BoG’s support for banks may reduce in 2021 – Banking Consultant

The amount of credit from the Bank of Ghana to the 23 universal banks in the country should reduce this year when compared to credit advanced to the banks in 2020.

The amount of money advanced to banks from the Central bank throughout the period when the Coronavirus was at its height was about GHS2.6 billion as of October 2020.

This represents an increase of about 200% compared with the amount banks took as credit from the Bank of Ghana as of October 2019.

The jump in the amount of credit formed part of measures including the reduction in the policy rate by 150 basis points to 14.5 %, the reduction in the primary reserve requirements to 8% from 10% to increase liquidity in the banking system, along with the 6-month moratorium on principal payments on loans among others, taken by the Central Bank to ensure sustained confidence in the banking sector.

Commenting on the increase in the amount of credit advanced, Banking consultant Nana Otuo Acheampong, said the development was necessary to ensure sustained liquidity in the face of the challenges presented by the pandemic.

“The banks had the option of borrowing from other banks but didn’t exercise that option, partly because there were fears of possible defaults in repayment because of the impact of the pandemic on businesses last year. The lender of last resort then gets approached by some of the banks for support, and it delivers without fail to ensure liquidity.”

Nana Otuo Acheampong further asserted that credit from the lender of last resort should be subdued this year in comparison to what was given out last year due to the seeming improvement in the handling of the virus in the country, despite the rising numbers.

“But for the couple of weeks of ban that was imposed in 2020 and have now been imposed this year, the economy was bouncing back. With respect to the credit advanced, those were temporary measures put in place by the BoG, and hopefully, it would have done the trick, and there would not be too much dependence on liquidity support.”

Source:Citibusinessnews