Joe Jackson lauds BoG’s cash reserve ratio adjustment as strategic intervention to boost private sector lending

Joe Jackson lauds BoG’s cash reserve ratio adjustment as strategic intervention to boost private sector lending

Chief Executive Officer (CEO) of Dalex Finance, Joe Jackson, has praised the BoG for the adjustment made in the cash reserve ratio of banks in the country.

Making the assertion during a panel discussion at the inaugural Quarterly Economic Roundtable event organized by the Ministry of Finance and the University of Ghana on Tuesday, Mr Jackson, averred the increase in the cash reserve ratio requirement of banks by the BoG was a good policy in response to the slow and reduced lending by banks to the country’s private sector.

“What the reserve ratio adjustment did was to say to the banks that if you don’t lend, I [BoG] will penalize you, and that was why the adjustment was such an important intervention. We are still waiting to see its effect because it just took effect last month,” he quipped.

Reports indicate that the recalibration of the Cash Reserve Ratio (CRR) of banks based on their Loan-Deposit (L/D) ratio by the Central Bank could stimulate some GHS 50 billion in new lending to the private sector.

The new policy by the BoG which took effect in April this year, mandates banks to adhere to the following cash reserve ratios based on their respective loan-to-deposit ratios:

• Banks with a loan-to-deposit ratio exceeding 55% will be subjected to a currency Cash Reserve Ratio of 15%.
• For banks maintaining loan-to-deposit ratios ranging between 40% and 55%, a Cash Reserve Ratio of 20% will be enforced.
• Banks with loan-to-deposit ratios falling below 40% will face a more stringent requirement, with a Cash Reserve Ratio set at 25%.

The new CRR requirements by the BoG seek to galvanize the loan book expansion of banks amid a backdrop of limited policy support for broader economic growth.

The post-DDEP banking sector has been characterized by robust deposit growth with the updated banking sector data showing a 25.5% y/y growth in deposits in Feb-2024 to GHS 224.4 bn (+GHS 45.6 billion).

However, total loans and advances have been sluggish, growing by a paltry 1.77% y/y to GHS 74.8 billion (+GHS1.3 billion).

In Nominal terms, private sector credit grew by 5% (+GHS 3.3 bn) to GHS 68.8bn but contracted by 14.7% to GHS 331.1m in real terms.

This was a result of cash-rich banks adopting a conservative credit stance and favouring the high-yielding T-bill and OMO Bill investments to credit creation as a strategy to preserve capital amidst declining asset quality in an uncertain operating environment.