BoG to sanction banks, other SDIs for misuse of incentives amidst COVID-19 pandemic

The Bank of Ghana has served notice that it will not fail to sanction banks and other Specialized Deposit Taking Institutions (SDIs) that fail to efficiently utilize its interventions to increase their liquidity to contain the impact of the coronavirus pandemic.

At the recently concluded MPC meeting, the central bank announced some major reviews to make it possible for banks and other SDIs to have enough liquidity to sustain their operations.

In addition to the reduction in the policy rate which is the rate at which commercial banks borrow from the Bank of Ghana (from 16% to 14.5%), banks and other Specialized Deposit Taking Institutions are to benefit from at least four other interventions from the regulator.

For instance, the Primary Reserve Requirement which is the minimum amount of cash required to operate a bank, has been reduced from 10 to 8 percent. This, the central bank says is to provide more liquidity to banks and other SDIs to support critical sectors of the economy.

Also, the Capital Conservation Buffer which is money that is required of banks in excess of the minimum capital requirement of 400 million cedis, has been slashed by fifty percent.

The buffer is now pegged at 1.5% from the initial 3%.

In addition, provisions for loans in the “Other Loans Especially Mentioned” category have been reduced from 10 percent to 5 percent to address difficulty in repayments due to slowdown in economic activity.

Meanwhile, loan repayments that are past due for Microfinance Institutions for up to 30 days shall be considered as “Current”.

While these measures are aimed at increasing liquidity of banks and other SDIs, the Bank of Ghana which wants all banks to seek approval for the declaration or payment of dividends for the 2019 year, has cautioned against using proceeds to pay dividends and other distributions to shareholders or purchase government of Ghana and Bank of Ghana securities.

The central bank says it will capitalize on weekly monitoring to ensure compliance.

As a result, it has announced that institutions that fail to comply will be sanctioned in accordance with provisions of the banks and specialized deposit taking institutions Act, 2016 (Act 930).