- BoG Proposes 100% Liquidity Buffer as Banks Face Tighter Test of Short-Term Resilience
The Bank of Ghana is proposing a new liquidity regime that would require every bank to hold enough readily saleable assets to survive 30 days of severe financial stress without depending on emergency funding or expected support from other institutions.
Under an exposure draft of its Liquidity Coverage Ratio Directive, the central bank proposes a minimum LCR of 100%, meaning the value of a bank’s unencumbered high-quality liquid assets must at least equal its projected net cash outflows over the following 30 calendar days.
The directive is scheduled to take effect on September 1, 2027, with banks required to align their internal policies, systems and processes by August 31 of that year. Industry participants and members of the public have until November 30, 2026, to submit comments.
The proposal represents an important extension of Ghana’s post-clean-up banking reforms. Capital adequacy asks whether a bank can absorb losses. The LCR asks a different and more immediate question: if depositors withdraw funds, wholesale lenders refuse to renew financing and customers draw down committed credit lines, does the bank have enough assets that can be converted into cash without suffering unacceptable losses?
A bank may appear solvent on paper but still fail if it cannot meet obligations as they fall due. The Bank of Ghana traces the directive to lessons from the 2007 global financial crisis, when institutions that appeared adequately capitalised encountered severe liquidity difficulties.
“The role of banks in financial intermediation involves the maturity transformation of short-term deposits into long-term loans, which makes banks vulnerable to liquidity risk,” the central bank said.
That vulnerability is inherent in banking. Depositors may demand their funds at short notice, while loans made with those deposits may not mature for several years.
The directive attempts to ensure that this mismatch does not become a source of systemic instability.
The LCR would be calculated by dividing a bank’s stock of unencumbered high-quality liquid assets by its projected net cash outflows over a 30-day stress period.
A ratio of 100% means that a bank has GH¢1 in qualifying liquid assets for every GH¢1 of estimated net cash outflow under the regulatory stress scenario.
The Bank of Ghana’s model assumes a combination of institution-specific and market-wide shocks. These include withdrawals of retail deposits, reduced access to unsecured wholesale funding, disruption to secured short-term financing, increased collateral demands and the drawdown of unused credit facilities.
The stress scenario also assumes that a bank’s public credit rating could be downgraded by as many as three notches, potentially triggering additional collateral requirements and funding withdrawals.
Banks must treat these assumptions as the regulatory minimum. They will also be required to conduct internal stress tests reflecting their specific business models, funding structures and risk exposures.
Under normal conditions, banks must maintain an LCR of at least 100% on an ongoing basis. The central bank could impose a higher requirement on an individual institution where its liquidity profile presents greater risk.
The composition of eligible liquid assets will have important implications for how banks allocate their balance sheets.
Level 1 assets can be included without limit and without a regulatory haircut. They include physical cash, balances held with the Bank of Ghana above the mandatory cash reserve requirement, and marketable securities issued or guaranteed by the government or central bank.
This treatment gives government securities a powerful regulatory advantage.
Banks already hold substantial amounts of sovereign debt, partly because such securities offer interest income, can be used as collateral and attract favourable regulatory treatment. Classifying marketable Government of Ghana securities as Level 1 assets without a haircut could reinforce their role as the banking sector’s principal liquidity instrument.
For banks, holding government paper could simultaneously generate income and support compliance with the liquidity requirement.
For the government, the directive could deepen institutional demand for Treasury bills and bonds, supporting domestic borrowing and secondary-market activity.
For the private sector, however, the consequences are more complicated. If banks must expand their stock of government securities to satisfy the LCR, they may allocate less of their balance sheets to longer-term loans, particularly where such lending attracts higher credit risk and cannot be readily converted into cash.
The directive does not instruct banks to reduce credit. But its incentives could favour liquid sovereign assets over illiquid private-sector loans, particularly among institutions operating close to the 100% threshold.
The effect on lending rates and credit growth will depend on banks’ starting liquidity positions. Institutions that already hold substantial qualifying government securities may require limited adjustment. Banks with less liquid portfolios or heavier dependence on volatile deposits could face a more significant restructuring.
The directive permits some corporate securities, covered bonds, residential mortgage-backed securities and equities to count towards the liquidity buffer. However, strict eligibility rules and regulatory haircuts could limit their practical use in Ghana’s relatively shallow capital market.
Level 2 assets cannot exceed 40% of total high-quality liquid assets after haircuts. Within that category, Level 2B assets are capped at 15%.
Qualifying Level 2A assets would face a minimum haircut of 15%. Corporate debt securities and covered bonds would require a long-term credit rating of at least AA- and must trade in large, deep and active markets with a demonstrated record of liquidity during stressed conditions.
Level 2B corporate securities would face a 50% haircut and require ratings between A+ and BBB-. Eligible residential mortgage-backed securities would attract a 25% haircut.
Common equities would also face a 50% haircut. To qualify, they must be included in the GSE Composite Index and trade in a large, deep and active market, among other requirements.
In principle, allowing corporate debt and shares to qualify could support capital-market development. In practice, Ghana has a limited supply of rated corporate securities and relatively low trading liquidity across many listed equities.
This means banks may find it difficult to build a significant portion of their liquidity buffers from corporate instruments. The default option is likely to remain cash, excess central-bank balances and government securities.
The directive may nevertheless create an incentive for corporate issuers to secure credit ratings, improve disclosure and support secondary-market liquidity if inclusion in banks’ regulatory buffers expands the potential investor base.
One of the most consequential provisions is the treatment of deposits accessible through internet and mobile banking.
The Bank of Ghana proposes an additional four-percentage-point run-off rate for digitally enabled retail and micro, small and medium-sized enterprise deposits.
Stable retail deposits those fully insured and tied to established or transactional relationships would generally attract a 5% run-off assumption. Less stable deposits would attract 10%. The additional digital factor could therefore increase the assumed outflow associated with deposits that can be withdrawn rapidly through electronic channels.
The reasoning is clear: digital banking makes it easier for customers to transfer funds immediately, accelerating the speed at which a loss of confidence can become a liquidity event.
But the provision may have broader implications. Banks that have invested heavily in mobile and online services could face higher liquidity requirements simply because customers can access their money more efficiently.
Digital-first institutions and banks with large mobile-banking customer bases may therefore need to hold larger liquidity buffers than competitors whose depositors rely more heavily on physical branches.
The Bank of Ghana may need to clarify how the additional factor will interact with different deposit classifications and whether all digitally accessible deposits should receive identical treatment regardless of customer behaviour.
The directive differentiates sharply among funding sources.
Stable insured retail deposits would receive a 5% run-off rate, while less stable retail deposits, including uninsured balances, deposits from high-net-worth individuals, foreign-currency deposits and funds that can be withdrawn quickly, would be assigned 10%.
Operational deposits linked to clearing, custody and cash-management services would generally attract a 25% run-off assumption, subject to strict qualification conditions.
Non-operational deposits from large non-financial companies, sovereign entities, central banks and public-sector institutions would receive a 40% factor, while funding from certain other legal entities could be treated as experiencing a 100% outflow.
These distinctions will make the stability and concentration of deposits central to balance-sheet management.
A bank funded by millions of salaried retail customers may produce a stronger LCR than one dependent on a small number of large corporate depositors, even if their total deposits are identical.
The new framework could consequently intensify competition for salary accounts, transactional customers and insured retail deposits. Banks may also rethink aggressive pricing strategies used to attract large short-term corporate funds if those deposits carry a high assumed run-off rate.
The directive limits the extent to which banks can rely on anticipated cash inflows.
Expected inflows may offset no more than 75% of projected cash outflows. Banks must therefore maintain high-quality liquid assets equal to at least 25% of gross outflows, regardless of expected loan repayments.
Only contractual inflows from fully performing exposures can be recognised. For retail and MSME loans, banks can generally recognise a net inflow equivalent to 50% of contractual payments due within 30 days, reflecting an assumption that part of those receipts will be recycled into new lending.
Banks would not be permitted to assume that committed credit or liquidity facilities provided to them by other institutions will be available during the stress period. Such facilities would receive a zero inflow rate.
This makes the test deliberately conservative: liquidity must be held before a crisis, rather than assumed to materialise during one.
Banks would conduct LCR stress scenarios at least weekly and submit monthly returns to the Bank of Ghana after the pilot period.
If a bank’s ratio falls or is expected to fall below 100%, it must notify the central bank immediately, explain the cause, identify measures being taken and state how long the shortfall is expected to last.
During market stress, the Bank of Ghana could increase reporting frequency from monthly to weekly or daily.
Banks must also disclose their LCR in annual audited financial statements and quarterly unaudited accounts. These disclosures would cover the composition of liquid assets, funding concentration, currency mismatches, derivative exposures and the principal drivers of changes in the ratio.
The publication requirement is significant. It could provide depositors, investors and analysts with a clearer picture of each bank’s ability to meet short-term obligations.
It could also create reputational risk. A bank reporting a materially weaker ratio than its peers may attract questions even when it remains above the regulatory minimum.
The proposed LCR would strengthen the banking system’s ability to withstand sudden withdrawals and funding-market disruptions. It would also give the central bank a standardised instrument for identifying liquidity weaknesses before they become solvency crises.
But stronger liquidity protection is not costless.
Liquid assets typically generate lower returns than private-sector loans. Banks required to increase their buffers may experience narrower interest margins or seek to recover the cost through loan pricing and fees. The preferential treatment of government securities may also reinforce the financial relationship between banks and the sovereign.
The central policy question is therefore not whether banks should maintain adequate liquidity, but how the rule can be calibrated without unduly constraining credit to productive sectors.
The one-year pilot period will be critical. It should reveal which institutions face the largest shortfalls, how the digital-deposit surcharge affects different business models and whether the local market supplies enough qualifying assets beyond government securities.
The directive is ultimately intended to make Ghanaian banks capable of surviving a liquidity shock without transmitting distress to depositors, the payments system and the wider economy.
Its success will depend not only on achieving a reported ratio of 100% but also on whether the assets counted in that ratio can actually be sold for cash when confidence is falling and every institution is seeking liquidity at the same time.
