Many banks may struggle due to BoG’s new Cash Reserve Ratio – Report

Titled ‘Thirsty Banks: Ghana’s 2023 Challenge with High Cash Reserve Ratios,’ the report highlights the prolonged maturity period of government bonds, set for 2031, as a significant concern for many banks.

The report reveals that a substantial portion of commercial banks’ total deposits, amounting to GH¢224 billion, has been allocated towards the acquisition of government bonds following the domestic debt exchange programme.

The report suggested that  “the Bank of Ghana should have considered the GH¢50.6 billion of bonds that were restructured before implementing the new, higher Cash Reserve Ratios; otherwise, it amounts to double accounting

The government bonds have a final maturity period in 2031, and many bank boards and management teams are concerned that this new directive could lead to a depletion of their resources soon as many banks may not be liquid enough to operate.

“The central question remains: How did the Bank of Ghana establish the new Cash Reserve Ratio without factoring in the restructured bonds held by commercial banks, primarily funded by depositors’ money

Besides Bawumia (2010) argued that the high level of reserve requirements was a legacy of high fiscal deficits so why the heavy dependence on monetary policy to solve a problem deeply rooted in fiscal recklessness?”

The report recommended that the Bank of Ghana should reconsider Cash Reserve Ratios (CRR) reductions and mitigate Non-Performing Loans (NPL) to restore resilience and economic stability in the banking sector.