MoF, BoG urged to swiftly activate GHS 15bn Financial Stability Fund; address solvency issues in local banks
In a bid to counteract mounting solvency challenges afflicting eight local banks, urgent calls have emerged for an expedited collaboration between the Ministry of Finance and the Bank of Ghana to set in motion the Ghana Financial Stability Fund (GSFS) worth GHS 15 billion.
The insightful research conducted by K B Frimpong and Dr. Richmond Atuahene advocates for a comprehensive approach under the General Framework of GSFS, encompassing tailor-made financial measures for each distressed bank, aimed at restoring solvency and bolstering capital.
The consortium of local banks, including notables such as Consolidated Bank Ghana, UMB, ADB, CalBank, Prudential Bank, Fidelity Bank, Omini BSIC, and GCB Bank, have collectively subscribed to the Domestic Debt Exchange Programme (DDEP).
As documented in their 2022 Audited Financial Statements, the DDEP has triggered total impairment losses amounting to ¢8.6 billion. Remarkably, the private domestic banks incurred impairment losses of ¢4.8 billion, while the publicly listed banks accounted for ¢3.8 billion in DDEP-related impairment losses.
The research emphasizes the imperative of activating the Ghana Financial Stability Fund, suggesting a pragmatic 5-year statutory lifespan, shared among local banks commensurate with their 2022 losses. An initial strategy proposes recapitalization by transferring capital losses at book value to the Bank of Ghana.
This proposal envisions the replacement of DDEP losses with Bank of Ghana-issued GFSF bonds, potentially yielding returns between 7% and 9% per annum, with maturities spanning two to five years. Annual repayments from business operations are envisaged, safeguarding the capital support provided by GFSF.
Economically, the operationalization of the Ghana Financial Stability Fund holds significant promise. A bolstered capital base would empower local banks to undertake high-impact ventures, fostering the growth of Small and Medium Scale Enterprises, pivotal in steering the nation past existing economic trials.
Moreover, the underpinning of a robust capital foundation serves as a shield, mitigating potential losses and lessening the susceptibility of bank failure. This resilience offers protection to bank creditors and in jurisdictions characterized by explicit or implicit public guarantees, the taxpayer base.
Beyond its protective role, the research posits that an ample capital cushion propels incentivized risk management. In essence, the report underscores the multifaceted benefits tied to a fortified financial landscape.
The operationalization of the Ghana Financial Stability Support Fund emerges as a pivotal vehicle, driving the necessary reinvigoration of beleaguered domestic banking institutions and facilitating the ardent rejuvenation of the private sector.
