Interview: Ernest Addison
How do you assess the soundness of Ghana’s banking sector, and how did it fare during the pandemic?
ERNEST ADDISON: The BoG started comprehensive banking sector reforms in 2017, three years prior to the onset of the Covid-19 pandemic. Some of the measures that we took included recapitalisation of banks; an overhaul of the supervisory and regulatory frameworks; and a clean-up of the financial sector that resulted in the closure of about 400 insolvent institutions, comprising nine banks, 23 savings and loans firms, 39 microcredit companies and 347 microfinancers.
By the end of 2019 the reforms were completed, and the financial sector was solvent, liquid and well capitalised, which adequately positioned banks to navigate and manage the risks emerging from the pandemic. The restrictions associated with the pandemic significantly slowed economic activity and adversely impacted government revenue. Without the adequate support of a recapitalised and liquid banking sector, access to additional financing would have been challenging. Due to the reform process that began in 2017, banks were ready to buy additional bonds in 2020 to support Ghana’s economic recovery.
In 2020 and 2021 banks operated efficiently with strong profitability, and improved liquidity and capital adequacy levels. Indeed, the capital adequacy ratio at the close of 2021 was 19.8%, notably above the regulatory minimum threshold of 11.5%.
What needs to be done to ensure stability and sustainability in the current global context?
ADDISON: Ghana was in a reasonably strong fiscal position, with a deficit of around 5% when Covid-19 emerged. However, the government needed to put interventions into place to protect households and businesses from the economic fallout, and in the process created a substantial budget deficit. The high fiscal deficit and rising debt levels have raised some policy concerns, but the 2022 budget aims to address this issue. Combined with a number of recently implemented revenue measures and expenditure cuts, the deficit is expected to decline to 7.4% of GDP in 2022 from the provisional outturn of 9.7% of GDP in 2021. An improved fiscal situation and reduced government borrowing is expected to ensure stability and sustainability in the medium term, and crowd in the private sector with an increase in credit extension. The commitment to provide some fiscal corrections with improved revenue and expenditure cuts is also crucial, given the current tightening of global financing conditions.
In what ways has the BoG worked to ensure the safety of consumers and the financial system, while facilitating innovation and competition?
ADDISON: The impact of technology on financial services has spurred a worldwide evolution of digital financial services provision. In Ghana we started with creating a real-time gross settlement system and later introduced a bank card with biometric features that enhanced financial inclusion.
Moreover, the BoG issued several guidelines that cover the use of mobile technology, as well as encouraged telecoms companies to partner with banks and financial technology (fintech) firms in the development of electronic financial products and services within the mobile money space. Uptake of these products has been significant, and the number of mobile money accounts has grown rapidly due to its convenience.
Of course, there are issues to be addressed, such as consumer protection, cyber-risk and fraud. The proper structures are being put in place to deal with these emerging threats. The BoG issued the Cyber and Information Security Directive in 2018, and established a fintech and innovation office in 2020.
A separate licence is issued for electronic money providers, some of which are fintechs. This strategy works well, as it grants flexibility by recognising different categories of fintech firms in the payments ecosystem.
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