BoG monitoring liquidity pressures on banks after debt exchange programme
Ghana’s financial sector is facing significant headwinds from the ongoing economic challenges that have emerged in the country, leading to a spillover effect on banks. The Bank of Ghana (BoG) has reiterated that it is closely monitoring some developments among banks due to the Domestic Debt Exchange program, which is increasing liquidity pressures.
The Domestic Debt Exchange program was introduced by the government to help reduce its high debt levels and interest payments. The program involves the exchange of short-term high-interest treasury bills for longer-term lower-interest bonds, which has led to a liquidity squeeze among banks.
The liquidity squeeze has increased pressure on the balance sheets of banks and consequently averted the probability of insolvency. The BoG has stated that it is closely monitoring these developments to prevent any adverse effects on the financial sector.
Speaking on behalf of the Governor at the Induction Ceremony of the Ghana Association of Restructuring and Insolvency Advisors, Elliot Amoako, Head of the Resolution Office, said that the macro-prudential risk assessment of the banking sector indicates the emergence of spill-over effects from the current economic challenges on the banking industry.
The spill-over effects have increased the pressures on the solvency and liquidity of banks. Mr. Amoako appealed to insolvency practitioners to support the regulator in making the financial sector stable.
The BoG has already put in place regulatory relief measures to moderate the potential impact of the Domestic Debt Exchange program and ensure stability in the sector. However, Mr. Amoako said that close monitoring is required to avert insolvency in some institutions.
The Association of Restructuring and Insolvency Advisors is made up of professionals with an interest in restructuring and insolvency formed in 2006 to play a leadership role in corporate restructuring, business recovery, and insolvency in Ghana.
The BoG’s macro-prudential risk assessment of the banking sector indicates that pressures on solvency and liquidity of banks have increased, and the regulator is closely monitoring these developments. The Bank is working on regulatory relief measures to moderate the potential impact of the Domestic Debt Exchange program, which is expected to provide much-needed support to banks.
The BoG’s intervention is timely, given that the government’s expansionary spending plans will result in a rising public debt-to-Gross Domestic Product (GDP) ratio. The public debt-to-GDP ratio is expected to continue on an upward trajectory until 2028, after which it will start to moderate. This underscores the importance of the BoG’s regulatory relief measures to ensure stability in the sector.
The Domestic Debt Exchange program is causing liquidity pressures on the banking sector, which is raising concerns about the solvency of banks. The BoG is closely monitoring these developments and has put in place regulatory relief measures to ensure stability in the sector. It is essential that the BoG continues to monitor the situation closely and take appropriate measures to mitigate any adverse effects on the financial sector. The Association of Restructuring and Insolvency Advisors has a critical role to play in supporting the BoG in making the financial sector stable.
