The International Monetary Fund's (IMF) "2023 Article IV Consultation" Staff Report reveals that the Bank of Ghana has given approval to the recapitalization proposals submitted by undercapitalized banks.

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These banks are mandated to inject a minimum of one-third of the required capital annually over the next three years, concluding in 2025, to achieve a 13.0% Capital Adequacy Ratio without regulatory forbearance.

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Currently, a majority of banks have already submitted their recapitalization plans.

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“The BoG [Bank of Ghana] will initiate corrective measures by end-March 2024 against banks that fail to uphold these recapitalisation requirements (new structural benchmark). In the short term, the BoG [Bank of Ghana] stands ready to deploy contingency measures if needed to ensure financial sector stability.

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The Bretton Wood said this move will ensure that banks’ capital needs have been estimated based on reasonable forward-looking assessments of losses from government debt restructuring and increases in Non-Performing Loans.

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NIB’s insolvency plan to be addressed by end-2024

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“The authorities [government, BoG] also aim to address the legacy issues of the financial sector and strengthen the governance of state-owned banks. The remaining tasks from the earlier sector cleanup include addressing the challenges of NIB and long-standing undercapitalization of several special deposit taking institutions (SDIs)”.

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The report states that both the Bank of Ghana (BoG) and the Ministry of Finance will collaboratively formulate and initiate, by the end of March 2024, a credible, comprehensive, and cost-effective plan aimed at addressing the insolvency challenges of the National Investment Bank (NIB) by the end of 2024.

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In order to mitigate the accrual of additional risks until the completion of this plan, the Staff Report of the Fund indicates that the BoG is dedicated to strengthening the monitoring of NIB and imposing appropriate constraints on critical risk areas.

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The report emphasizes that the systematic resolution of other Specialized Deposit Taking Institutions and fund management firms, along with the settlement of outstanding payouts to clients of Securities and Exchange Commission (SEC)-licensed fund management companies, will be concluded by the conclusion of 2024. The government's payouts will be executed through a burden-sharing approach to minimize fiscal costs.

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Furthermore, the authorities are committed to developing a strategy ensuring that state-owned banks adopt sound governance principles, effective business models, and robust risk management systems to secure their long-term viability and facilitate an organized government exit.

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