The Bank of Ghana has reduced the Primary Reserve Requirement for savings and loans companies, finance house companies, and rural and community banks from 8 per cent to 6 per cent, as well as the 10 per cent primary reserve ratio for microfinance companies to 8 per cent.
This is part of measures to further provide economic relief to households and businesses, and to increase credit to key sectors of the economy amidst the threat posed by the COVID-19 pandemic.
The Primary Reserve Requirement, which is the minimum amount of cash required to operate a bank, has also been reduced to release liquidity to the Specialized Deposit Taking Institutions (SDI) sector to enable them to support their customers and ensure that the MSME sector and low-income households do not lose access to critical financial services in these uncertain times.
In a statement issued by the Bank of Ghana, Governor of the Central Bank, Dr. Ernest Addison, explained it was activating “Section 46A of the Bank of Ghana Act 2002 (Act 612) as amended, to provide liquidity support to savings and loans and finance house companies facing temporary liquidity challenges.”
“Eligibility for this facility and the terms and conditions upon which it will be granted will be based strictly on the provisions of section 46A and BOG’s updated liquidity support policy framework,” he added.
He said the COVID-19 pandemic had put a severe strain on the budget, manifesting in petroleum revenue shortfalls as a result of plunging crude oil prices, shortfalls in import duties, other tax revenues, and non-tax revenues, thus the need for the additional measures.
In addition to the reduction of the Primary Reserve Requirement, the regulator stated that, “It would also strengthen the capacity of the ARB Apex Bank to provide liquidity support for rural and community banks facing temporary liquidity challenges in line with a framework to be agreed.”
Microfinance companies who meet eligibility criteria agreed will also qualify for this support from ARB Apex Bank.
It will also extend the deadline for SDIs (MFIs and RCBs) to meet new capital requirements to December 2021.
The Bank will also provide guidance to banks and SDIs on the accounting treatment of loan restructuring, classifications, provisioning, and expected credit losses, and prudential assessments of credit risk and capital ratios.
Such guidance should help banks and SDIs make quicker decisions on customers’ requests for loan restructuring.
“BoG expects fair and equitable treatment of all customers of banks and SDIs at all times, and especially at this time. The Bank will strictly monitor business conduct rules for banks and SDIs in their dealings with customers, particularly in relation to transparency and fairness in revisions to loan terms and conditions, fee charges, and related issues,” it added.
Bank of Ghana keeps policy rate at 14.5 percent amid COVID-19
Meanwhile, the Monetary Policy Committee (MPC) of the Bank of Ghana, has maintained the policy rate at 14.5 percent.
This is the first time the rate has been kept unchanged after it was reduced by 150 basis points early this year.
BoG to sanction banks, other SDIs for misuse of incentives amidst COVID-19 pandemic
Earlier this year, the Bank of Ghana announced 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.
While these measures were 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.