DBG would help address market failures in Ghanaian credit markets – BoG

The Bank of Ghana has stated that the official commencement of full-scale operations of the newly launched Development Bank Ghana, DBG, would help address market failures in the Ghanaian credit markets.

Speaking at the launch of the bank on Tuesday, 14th June 2022, Governor of the Bank of Ghana, Dr. Ernest Addison, noted that experiences from countries show that DFIs can play key developmental roles when well-structured, insulated from political interferences in operational decisions and professionally managed along with sound principles that balance development objectives with market realities.

“Therefore, Bank of Ghana’s expectation is that DBG, together with the other DFIs would help businesses invest long-term, and promote economic growth and job creation. While recognizing the very crucial role of development banks, we need to also make it clear that their presence on the financial landscape is not designed to provide competition to the banks and SDIs, but rather, to work in a complementary fashion to ensure more longer-term finance to firms, an area that banks and SDIs are ordinarily unable to finance. Such a successful synergy between banks and DFIs will ensure greater depth in Ghana’s financial sector,” he said.

Dr. Ernest Addison also noted that the introduction of the Development Bank Ghana (DBG) into the Ghanaian banking landscape brings to the industry an establishment of modern market-oriented development finance institution, with the focus on providing medium to long-term financing to support key sectors of the economy.

Available data show that, less than 15 percent of loans granted by banks are for 5 years or longer, making investment in long gestation projects, especially for Small Mediumsized Enterprises (SMEs) unviable.

Also, the share of bank credit to the agriculture and manufacturing sectors hover around 4 percent and 8 percent, respectively.

This data shows that only a small share of lending goes to key sectors such as agriculture and manufacturing relative to their shares in GDP and employment.

This, therefore, necessitates the establishment of modern market-oriented development finance institutions, which will focus on providing medium to long-term financing to support key sectors of the economy.

Regulatory oversight

The Governor of the Bank of Ghana, Ernest Addison, highlighted the need for a strong regulatory and supervisory regime to underpin the operations of the DBG.

He reiterated that the Bank of Ghana will hold the DBG to the same regulatory and supervisory standards that it holds banks and SDIs, while at the same time maintaining oversight of the Participating Financial Institutions (PFIs) that DBG will be working with.

“Development Finance Institutions Act, 2020 (Act 1032). Act 1032 contains provisions on sound and prudent banking principles to guide effective operations of Development Finance Institutions, such as capital and reserve requirements, liquidity requirements, ownership and control, corporate governance, restrictions on lending and investments, and financial reporting, amongst others, to ensure they are operationally efficient,” he said.

Source: Citibusiness