, in order to manage the potential effects of the debt exchange and maintain financial stability, the Bank announced several policy and regulatory reliefs for Banks that are fully engaged in the DDEP.
In order to prepare the commercial banks for anticipated shocks, the Bank rolled out these reliefs.
lowering the cash reserve requirement (CRR) for deposits held in foreign currency from thirteen percent (13%) to twelve percent (12%);
Reduction of the Capital Conservation Buffer from three percent (3%) to zero, effectively lowering the required Capital Adequacy Ratio (CAR) from thirteen percent (13%) to ten percent (10) in an effort to provide capital relief to banks following the implementation of the Debt Exchange.
According to the Bank of Ghana, it is fully prepared to support banks’ liquidity needs, and banks can access the Bank of Ghana’s Emergency Liquidity Assistance (ELA) Funds using the new bonds. Additionally, the Bank of Ghana has improved the methods it uses to monitor banks for compliance.
Banks are expected to report more often, such as by submitting their balance sheets on a daily basis and by submitting liquidity reports that include information about interbank market activity and financing costs.
Banks must now report on the performance of the new bonds in accordance with new reporting guidelines. If necessary, the improved monitoring mechanism will ensure prompt supervisory involvement.
The domestic debt exchange could have an adverse effect on the financial sector, according to the Bank of Ghana; thus, these reliefs are intended to reduce that impact as much as possible and ensure financial stability.
Programme for Gold Purchases by the Bank of Ghana
In order to increase its foreign reserves, the Bank of Ghana launched two programmes in June 2021: the Domestic Gold Purchase (DGP) programme and the Gold for Reserve Programme. The Bank accomplished this by utilising local money to pay certified domestic gold mining companies for refined gold. After being purified, the gold is transported to the Bank’s gold custodians offshore, where it becomes a part of the Bank’s reserves.
The Bank also uses aggregators to buy doré gold from nearby gold mines. Using market prices that have been adjusted for the gold content, which is expected to be 93%, the price of the dore gold is established.
The Bank of Ghana says that these measures are intended to reduce the possible effects of the domestic debt exchange on the banking sector and ensure financial stability.
