A whopping GH¢357,923,000 was spent by the Bank of Ghana (BoG) in its supervisory role in the year 2022 alone, GH¢280 million more than it spent in 2021. This means there was an increase of 409 per cent in the amount it expended for the year in review.
The consolidated and separate financial statements for the year ended 31 December 2022 as indicated in its 2022-Annual-Report released last week indicate that in 2021, the BoG spent GH¢77,489,000 on banking supervision.
The BoG explains that, out of the GH¢358 million, GH¢341 million was Resolution expenses, whilst GH¢67 million was used in 2021 for same same purpose.
The Bank of Ghana is responsible for the supervision and regulation of all the commercial banks and other financial institutions in the country.
This Banking Supervision Department falls directly under the office of the Second Deputy Governor responsible for the regulation and supervision of banks, development of finance institutions, savings and loans companies, finance houses, finance and leasing companies, leasing companies, mortgage companies and Representative Offices of foreign banks among others.
The Governor, Dr. Ernest Addison in his foreword stated that the government’s Domestic Debt Exchange Programme (DDEP) constituted significantly to the bank’s huge losses. The DDEP which is debt restructuring initiative adopted by the government to reposition its finances to meet the International Monetary Fund’s (IMF) conditionality for a bailout by replacing old high-yielding bonds with lower-yielding ones of longer maturities. This also became necessary after Ghana was locked out of the international financial market as a result of its high public debt that created economic crises.
He stated that “the central bank’s holdings of government debt were restructured. Non-marketable holdings of government of Ghana instruments including long-term stocks, a COVID-19 Bond and overdraft were subjected to a 50 per cent haircut. Bank of Ghana’s other claims (holdings of marketable instruments) were exchanged under similar terms as other financial institutions under the DDEP. This led to an impairment of GH¢48.40 billion in 2022. At the same time, the Bank incurred revaluation losses on its foreign assets and liabilities due to exchange rate depreciation. The impairments and revaluation losses led to a negative equity position of GH¢55.12 billion for 2022,”
Dr. Addison noted further that the credit downgrades by the various rating agencies on Ghana’s debt sustainability and implementation of fiscal policies contributed to Ghana’s inaccessibility to the international capital market which, together with low domestic revenue mobilisation, negatively impacted government’s ability to finance the budget.
“This prompted the Bank of Ghana to intervene to close the widened financing gap to avert domestic debt default and a full-blown economic crisis. Despite a healthy trade surplus, the balance of payments recorded a deficit of $3.64 billion on account of significant net outflows in the capital and financial account. This led to a drawdown of $3.46 billion in Gross International Reserves from $9.70 billion at end-December 2021, to $6.24 billion at end-December 2022, providing 2.7 months of import cover,” the Governor indicated.
Dr. Addison also cited the impact of the Covid-19 pandemic and the effect of the Russia invasion of Ukraine as part of the reasons for Ghana’s economic downturn.
“At the beginning of the year, expectations were that the COVID-19 pandemic-induced pent-up demand would be released to boost growth, but the onset of the Russia-Ukraine war introduced new uncertainties, aggravating the existing pandemic-related supply bottlenecks, and challenging the reduction in the Common Equity Tier 1 capital ratio to 5.5 per cent, from 6.5 per cent, and an increase in the maximum Tier 2 capital ratio to 3.0 per cent, from 2.0 per cent of total risk-weighted assets,” portions of his foreword contained.