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A Professor at the University of Ghana Business School Godfred Bokpin has observed that the Bank of Ghana which is supposed to be the lender of a last resort is in need of a bailout program from a government that is running a program with the International Monetary Fund (IMF).
He explained that if banks need liquidity support, they fall on the central bank for that kind of assistance.
That is why all central banks across the world are structured in ways to have another balance sheet to support the banks.
The support that it gives to the banks and sometimes even the government puts severe strain on the BoG, he said.
Prof Bokpin was commenting on the losses that the BoG made the last year.
He said on the Ghana Tonight show on TV3 Monday, July 31 that “you should just understand that if the government is in difficulty, universal banks, whether local or regional or international, they will call on the central bank for liquidity support. Even central government and other quasi-government institutions.
“That is why the central bank of every country is structured in such a way that they will have the balance sheet to support or to be there. So under this circumstance, BoG will be limited in terms of how they can play their role adequately and sufficiently.
“There is a real risk so what it means is that if universal banks need help they will fall on the central bank but the central bank that they will fall on is also in need of help. So the summary of it is that the central bank which is supposed to be the bank of the last resort is in need of a bailout arrangement probably from a government that is already is in a bailout arrangement with the IMF.”
Due to the impairment of the Government of Ghana’s securities holdings of ¢48.45 billion, impairment of loans and advances granted to quasi-government and financial institutions amounting to ¢6.12 billion and the depreciation of the local currency resulting in net exchange loss of ¢5.27 billion, the Bank of Ghana recorded GHS60.6billion loss in 2022.
The loss was occasioned by the Government of Ghana Domestic Debt Exchange Programme.
According to the BoG, its Board of Directors and Management assessed the policy solvency implications arising out of the negative net worth position and the group’s ability to continue to generate enough income to cover its monetary policy operations and other operational costs.
In the view of the directors, the Central Bank will continue to operate on a going concern basis due to a variety of factors underpinned by expectations of an improved macroeconomic situation and policy actions specifically targeted at improving its balance sheet.
In its Annual Report, the Central Bank, outlined these measures which it believed would help it recovery.
These include: Retention of profits to help rebuild capital until equity firmly returns to positive region.
Refraining from monetary financing of the Government of Ghana’s budget. In this respect, action has already been taken with a Memorandum of Understanding on zero financing of the budget signed between the Bank of Ghana and the Ministry of Finance on 26 April, 2023;
Taking immediate steps to optimis the Bank of Ghana’s investment portfolio and operating cost mix to bolster efficiency and profits; and
Assessing the potential need for recapitalisation support by the government in the medium-to-long term
It furthered that the Board of Directors and Management are of the view that “continued efforts at restoring macroeconomic stability and debt sustainability in addition to long-term efforts at building reserves, provide enough basis for continued operational policy efficiency existence for the foreseeable future”.
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